Tail Risks and Global Economic Policy

2022/2023

Academic Year

ENG

Instruction in English

3

ECTS credits

Delivered at:

Department of Theoretical Economics

Course type:

Elective course

When:

4 year, 2 module

Instructor

Gilman, Martin G.

Course Syllabus

Abstract

The mini-course will consider tail risks and economic policies in the major advanced economies. It may be that we are in the midst of a rare “regime change” in global macroeconomics. We will explore which is the greater tail risk: the left-side risk of a collapse of demand with ensuing recession, or the right-side risk of accelerating inflation. Efforts to minimize the risks will be explored. There is a significant probability that the world economy is about to stumble into a period of financial dislocation. The danger is that the confluence of slow real growth, low productivity increases, inflated asset prices (notably bonds, equities, and real estate) and higher public debt in many of the major G20 economies cannot be sustained much longer. The policy response to the COVID pandemic exacerbates these tendencies. As of mid-October, the imbalances between growth, debt, and asset prices in advanced economies continue to widen. The radical economic policies pursued by most of the world’s advanced economies in recent years, and even more so since the policy responses to the COVID pandemic, are an experiment in which we are all inevitably participating. Ironically, Russia is one of the few exceptions. The Bank for International Settlements, among others, has been expressing its concerns that collectively we have been unable to constrain the build-up of financial imbalances, leading to a progressive narrowing of policy options. Not only are financial imbalances now much worse than in 2008 but the concentration and power of large banks is more entrenched, shadow banking is more pervasive, and there has been a massive misallocation of capital owing to mispricing, which has exacerbated income inequality via financial repression and productivity-sapping bailouts to crippled firms. These seem to have the side effect of perpetuating unsustainable asset bubbles. It hardly seems surprising that that de-globalization has become a factor in the internal politics of too many countries.