Over at Equitable Growth: European Economic Integration: The Rebalancing Challenge in Europe: Monday Focus
Over at Equitable Growth: A Question I Want to Ask Richard Koo: Daily Focus

The Rebalancing Challenge in Europe: Perspectives for CESEE

Conference on European Economic Integration (CEEI)

  • Nowotny: calls attention to the relative success of manufacturing- and cross-border heavy economies--the Visegrad Group--in doing relatively well, with a stress on "relatively"...

  • Chakrabarti: Remarkable divergence east of Germany: Poland vs. Croatia. Structural reform especially necessary in post-transition economies. Overhangs: non-performing loans, distressed overleveraged corporations, investment shortage, mobilizing public debt capacity.

  • DeLong:

  • Kuodis, Svensson, Nowotny, Singer, Fabris, Daianu: "For more than two decades economies lived in the dream of the Great Moderation..." http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/CEEI/2014/svensson-ppp/Svensson%20panel_ppp.pdf Lars Svensson goes there: "Monetary policies best contribution to financial stability? --Inflation on target and resource utilization at long-run sustainable rate. --Suppose 2% inflation and 3% real growth, nominal growth 5% of asset prices and disposable income, doubling every 14 years. --For any given nominal debt, LTV and DTI ratios halved in 14 years. Pretty good for repair of balance sheets..."

  • In T'Veld, Schuberth, Pribil, Koo: Why do I think that Richard Koo would have more influence if he would write papers with titles like: "Financial Overleverage, Balance Sheets, and the Steepening of the LM Curve"? http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/CEEI/2014/koo_ppp/Koo_PPP.pdf
    For Koo: The conventional arguments of those whom Martin Wolf calls the Austerians runs more-or-less like this: someday QE will succeed in shifting beliefs from an expectation of permanent depression to an expectation of rapid normalization. Savers then look at their holdings of maturing government bonds and roll them over only if they are offered a normal and positive real interest rate. And then the price level will rise very rapidly to a value at which, as John Maynard Keynes said of France in the 1920s, real future government primary surpluses discounted at the normal real interest rate are equal to the nominal debt divided by the price level. In your framework, that would be a sudden very large shift in private-sector net savings behavior from surplus to deficit. And in your framework such a shift is almost inconceivable. But in their framework such a shift seems almost inevitable. Can you tell me why judgments of likelihood of a near-hyperinflationary collapse upon normalization are so different in the two frameworks? I know that 25 years of history strongly suggest that they are wrong, but why?

Koo slides:

Koo PPP pdf

Koo PPP pdf

Koo PPP pdf