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Automatic Stabilizers as Publicly-Oriented Predictors
In the economic process, the volatility of macroeconomic variables is not the true problem, but its unpredictability. In fact, this conclusion is equally valid for microeconomics. For example, under the EMH – Efficient Market Hypothesis – a predictability, as low as it may be, provides to the (qualified) observer some opportunities to be exploited above the market average returns, without extra risks to assume or extra costs to pay. The volatility has the two “classical” causes: the invisible hand, that is, the aggregate behaviour of the economic actors in the market, and the visible hand, that is, the state (usually normative) intervention in that market (when the state behaves as economic actor, it is also part of the invisible hand). Consequently, as can easily be noticed, the majority of economic (quantitative) models of decisions are aimed at predicting the future market, usually in terms of price. The real and therefore useful predictions must be related to predictors, which are, conceptually, economic or institutional variables with a much lower volatility or, at the very limit, with no volatility, at least in short and medium term. For example, the risk of bonds is null or, at least, constant even if it is different from zero. Our topic in this article is the well-known predictors in the economy, namely the automatic stabilizers. More
When the Appetite for Entertainment Scores Goals
Romania is attacking on the left side of the pitch, Răzvan Marin and Florin Tănase have a short exchange of passes in the corner of the penalty box, which opens some wide spaces for the latter to penetrate and make a decisive pass for Eric Bicfalvi, who, at 32, scores his first goal for the representative team of Romania, at his eighth cap. It was the 81st minute of the UEFA Nations League match on Windsor Park in Belfast. Around the same time that Răzvan, Florin and Eric had their passing game combinations, allowing the latter to find the back of the net, Sorin, Florin and Cătălin were finding the back of the plate. They were, obviously, not on any football pitch, but they were starring, as chefs and judges, in a well-known cooking show in Romania. More
The Pandemic Recession and Government Stimulus
Never before has the global economy been deliberately put into an induced coma. Owing to the coronavirus pandemic, businesses are struggling to break even and unemployment is soaring high. The sudden shock called for a speedy and massive policy response. To support vulnerable businesses and increase economic output, governments have been forced to embark on an expansionary fiscal policy. This policy involves tax reductions and an increase in government spending as a tool to influence the level of aggregate demand and national output as well as to promote macroeconomic objectives such as full employment, economic growth, and price level stability (low inflation). But is rising public debt a cause for concern? New economic thinking suggests perhaps not, at least for now. More
The Effect of Brexit on Romanian Foreign Trade
Over the last few years, the United Kingdom has been Romania’s most important foreign trade partner with whom we have managed to record a significant trade surplus. The island economy’s exit from the community bloc and the establishment of barriers in the trading of goods, even non-tariff barriers (the granting of zero customs duties was finally recorded during negotiations), will affect the trade balance of our country. More
Romanian National Culture Day and the New Normal
Do not worry: this is going to be short and… bitter. Bitter is good. In drinks, according to personal taste, and in real life, because it prompts reflection.Therefore, here is what I want to reflect upon today – once again on the National Culture Day of us, Romanians, that is January 15, and how this day connects to the new normal, that is life after the COVID-19 pandemic. Obviously, the connection is mostly in my mind, but considering my long experience in higher education, mainly in soft skills development, my constant discussions with master students from various universities on and beyond the syllabus, as well as my interactions with a large diversity of professional and personal contacts from all over the world, I might be justified in my attempt. More
Will Lithuania Reclaim Its Own Business Tax Model?
The recent parliamentary elections in Lithuania have sparked hope that after 18 years the country will revisit its decision to give up a zero-tax rate on reinvested profits, a regime that gave an immense impetus to the country’s investment and economic growth while in effect from 1997 until 2002. Lithuania’s new coalition government comprised of the conservative Homeland Union-Christian Democrats, the Freedom Party, and the Lithuanian Liberal Movement has put this reform option back on Lithuania’s agenda. More
Piloting Through the 2020 Corona-World:
The much-lauded Chinese curse of living in interesting times has certainly applied to 2020. The year saw many disruptions, but also the fulfilment of key trends related to inter-state and intra-state conflict. While no one will mourn its end, we may be right to fear that this will only be a continuing act in the ongoing saga of the world’s remaking and the upending of previously cherished certainties, especially in the West. More
Bracing for Hurricane Democracy
With the conclusion of the two ceremonial national conventions of the two US parties, the Democrats and the Republicans, one may say that the presidential race has begun in earnest. The current election will be unique in modern American history for its overlap with a pandemic which may not be the deadliest in recent times, but it is certainly the most mediatized and has elicited the strongest public policy reactions ever. At the same time, much like 2016 but also other important American elections, the Presidential campaign takes place against the backdrop of rioting, looting and general social strife which has become inextricably linked to the political race. The issues are more complicated than breathless media analyses make them out to be and there is a great deal of unknowns for an event that is scrutinized by the entire world in unison as a determining factor of the next four years in the still-extant Pax Americana. Ultimately, trying to predict the result of the November election can be as mystical or as wonkish as we want – some may try polls and statistical models and others the tea leaves. Both options are equally valid in the current climate. More
Zombified Finance and the Walking Dead Economy
The financial crisis of 2007 was the result of a constant accumulation of risks facilitated by the gradual lowering of interest rates. This decrease allowed the emergence of an allocation of resources incongruous with the economic reality, decisively affecting the complementarity of production processes. As a viable example, the Federal Reserve, led at the time by Alan Greenspan, decided that between December 2000 and June 2003, the federal funds rate would be reduced from 6.5% to 1%. Immediately after that, in June 2004, the federal rate was increased by 0.25%, to curb the rise in inflation in the real estate market. But a constant decrease in the interest rate was reflected in specific, interest-sensitive sectors, such as real estate. This increase in investment appetite in the real estate sector was also due to legislative provisions, such as the Housing and Urban Development Act, which obliges GSEs such as Fannie Mae and Freddie Mac to have at least 30% of their loan purchases directly linked to affordable housing, which would stimulate mortgage lending in communities with limited resources. This phenomenon was also precipitated by the appearance of the Community Reinvestment Act, all of which facilitated a loosening of lending standards. At the same time, to support these mortgage practices, mortgage-backed assets appeared and implicitly the development of the shadow banking system. As these investments were interest-sensitive, with the increase in inflation in the real estate sector, a tightening of monetary policy affected the profitability of these investments and hence the ability to repay, effects that have also translated into the shadow banking system, repo markets and, finally, international markets. The detailed processes that led to the outbreak of the financial crisis are not the subject of this article, but their brief presentation was necessary to continue the presentation of the phenomenon of economic zombification. More
Romania’s Recovery According to the World Bank
The data included in the autumn report of the World Bank, “COVID-19 and Human Capital”, which brings the forecast for Europe and Central Asia countries up to date shows the skepticism of this institution’s specialists regarding a rapid recovery of the Romanian economy, by reference to official estimates issued locally. Thus, the National Commission forecasted an economic decrease of -3.8% this year, followed by a recovery of 4.9%, which would bring GDP level in 2021 to + 0.9% above that registered in 2019. More
The COVID-19 Pandemic – Changing the Paradigm
For almost three months now the entire world is in the midst of a very aggressive and rapidly evolving outbreak with new Coronavirus, that today is known as COVID-19. The origin of the outbreak is in China, the province of Hubei (Wuhan) and its surroundings. Coronaviruses are a large family of respiratory viruses with some causing less-severe disease, such as the common cold, and others more severe disease such as Middle-East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). Some transmit easily from person to person, while others do not. The first cases with COVID-19 virus were reported as “pneumonia/respiratory disease of unknown etiology” in the last third of December 2019. The initial symptoms were mild, which permitted many people to travel before stronger symptoms were detected. At that time, the incubation period had not been stated. More
The 2008 and 2020 Global Crises – Differences and Similarities
The years 2008 and 2020 saw two global crises with important similarities, which evoked numerous comparisons. I shall briefly sketch differences and similarities between these two global crises and the European Union response. This comparison will help us understand how European Union’s institutions are learning and adapting their reaction to the volatile environment. More
