Posts tagged 'NAIRU'

Why the Eurozone output gap could be a chasm

A few years ago Capital Economics made a strong case that the UK output gap — or how much slack there is in the economy — was being grossly under estimated by one and all. Their note prompted a spirited debate about the importance of output gaps in ascertaining correct monetary and fiscal policy.

Well, a similar case is now being made for the Eurozone by David Mackie and team at JP Morgan.

It’s an absolutely fascinating note, which argues above all that the ECB and the European Commission are wrong to think that the Euro area output gap is modest or that the growing unemployment rate is structural, given there is so little wage pressure in the region. Read more

Greenspan’s dilemma revived

Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.

But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Read more

The changing nature of inflation

The IMF’s latest World Economic Outlook has made some very interesting observations about the changing nature and growing stability of inflation.

Most notable is the following chart:

 Read more