Paul Ormerod: The Reinhardt and Rogoff miscalculation
The distinguished American academic economists, Carmen Reinhardt and Ken Rogoff, have been very much in the news. Their 2009 book, This Time is Different, was a comprehensive examination of financial crises over the past 800 years. The work received many plaudits and awards. They suggested that when the ratio of public debt to GDP in a country rose above the 90-100 per cent range, the chances of a financial crisis increased sharply. And the consequence was that economic growth in the country would be adversely affected.
Unit 4 Macro: Language Proficiency and Labour Mobility in Europe
Increasing foreign language proficiency could be a key policy tool for encouraging greater mobility of labour between countries of the European Union and reducing the huge differences in rates of youth unemployment. According to research by Professors Ainhoa Aparicio-Fenoll and Zoe
Kuehn, including foreign language studies in the compulsory school curriculum fosters migration across European countries.
Paul Ormerod: Sovereign debt and Euro zone reality
The recent debacle in Cyprus has essentially been shrugged off by the markets. The European Central Bank vigorously asserts the crisis in the Euro zone is over. So why is there continued unease about the financial viability of countries such as Spain and Portugal, a morass into which even the French are now being dragged?
Economic theory helps us understand a bit more about why this is the case. One thing which the last few years in Europe have shown very starkly is the massive difference between debt which is denominated in nominal terms and that which is in real terms. Nobel Laureate Chris Sims makes the point clearly in his recently published Presidential Address to the American Economic Association.
read more...»Unit 2 Macro: Labour Costs in the European Union
The European Union has just released some new figures on the spread of hourly labour costs among the member nations of the European Union. Labour costs are made up of wages & salaries and non-wage costs such as employers' social contributions e.g. national insurance payments in the UK. Students who have covered aggregate supply and demand theory might be able to consider why changes in labour costs can have an effect on key macroeconomic indicators such as inflation, demand, exports and growth.
Hourly labour costs are different from unit labour costs - the latter takes into account the productivity of people employed. For example, a 5% rise in hourly labour costs will leave unit labour costs unchanged if productivity rises by 5% over the same time period.
read more...»Unit 4 Macro: Unemployment in Germany - The Hartz Reforms
Germany’s low unemployment is in large part due to the ‘Hartz Reforms’, which started as early as 2003 and have reduced the long-run rate of unemployment by 1.1%. That is the central finding of research by Matthias Hertweck and Oliver Sigrist, to be presented at the Royal Economic Society’s 2013 annual conference.
Unemployment rates across much of Europe have surged to unprecedented levels in recent years, particularly among the southern countries. In contrast, German unemployment has continued to fall even during the Great Recession. The authors conclude:
‘Our results build a solid basis for the macroeconomic effectiveness of such labour market reforms. This is particularly important for policy-makers across Europe who are currently planning to undertake similar structural reforms.’
Unit 4 Macro: Unemployment in Europe (March 2013 Update)
The scale and depth of the unemployment crisis in Europe is confirmed by fresh figures released by Euro Stat. Unemployment in the Euro Zone was 12.0% in February 2013 and the jobless rate for the European Union as a whole was 10.9%. Last month there were 26.3 million people counted as out of work in the twenty-seven countries within the single market, 19 million of whom live in Euro Zone countries. In the last year alone, unemployment in the Euro Zone has jumped by over 1.7 million but this aggregate figure hides large country differences and persistent regional and local variations. Here is the contextual data to take into the exam:
OCR F585 June 2013 - Contextual Knowledge Reading Links
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Here are some links to relevant articles and research sources for June 2013 OCR F585 pre-release case study. Our own toolkit is now available - click here for details
read more...»Unit 4 Macro: Cyprus Infographics
Here is a selection of resources on the Cyprus banking crisis and the controversial bail-in of uninsured large depositors. Particular credit to the team at Saxo Bank for an excellent info-graphic
read more...»OCR A2 Economics F585 The Global Economy June 2013 - Pre-Release Toolkit
Geoff and the team are hard at work preparing their comprehensive support pack for teachers and students preparing for OCR A2 Unit F585 on the Global Economy.
We're hoping to have the F585 Toolkit ready to despatch by Wednesday 27 March and we'll email it out to colleagues who request it over Easter if they have already broken up for the holiday.
The OCR F585 Toolkit can be ordered directly online here or by downloading and completing this printable order form.
The Toolkit provides unrivalled analysis and evaluation of each of the 5 F585 research extracts: namely
Extract 1: The birth and growth of the eurozone
Extract 2: New EU member states and the euro
Extract 3: Estonia’s economic growth and development
Extract 4: The approach to sustainable development in the EU and Estonia
Extract 5: Estonia’s progress towards sustainable development
Evaluating UK economic performance
Robert Peston has an interesting piece on his BBC blog, considering what the UK's GDP growth would look like if it was possible to extract what he calls the 'bad bits' - financial services and North Sea oil and gas extraction - both of which are in serious decline. He suggests that we have been too dependent on these two sectors, and that both are now in serious decline. In particular, that the global financial services industry is now protecting itself by becoming much more national and less internationally interconnected, so that the City - as the world's most open and global financial centre - has therefore suffered.
Unit 4 Macro: The UK Economy and the Euro
Mark Austen considers whether the UK economy has on balance benefited from being outside of the Euro Area in recent years
read more...»Unit 4 Macro: The UK Economy Outside of the Euro Area
Evaluating the UK’s macro performance outside of the Euro Zone
- Decision made in 2003 that the UK would remain outside
of the single currency
- UK remains a full member of the single market
- Supportive of further EU enlargement but distanced from deeper fiscal / banking intregration
Crucial question both in the short and medium term is whether non-participation in the Euro makes a significant difference to key macro outcomes
- Real GDP growth, estimated Trend growth (LRAS)
- Core CPI inflation and inflation expectations
- Employment and unemployment rates
- Trade balances (with EU and beyond)
- Trends in relative productivity and per capita incomes
Unit 2 Macro: Video Resources on the German Economy
Having German exchange students in my lesson has provided a super opportunity to discuss the position of the German economy within the Euro Area and to compare and contrast macroeconomic indicators between the UK and Europe's largest economy. Here is a selection of some of the video clips that have been used as prompts for discussion.
read more...»Unit 4 Macro: Data Charts on the Euro Economy
I am teaching aspects of the European single currency this week, naturally there are many charts that tell important stories about the macro challenges facing countries inside the euro area. I have made a file of charts available for download and I hope this might be of help to teachers covering the Euro for Unit 4 macro. See the link below:
read more...»Unit 4 Macro: The Great Spanish Crash
Here is a link to Paul Mason's recent documentary on the rise and fall of the Spanish economy. A superb hour on the travails of one of the key countries inside the Euro Zone
read more...»Unit 4 Macro: Britain’s Future in the European Union
There has been plenty of discussion in recent weeks about whether Britain might seriously start to consider leaving the European Union? Here is a selection of news pieces and discussion videos on the vexed question of UK membership.
read more...»A Very European Break Up - New Romantic Comedy
What a fabulous new resource for students and teachers! She's German. He's Greek. Can their ten year relationship survive the pressure? This great short comedy from director Bob Denham is jam packed with references to the Euro debt crisis - show it to your class and see how many the A-Level student gets (offer a prize!)
Unit 4 Macro: Can Spain Remain Competitive?
Competitiveness will be key to Spain’s prospects of a durable economic recovery and the chances of cutting debt. Spain would probably benefit from a devaluation of her currency but there are other factors that drive competitiveness in global markets. Indeed there are plenty of large and medium large Spanish businesses that have growth and export potential even if Spain stays within the Euro Zone. The growing share of Spanish service exports is a good sign especially in the areas of financial services and engineering. This FT video looks at what Spain might do to bolster overall competitiveness including a focus on research and development and innovation together with economic reforms designed to raise productivity.
read more...»The Eurozone Crisis Flow Chart
A useful series of flow charts on the BBC Business Webpage outlining some of the causes and effects of the present problems of the Eurozone economies.
A good starting point for AS students and teachers preparing for A2 Economics courses.
How much do you understand about the euro crisis?
Tempting, I think, as an extension activity with year 12 students who are returning from their AS exams and starting on A2 courses, to put this happy Irish picture up on the whiteboard on Monday morning and ask them to explain the message on the flag.
Perhaps a prize for the most on-the-ball answer?
Who’s afraid of the Euro crisis?
What are the possible ripple effects of the euro crisis? There are a myriad of different opinions about what might happen and how far it might go.
This interactive graphic from the BBC website is a neat summary of just some of them - it starts with Greece itself, with comparisons to the debt crises in Spain, Portugal and Ireland then looks at the potential contagion effects of a collapse of confidence in Italy.
This may spread to banking meltdown in France, the UK and the ECB, with a Euro break-up rippling through the German and wider EU economies. As a result of the interdependence of the EU and its worldwide trading partners, global meltdown follows - which explains why Christine Lagarde of the IMF has been calling for more leniency towards Greece and other borrowers, and more action in Europe to boost growth.
Is there some way in which such negative multiplier effects can be avoided? Can macroeconomic policies be used somehow to protect domestic economies from the fallout? If they cannot, what next? This resource only presents one set of ideas, but might just help students to tease out some of the convoluted and complex issues which dog the EU and global economy at present.
End Depression Now! Paul Krugman at the LSE
Paul Krugman made an impassioned plea for a reversal of austerity policies in a talk to a packed Peacock Theatre at the LSE in London last night - I was live tweeting the event and I have brought together these tweets and some other comments together with some of the charts in his talk. I have also drawn on the live tweets of Stuart Foster whose excellent twitter feed can be found here: @econbant
The slides from Krugman’s talk at the LSE can be found here
Paul Krugman talks to Evan Davis on the Radio 4 Today programme: Click here Niall Ferguson provides a contrary view here: ‘You can’t solve debt with more debt’ See also: European Commission supports UK deficit-cutting course (BBC news)
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Euro crisis hits Eurovision
Amidst the depths of concern about where the Greek crisis and the eurozone might take us, can I offer a lighter note. Putting aside UK contingency planning to deal with mass immigration and Bankia’s request for a 19bn bailout, perhaps the ultimate indicator of the crisis is the news that Spanish TV has instructed their entrant to the Eurovision Song Contest that she is not to win.
If Pastora Soler wins with her ballad Quedate Conmigo (Stay With Me), then according to the rules of the contest the public broadcaster of the nation that wins must host the following year. And Spain’s broadcaster TVE cannot afford that at the moment.
Surely this explains how/why countries choose their Eurovision entry, and is a great example of game theory which we should use in the classroom?
Greek Euro Exit Flowchart
Here’s a good one for the end of the week, if you want a discussion regarding the possible outcome(s) of the € currency crisis, or a handy revision tool. This Guardian interactive page is very helpful.
Peston on The Eurozone
As the Eurozone continues to be bufferted by instability in Spanish Banks, and uncertainty over Greek membership of the single currency. Robert Peston fronts a programme on The Euro on BBC2 tonight.
It remains to be seen if he offers any answers to Mervyn King’s observation, that the UK biggest trading partner, the euro area, is “tearing itself apart without any obvious solution,”
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012
The quarterly Inflation Report is an opportunity for the Bank of England to flesh out their latest forecasts and thoughts on the direction of the UK economy and it is safe to say that the May report will probably be best remembered for a remarkable statement from the Bank of England Governor Mervyn King.
“We have been through a big global financial crisis; the biggest downturn in world output since the 1930s; the biggest banking crisis in this country’s history; the biggest fiscal deficit in our peacetime history; and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution. The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2 per cent strikes me as wholly unrealistic.”
In short:
* Economic growth for 2012 - forecast has been cut to just 0.8%
* Consumer spending will continue to fall this year as real living standards for millions of people are squeezed
* The rising cost of borrowing in the wholesale money markets is increasing costs for banks and is putting upward pressure on the price of business loans and mortgages
* Now sees significant chance of negative annual GDP growth in 2012. Raises near term inflation forecast - CPI inflation inflation to fall back to target before the middle of 2013
* It may take a long time to get the UK economy back to previous growth / inflation paths: ““There’s no obvious reason to believe we can’t get back to original path [of economy pre-crisis] but may take 10/15/20 years” - a realisation of the severity of the shock to the global financial system and the aftermath
* Weak growth forecasts for 2012 assumes that there will not be a collapse / breakup of the single currency
Bank governor warns of eurozone crisis ‘storm’
Bank of England warns of euro crisis ‘storm’ (BBC news video)
A sticky wicket for the Bank (Stephanie Flanders)
Bank of England Inflation Report Data Sections
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Eurozone Crisis - Lessons Learnt
Last week I attended a very interesting lecture at the LSE on the Eurozone crisis, given by Leszek Balcerowicz, a Polish economist who is former chairman of the National Bank of Poland and Deputy Prime Minister.
The following blog outlines his thoughts, but also includes useful links to articles to read.
Using the crisis as a case study will hugely benefit A2 students as it encompasses many of the topics covered in the syllabus.
Grexit - Andrew Balls on Greece and the Euro
Following on from Ben Christopher’s article, a BBC Radio 4 interview with Andrew Balls, an investment fund manager, and younger brother of The Shadow Chancellor on the possibility of a Grexit - Greek exit from the Euro.
read more...»Unit 4 Macro: The Euro Zone Crisis (Revision)
Here is a revision blog on some of the key economic challenges facing the seventeen member nations of the Euro Zone or Euro Area
read more...»Unit 2 Macro: Revision on Interest Rates and the Exchange Rate
The exchange rate measures the external value of sterling in terms of how much of another currency it can buy. E.g. in July 2011 £1 would buy you $1.65 and Euro 1.17. The daily value of the currency is determined in the foreign exchange markets (FOREX) where billions of $s of currencies are traded every hour. The value of the pound in the currency markets depends in how strong is demand for the currency relative to supply
Many factors affect the external value of one currency against another and one of these factors is the level of interest rates in a country compared to other economies. Money moves around the world economy seeking the best risk-adjusted rate of return. The rate of interest available on deposit in the banking system of a particular country is a factor that might drive what are known as “hot money” flows into and out of a particular currency.
read more...»
