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Theresa May’s Irresistible Election Gamble

In calling a snap parliamentary election on June 8, Prime Minister Theresa May of Britain could not resist the lure of her double-digit opinion poll leads to seek a mandate for her plans to lead the country out of the European Union. She also has an urgent political need for a stronger personal power base from which to stare down her own Conservative right-wingers clamoring for a hard line in the negotiations with Brussels over the Brexit terms. May’s gambit is politically cynical for a...

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On the Need for (At Least) Five Classes of Macro Models

One of the best pieces of advice Rudi Dornbusch gave me was: Never talk about methodology. Just do it. Yet, I shall disobey and take the plunge. The reason and the background for this blog is a project started by David Vines about DSGEs, how they performed in the crisis, and how they could be improved.[1] Needled by his opinions, I wrote a PIIE Policy Brief. Then, in answer to the comments to the brief, I wrote a PIIE RealTime blog. And yet a third, another blog, each time hopefully a little...

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An Opportunity to Streamline the European Union’s Financial Regulatory Architecture

Financial regulation involves a mix of overlapping objectives, and changes in financial regulatory architecture are often forced by crises with little consideration for overall consistency. In the United States, there are notorious overlaps in the federal frameworks, for example between the Securities and Exchange Commission and the Commodity Futures Trading Commission. In Europe, the forthcoming exit of the United Kingdom from the European Union (Brexit) will force a relocation of the...

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Lesson Learned (Again) from Macroeconomic Populism in Venezuela

The Venezuelan debacle presents too many lessons to distill, and the consequences of the sovereign default that will inevitably follow the regime's complete implosion are uncertain. Nonetheless, what Venezuela's plight does not leave in doubt is that macroeconomic populism—a set of unsustainable policies to boost growth, employment, and promote income redistribution—sows the seed of its ultimate demise, both economically and politically. May that lesson be heeded across the globe. After...

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Greece Needs More Official Debt Relief—But How Much and at What Price?

Europe’s Greece problem, which brought the euro area to the brink of a breakup in 2015, is back in the headlines. And so, too, is the issue of whether Greece can succeed without more debt relief—an issue on which European officials remain at loggerheads with the International Monetary Fund (IMF) and among each other. In a new PIIE working paper, Eike Kreplin, Ugo Panizza, and I show that Greece will indeed need such relief, and discuss how it could be delivered. The good news is that this...

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Curbing the Growth of US International Debt

A companion post discusses the problem of the declining US net international investment position (NIIP). This post explores possible solutions. Rather than raising trade barriers, which would be economically harmful and have little effect on the trade deficit and the NIIP, the United States should encourage an orderly decline in the foreign exchange value of the dollar. Cutting taxes and expanding the budget deficit, as many are expecting, is a move in the wrong direction; if anything, taxes...

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The Unsustainable Trajectory of US International Debt

On March 29 the Bureau of Economic Analysis (BEA) released its estimate of the US net international investment position (NIIP) as of year-end 2016. Foreign financial claims on US residents and institutions exceeded US claims on foreign residents and institutions by $8.4 trillion, implying a negative NIIP of ‑45 percent of GDP (figure 1).[1] Never in history has one country owed so much to the rest of the world. The NIIP is projected to decline further to ‑53 percent of GDP by 2021.[2] The...

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Big Stumbling Blocks for Business Tax Reform

The debate about overhauling and lowering business taxes now rushes to fill the congressional vacuum left by defeat of the American Health Care Act (AHCA). While not as emotional as health care, tax reform is every bit as contentious. Proposals advanced by House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady, which have received generalized support from President Donald Trump, promise to ruffle many feathers. Following is a survey of the big stumbling blocks. The central objective...

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How a British Bid on Immigration Can Facilitate Brexit

British Prime Minister Theresa May will soon launch divorce proceedings from the European Union under the so-called Article 50 process. Her objective is to leave the Internal Market and the EU customs union, take back control over immigration, and be free of the jurisdiction of the European Court of Justice while maintaining as free a future trading relationship with the EU-27 as possible. Her goal in the two-year timetable called for by Article 50 could not be more different from European...

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Trump Administration Is Walking Away from Good Governance in Oil, Gas, and Mining

In the latest rebuff to the international community, the Trump administration is walking away from the successfully negotiated global standard to promote open and accountable management of oil, gas and mining, especially in poor countries. The Extractive Industries Transparency Initiative (EITI) is a groundbreaking multistakeholder initiative to prevent corruption, conflict, human rights violations, and environmental degradation while promoting good governance around extractive industries....

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