Some thoughts on macroeconomic models

By: Paul De Grauwe, K.U. Leuven and CEPS

The limits of DSGE models as tools of analysis for central banks.

House prices have 30-40% more to fall

By: Wolfgang Münchau

Here is an interview with me on CNBC on the housing market situation in western Europe and the US.

Prepare for a global economic downturn, but not a meltdown

This year marks the start of an asymmetric global economic downturn that is likely to persist for some time and will probably be quite unpleasant, but which will be well short of catastrophic.

A crisis for those whose first language is English

Like it or not, the credit crunch is an asymmetric crisis. There will be no decoupling, but it will not affect everybody as badly as it will affect the US. That includes the euro area, which benefits from some important stabilisers.

The case for a rise in European interest rates

European Interest rates will probably remain on hold. But we believe that they should be raised moderately.

What to make of Axel Weber's comments on inflation?

Axel Weber and Jurgen Stark are both warning about higher inflation, and say explicitly that interest rates may well rise. This would have very serious conseqences for the euro. We stick with our view that interest rates are likely to remain at 4%, but acknowledge now that there is a non-trivial risk of a rate increase ahead.

What to make of the ECB's hawks

Stark and Weber have both signalled that the interest rates may go up. We believe that in particular Weber's hawkish comments on inflation are addressed at German wage setters, and are not indicative of the ECB's current mindset. We also believe that the ECB may be underestimating the economic impact of the credit crisis. We stick with our view that interest rates have peaked at 4%.