Out of control: credit

By: Casper de Vries, Erasmus University Rotterdam

The Fed deliberately ignored traditional indicators that provided early warning about the credit crisis to come.

Time to stop forecasting, and to start thinking

By: Wolfgang Münchau

Forecasts that Obama will win the presidency, and that inflation is falling have in common that they mean nothing at all.

Is the Fed going soft on inflation?

Frederic Mishkin's comments suggest a loser inflation goal by the Federal Reserve at a time when the ECB is determined to strengthen its price stability credentials. This divergence - if it persists - could have serious implications for the global economy in the long run.

Is the ECB more proactive than the Fed?

Jean Claude Trichet made an interesting, and little reported, point at his quarterly testimony before the European Parliament on Wednesday 21 March 2007. He said the ECB has actually been more activist than the Fed, a statement that has raised eyebrows, considering that for over two years – between 2003 and 2005 – the ECB left interest rates unchanged at 2%. But he is right, or at least, he has a point. This is why.

And you thought Europe was safe from the subprime mortgage disaster?

The Europeans have by and large been oblivious to the subprime meltdown that is currently unfolding in the US. The general feeling has been that this is some eccentric US problem that has not much to do with us. Unfortunately, this view is both complacent and wrong.

Is the ECB pursuing a policy of price level targeting?

Jurgen von Hagen has raised a fascinating question in his blog entry on this website. He asks whether the ECB has secretly adopted a system of price level targeting. The present policy of raising interest rates over and above the level that is consistent with its own inflation forecast cannot be explained in any other way. This is a question worth exploring further.

What to make of the proposals for a new fiscal regime for Germany?

Earlier this week, Germany's independent Council of Economic Advisers has made a wide-ranging proposal for a change in the country's fiscal regime. What the Council proposes is a big regime change that would more than halve Germany's national debt. This proposal goes way beyond the EU's stability and growth pact. It is a national regime, not co-ordinated with other EU countries, but, if adopted, it will have big implication for fiscal policy elsewhere in the euro area. This may well turn out to be the single biggest fiscal earthquakes in the euro area so far. We believe therefore that it worth taking a look at these proposals in some detail.