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In this article, I evaluate the challenges related to the European Commission's output gap method of calculating the structural budgetary position, and assess its bottom-up alternatives in the EU's fiscal framework using the Finnish data for the years 1984–2014. The results reinforce the impression of the limited capacity of the output gap method to predict cyclical changes in real time and suggest that using the output gap method to steer fiscal policy tends to lead to a procyclical policy (stimulus in upturns and austerity in downturns). The bottom-up assessment methods that are based on discretionary fiscal policy measures appear to work better, and using them to steer fiscal policy could make the policy more effective. [ABSTRACT FROM AUTHOR]

And accordingly, when the second lockdown (5 November to 2 December 2020) and the third lockdown (5 January - to be phased out on 12 April, 17 May and 21 June 2021) were declared, even though the economy proved to be increasingly resilient, fiscal policy was still asked to deal with the return of the virus and the mutated, highly infectious strain B117 of SARS-CoV-2.It is then a question for the Bank of England to decide whether that quantum of risk and resource transfers undertaken by fiscal policy require any changes in the stance of monetary and financial policies (Tucker, [50]). The new plan is required to satisfy ideals of social justice much higher than we have been attaining without it. i I J. M. Keynes, How to Pay for the War (1940) i Towards better fiscal policies Modern representative democracy is faced with the Whiggish directive to improve living standards with the main lever in possession of any government being its fiscal policy. Lazarowicz ([35]) also highlights the interactions between fiscal policy and monetary policy within the context of a simple model of monetary and fiscal policy coordination and suggests that optimal fiscal policy not only must flex in the changing economic conditions, but also condition on monetary policy. That fiscal policy framework set two clear objectives for fiscal policy: to achieve sustainable public financess and to support the effectiveness of monetary policy. [Extracted from the article]

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We investigate economic resilience of UK regions before, during and after the 2007/8 global financial crisis. We date business cycle turning points in real output, employment and productivity to assess the resilience dimensions of resistance, recovery and renewal and rank the economic resilience of regions in a resilience scorecard. Our empirical results reveal that the business cycle in productivity has not returned to its pre-recession peak level for Yorkshire and the Humber and the employment level has not recovered in Scotland. The resilience scorecard ranks the South East as the most resilient region with Northern Ireland the least resilient. [ABSTRACT FROM AUTHOR]

Executive Summary: The UK economy faces more than usually uncertain times. Outside the European Union, and in an increasingly challenging global environment characterised by ageing populations, climate change, populism, protectionism, and more, the country needs to chart a new course. This may well require policymakers to consider unconventional approaches to monetary and fiscal policy and, at the very least argues for important modifications of the current policy regime, including the autonomous mandate of the Bank of England. At some point, there will be a major slowdown in economic activity. Yet the Bank of England has very little leeway to respond by cutting interest rates, and it has already adopted an armoury of unorthodox tools that may be decreasing in effectiveness. More radical monetary approaches would be likely to be politically controversial; and are not without risks. In these circumstances it would be a mistake to rely solely, or even largely, on monetary policy to maintain demand. It would be better to conduct monetary and fiscal policy in tandem, and for discretionary fiscal policy to be required to play a much more active role in demand management than hitherto. This would, for example, imply major extension of the automatic stabilisers and efforts better to calibrate discretionary initiatives with the business cycle. But given the long-term pressures on the public finances, more fundamental changes in the structure of spending and taxation are needed, along with a redrawing of fiscal rules and targets, under independent budgetary oversight. The current, historically low, share in GDP of public spending is itself unsustainable in light of the demand for services of an ageing population; plans should be made to raise it closer to the European average. In the most extreme circumstances it might become necessary to waive the fiscal rules entirely and for the Bank of England directly to underwrite fiscal stimulus in order to sustain aggregate demand. It would be wise for the authorities to consider the options in detail now, while the environment is still relatively stable. [ABSTRACT FROM AUTHOR]

We examine the start date of the Great Recession across OECD countries. The Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in most other OECD countries it identifies the start after that identified by two successive falls in quarterly GDP. We establish our own rule for predicting recession using the fear of unemployment series to predict recession. We show a 10-point rise in the series compared to its previous 12 month low predicted the onset of the Great Recession in both the United States and Europe. [ABSTRACT FROM AUTHOR]

Emissions are directly linked to economic output and consequently subject to business cycle fluctuations. The present study analyses the interactions between climate policies and business cycles through the lens of a New Keynesian dynamic stochastic general equilibrium model. We compare a static cap-and-trade policy with a dynamically adjusting policy in terms of macroeconomic stabilisation, welfare and emissions price dynamics. The results of the quantitative evaluation suggest that a constant policy leads to lower aggregate volatility but is associated with larger welfare costs. In contrast, under the dynamic policy emissions prices and labour markets display less variations. [ABSTRACT FROM AUTHOR]

Although GDP grew in the first quarter by 3.1 per cent (at an annualised rate), repeating the relatively strong growth seen in the first three quarters of 2018, our expectation continues to be that output growth in the US economy will slow. With the Federal Reserve having been criticised by President Trump for raising rates and not letting the economy "run hot" at a time when inflation has been below the 2 per cent target, the President has criticised the Federal Reserve for not reducing interest rates further and faster. With a downturn in economic growth and inflation well below its target, the European Central Bank (ECB) responded in September by reducing the deposit rate by 0.1 percentage points to -0.5 per cent and renewing quantitative easing. The Monetary Policy Committee (Copom) believes that inflation expectations are well-anchored and that underlying inflation, including the components most sensitive to the business cycle and monetary policy, is running at reasonable levels. [Extracted from the article]

Highlights from the article: After a period of relatively strong GDP growth in 2017 and early 2018, global output growth has slowed. While many emerging economies are continuing to show steady economic growth, slowing GDP growth in three economic areas that comprise around half of global GDP (USA, China and the Euro Area) is likely to have a longer reach through trade effects. The mix of slightly stronger GDP growth than anticipated in the first quarter for advanced economies and signs of weaker GDP growth in the second quarter have led us to mark down our global GDP growth forecast for 2019 from 3.4 per cent to 3¼ per cent. The indirect exposure to US tariffs through global value chains could be greater than the impact from directly affected automobile exports for many European economies and especially for economies like Hungary or Slovakia where, in addition to high indirect exposure, the automobile sector is large relative to the size of the economy.

Highlights from the article: Monetary policy has some room to respond if inflation expectations and labour costs are anchored (and also thought to be anchored by policymakers) at a level that is consistent with the medium-term 2 per cent inflation target. A number of EU measures, for instance regarding financial services, are explicitly temporary and serve the purpose of allowing EU importers to switch from UK to EU suppliers. This option would not be available in a scenario where wage growth picks up and policymakers believed that inflation expectations would be dislodged if monetary policy did not actively and immediately offset an EU exit-related spike in inflation. An active monetary policy response to inflation, may limit inflation volatility but will also imply a much larger short-run fall in output, as a consequence.