Some New Insights on Inequality

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This week, international leaders from business and politics meet for the 47th World Economic Forum in Davos, Switzerland, to discuss pressing global issues (and improve their networks). In the face of inequality, one of the topics that is on top of this year’s agenda is to design new economic systems that ensure more equally distributed and inclusive economic growth. The organisers of the forum have recognised the disrupting role that the Fourth Industrial Revolution will play in these developments. The importance of issues of inequality has been emphasised by new findings and data that have been published in recent weeks, although situations differ substantially between countries and available data is still highly imperfect. Recent political developments might spell trouble for any collective international efforts to curb inequality. Continue reading “Some New Insights on Inequality”

Inflation, Growth and Monetary Policy – A Case Study of the United States

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Central bank target rates (%); data sources: FRED, ECB, Bank of England

Ever since the Great Recession, central bank rates in all major developed economies have been on historic lows. The European Central Bank (ECB), whose official sole mandate is to maintain price stability, has lowered its rate even further to 0.00 percent in March in response to consistently low inflation rates across the Euro area, and the Bank of England (BoE), whose mandate combines maintaining price stability and supporting economic growth, has lowered its rate down to 0.25 percent in August, in response to the Brexit decision. Meanwhile, the Federal Reserve of the United States (Fed), whose objectives are maximum employment and stable prices, has increased its target rate to 0.375 percent in December for the first time in several years. However, at its most recent meeting in mid-September , the Fed has been reluctant to further increase its target rate due to an ongoing slow economic recovery and inflation rates below its 2-percent target (Inflation measures the yearly increase in consumption good prices). Consistently low inflation rates despite lengthy phases of expansionary monetary policy, even in countries that appear to be back on economic growth paths, are a concern for central bankers around the globe and puzzle many observers. In this article, I take a look at the case of the United States (simply because it provides by far the best data), derive the main two possible causes and argue in favour of a rate hike in combination with additional monetary and fiscal measures. Continue reading “Inflation, Growth and Monetary Policy – A Case Study of the United States”

Economic Growth – Is the Party Over?

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World gdp at market prices in trillion constant 2010 US$; data source: World Bank

Economic growth is the single most important indicator that is used in order to compare the developments of economic prosperity of different economies and in order to measure phases of economic boom or recession. In this context, the figure that one can normally read about in the news and that is most often presented in general, is the growth rate of real gross domestic product (gdp). It tries to measure the growth rate (usually on an annual basis) of the value of all final goods produced within a country, adjusted for price changes. Gdp growth is often praised as a solution to many economic and social issues like poverty, high levels of indebtedness and economic inequality. The fact that a recession is defined as at least two quarters in a row with negative real gdp growth and its definition hence relies solely on economic growth as an indicator underlines the important role that real gdp growth plays in the economic view of the world. In recent years, the slow and still ongoing recovery after the Great Recession in the developed world has spurred new discussions about long-term economic growth developments, the requirements for economic growth and its merits. But before diving into the topic of slowing economic growth rates, consider the possibility that the so-often-utilised real gdp growth is not a very reasonable indicator to measure developments in economic prosperity. Continue reading “Economic Growth – Is the Party Over?”