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.

Germany's nuclear paranoia

By: Wolfgang Münchau

In my latest FT Deutschland column, I argue that the German Social Democrats are in a right mess over nuclear. This entry contains an English synopsis, and the original column in German.

IMF raises forecast for German GDP growth to 2.5% in 2006 and 1.5% in 2007

The International Monetary Fund raised its growth forecasts for Germany for this year to 2.5 % and next year to 1.5 %. This is a significant correction of the September estimates, with growth rates of 2% and 1.3% for 2006 and 2007 respectively. The high growth rates in 2006 benefited from exceptional one-off effects. The VAT rate hike in Jan 2007 is expected to lower growth but only transitory. For the long run, however, Germany will have to implement more structural reforms to raise its low potential growth.

What exactly do leading indicators forecast?

The ZEW economic sentiment indicator, an often-quoted early indicator of German economic growth, improved for the first time since its fall from the peak in January. But are sentiment indicators actually leading?

Foreign exporters use euro to create new markets

With the introduction of the single currency the euro area became a more attractive market, especially to non-EMU exporters. These are the new findings in a recent CEPR paper by Richard Baldwin and Virginia Di Nino (Dec. 2006). The single currency induced firms to export products that they had previously sold only domestically. Among the non-euro area countries, exporters from the UK have benefited most. The effect of the single currency on trade between inside firms is mixed. The euro boosted intra-Euro area trade but only modestly.Spain seemed to have benefited most from euro area’s adoption of a single currency. The euro had no effects on new product exports by firms in the the three biggest member countries - Germany, France, and Italy.

Verheugen calls on member states to continue with Lisbon reforms

The European Commission published today its first assessment round of country-by-country reform efforts for the year 2005/2006. The verdict on the euro area is that reform efforts in member states are substantial enough to explain partly the economic upturn, but not sufficient enough to smooth adjustment dynamics in the monetary union.

Can we really measure inflation expectations?

In the July 2006 monthly bulletin, the ECB investigates various measures of inflation expectations, survey measures, and financial market measures. At present, they all yield broadly the same information, with only a few decimal point differences. The open question is how good they will perform in times in times of price instability.