« Back to Results

Financial Imbalances, Fragilities and Policy Solutions

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Hyatt Regency Atlanta, Hanover B
  • Chair: Eugenia Correa, National Autonomous University of Mexico

The Odd Fiscal ‘Implicit Bargain’ between Constituent States of the Eurozone, and How to Make it Work

Ignacio Ramirez Cisneros
University of Missouri-Kansas City


While it is true that the Eurozone (EZ) lacks a central or federal government structure with a budget that can enact either automatic stabilization mechanisms or counter-cyclical fiscal programs, there is a central bank with the responsibility to ensure sovereign debt market risk does not endanger the interest rate transmission mechanism. This responsibility forces the hand of the ECB to intervene in secondary markets when sovereigns come under pressure, as it did on behalf of Italy and Spain after they refused IMF packages (IMF IEO Assessment 2016). We know that the typical ‘implicit bargain’ (Goodhart 2006) between constituent states and the central (federal) authority does not hold in the EZ because of the aforementioned lack of a true central government structure. In this bargain, the former accept fiscal budget constraints with the understanding that the latter provide 1) support for weaker regions (redistribution) and 2) market creation and stability. Thus, the ECB must become a hyper-interventionist central bank to encourage and defend the old belief that sovereign risk differentials between constituent states of the EZ are in effect negligent so that sovereigns can perform 1) and 2). Likewise, until a true tradition of collaboration and consultation between constituent states is established to ‘control’ fiscal expenditures, very likely a rather long institutional process, a Job Guarantee program with differential wages by country, can play the part of the ‘fiscal rules’ by which these constituents must abide. Countries with high unit labor costs (ULC) and deteriorating current accounts will have a lower Job Guarantee wage than those that have enacted consensual capital-labor negotiations to lower ULC (a partial incomes policy) to address external imbalance. This program and rule can provide an adjustment mechanism to a currency area that lacks exchange rate adjustment, and can be funded similarly to the proposed People's QE.

Evolution of Policy Proposals for the Eurozone Following the Global Financial Crisis of 2008

Nina Eichacker
University of Rhode Island


This paper evaluates the evolution of attitudes about the correct policies to pursue following the onset of the Global Financial Crisis in Europe, particularly as it morphed into the Eurozone crisis. It maps trends at the national and at the supranational level, paying particular attention to recommendations coming from policy makers, academics and think tanks, and from popular media, in Europe and the in the US. It assesses whether there were any categorical differences in the types of policies being proposed over time or by country, and speculates on the significance of any trends that might exist. This is of extra relevance at the time of writing given strong political movements against the prevailing orthodoxies of the Eurozone, and how it has left Europe’s working classes behind.

The Rise of Net Lending among G7 Countries: A Firm-level Analysis

Davide Villani
Open University


In recent years, the corporate sector of many developed countries increased the amount of cash hoarded while physical investment declined. As a result of this trend, the corporate sector moved from a traditional net borrower position to a net lender one. Given this a number of studies emerged trying to assess the causes of the rise of net lending. The existing literature explores different factors such as volatility and uncertainty (Brufman et al., 2013), internationalization of production (Cesaroni et al. 2017) and strategic motives (Saibene, 2017).
By employing panel data analysis, this paper provides a comprehensive picture of the evolution of net lending among listed firms in G7 countries between 1990 and 2015. Moreover, the paper contributes to the literature on net lending by considering different channels that can contribute to explain the high levels of net lending. In particular, we explore the role played by changes in income distribution and financialisation (proxied by the increase in financial payouts). Our results show that distributive changes (from wages to profits) and the increase of financial payouts have an impact on the level of net lending. At the same time, the hypothesis of changes in liquidity needs of the firms is ruled out. Results hold for different specifications and also show that there are important differences related to the size of the firms.

Shareholder Payouts and Wages: A Missing Link?

Lenore Palladino
Roosevelt Institute


Corporate America’s focus on maximizing shareholder value leads to the economic puzzle we see in so many economic sectors today: high corporate profits coupled with low and stagnant wages. As ‘shareholder primacy’ has come to dominate corporate behavior, employees have become a cost center to be squeezed, rather than stakeholders who should do well when a company does well. Stock buybacks, in which a company repurchases its own shares on the open market, are a core practice that companies use to increase shareholder wealth. This paper will empirically explore the relationship between shareholder payouts and employee compensation and offer policy proposals to rebalance power within public corporations.
Armagan Gezici
Keene State College
JEL Classifications
  • F3 - International Finance
  • F4 - Macroeconomic Aspects of International Trade and Finance