The Political Economist

A bit of humor today in the graph of the week section. A friend of mine living in Canada has sent me this short "paper" entitled: "Japan's Phillips Curve Looks Like Japan", by Gregor Smith from Queen's Economic Department. It turns out that it really does look like Japan: How funny is that? To be fair he had to reverse the unemployment rate to get the mirror image of the initial result (which was a standard downward sloping Phillips curve - in the shape of Japan of course). Here's a map of Japan (included in the paper) to verify the comparison:

I wrote a new text for the Centre for Policy Studies , commenting Britain's credit rating downgrade. For all my other CPS writings see here .  On Friday night the UK was given, for the first time in history, a downgrade of its credit rating, from AAA to AA1, announced by one of the rating agency oligopolists - Moody's . Here is their explanation: "1. The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade; 2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament; 3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016." Two things should be taken into consideration regarding the r...

In light of today's Italian parliamentary elections , here is a  good recent paper by three Italian economists on the effects of media bias on electoral outcomes, concerning in particular the electoral results of former PM Berlusconi. Here is from their VoxEU column : "...all Italian voters know that Berlusconi owns the major commercial TV network since the early eighties. We exploit exogenous variation in viewers' exposure to Berlusconi bias using idiosyncratic deadlines to switch to digital TV from 2008 to 2012. At the deadlines, old analogue signals were switched off and only digital signals kept on airing. ... Most digital channels are aired by new media companies, which have no ties to Berlusconi. After switching to digital TV, many Italian households changed their viewing habits. From June 2008 to June 2011, the share of viewers of Berlusconi-controlled channels dropped from 84% to 71%. ... We explore the causal effect of the shock to bias exposure on voting ...

One of my friends pointed out to me a very interesting new paper examining the technical competence of economic policy- and decision-makers. A brief version is available on VoxEU , while the whole paper is here .  They are concerned with the issue of should policymakers be experts in their fields (should we have more technocrats ?). An issue particularly interesting in times of crises (they find a 22% higher probability that a central bank president would be a PhD economist appointed during a crisis - this was realized in ECB; Mario Draghi, who holds a PhD in economics from MIT replaced Trichet who has a political science degree).  Here is what caught my attention: (click on to enlarge) Source: Hallerberg, Wehner (2013) :  The Technical Competence of Economic Policy-Makers in Developed Democracies, Figure 1, pg. 14. This pattern of degrees shows some very strange findings for certain countries. For example, it would seem that in countries like Chile, Poland o...

Continuing with the discussions on monetary policy , I ran across an article at VoxEU by Ester Faia, Wolfgang Lechthaler and Christian Merkl  on the ineffectiveness of monetary policy in heterogeneous European labour markets ( here's the paper - it's a DSGE model). In particular they look at the link between large hiring costs in-between Eurozone economies (which are a proxy for unreformed labour markets) and policy trade-offs for central banks. The argument is that within a monetary union with heterogeneous labour markets (as evident on the graph below), monetary policy can be completely ineffective unless some sort of harmonization of firing costs across countries is achieved. This means that unless European labour markets all don't undergo a reform similar to the German Agenda 2003 , it isn't likely that ECB's monetary easing will be very effective in decreasing unemployment.  I'm not entirely sure whether their a...