Author Archives: jfrankel

Reserves and Other Early Warning Indicators Predict Crises After All

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With aftershocks of the recent global financial earthquake still being felt in some parts of the world, it would be useful to have a set of Early Warning Indicators to tell us what countries are most vulnerable.    Nobody should be surprised that it is hard to forecast crises with high reliability;    low-risk opportunities for profits are never easy to find.   Thus it is especially hard to predict the timing of a crisis.  Some economists, however, are skeptical that Early Warning Indicators (EWIs) have any useful predictive ability at all.  A common assessment is that EWIs have failed, in the sense that in each historical round of emerging market crises (1982, 1994-2001, 2008) those particular variables that appeared statistically significant in that round did not perform well in the subsequent round.   This is not the right conclusion. read more

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Time to Grab the Third Rail: Address the Fiscal Problem by Social Security Reform

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The current economic question is what to do about budget deficits.   The Greek crisis has made sovereign debt a genuine concern even among advanced countries.  (I should say “especially among advanced countries,” because developing countries now have stronger fiscal positions, in a historic reversal of roles.)   At this weekend’s G-20 Summit, Germany and the UK are defending strong fiscal austerity, with language that doesn’t even allow for the idea that short-term spending might be expansionary under severe recessionary conditions such as 2008-09.   In the US, Peter Orszag is reported this week to have resigned as OMB Director, not just to get married, but supposedly in part out of frustration about the fiscal outlook and President Obama’s refusal, as part of any comprehensive deficit correction program, to reverse his campaign pledge against raising taxes on those earning less than $250,000. read more

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Gulfs in our Energy Security, and the Louisiana Oil Blowout

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In the wake of the April oil well blowout off the coast of Louisiana, policy-makers are rethinking the issue of off-shore drilling.    Clearly the last decade’s neglect of safety rules by federal regulators needs to come to an end.   But what larger implications should we draw for domestic oil drilling? 

The tension has long been between those who give primacy to the environment, on the one hand, and those who give primacy to business on the other.    Probably some of the first group oppose all oil drilling and some of the latter support all oil drilling (even when the government unconscionably offers oil leases on federal lands at below-market rates, as it often has historically).    As so often, the right answer lies in between. read more

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