The Nexus between Causal Macroeconomic Relations in Japan

Japan achieved phenomenal economic growth after WWII. Starting in the early 1990s, however, the Japanese economy began experiencing a prolonged deflation-stagnation period widely known as the “Lost Decades”. Based on data from the World Bank and the Federal Reserve Bank of Saint Louis, this paper employs an autoregressive distributed lags (ARDL) model to find evidence of a long run relation among the real GDP, real imports, the real exchange rate, and the public debt-to-GDP ratio for Japan. Once cointegration is established with the Bounds Test, Granger Causality tests are performed by employing an estimated Vector Autoregressive (VAR) model with the same variables. The empirical results support Granger causality in all directions. In particular, we found real imports and public debt-to-GDP ratio to directly cause real GDP. Interestingly, the real exchange rate causes real GDP indirectly via imports. The public debt had a negative effect on GDP but did not wreak havoc on the Japanese economy. The study also examines whether former Prime Minister Shinzō Abe’s unprecedented macroeconomic policies and structural reforms launched in 2013, known as Abenomics, are pulling Japan out of its economic doldrums

Challenges for the EU as Germany approaches recession

This paper analyzes recent macroeconomic developments in the eurozone, particularly in Germany. Several economic indicators are sending signals of a looming German recession. Geopolitical tensions caused by trade disputes between the United States and China, plus the risk of a disorderly Brexit, began disrupting the global supply chain in manufacturing. German output contraction has been centered on manufacturing, particularly the automobile sector. Despite circumstances that call for fiscal intervention to rescue the economy, Chancellor Angela Merkel's government was overdue with corrective measures. This paper explains Germany's hesitancy to protect its economy, which has been based on a political and historical ideology that that rejects issuing new public debt to increase public spending, thus leaving the economy exposed to the doldrums. The paper also considers serious shortcomings in the European Union's (EU) foreign and defense policies that recently surfaced during the Syrian refugee crisis. The eurocrisis revealed near-fatal weaknesses of the European Monetary Union (EMU), which is still incomplete without a common fiscal policy, a common budget, and a banking union. Unless corrected, such deficiencies will cause both the EU and the EMU to dissolve if another asymmetric shock occurs. This paper also analyzes recent geopolitical developments that are crucial to the EU/eurozone's existential crisis

Reflections on Angela Merkel's career as chancellor of Germany and the Greek financial odyssey

Angela Merkel is the second-longest-serving chancellor of modern Germany, with more than 16 years in office. During her tenure there were many years of economic stability, but there were also years of domestic, EU, and geopolitical tensions. Merkel inherited an economy that was recovering after the launching of probusiness policies known as the Hartz I IV Reforms, introduced by the government of the previous chancellor, Gerhard Schröder. Chancellor Merkel was criticized for mishandling the eurocrisis, as she failed to declare support for the financially distressed eurozone countries. Instead she convinced EU officials and country leaders to adopt a contractionary fiscal policy in the midst of a recession. As a result of the austerity measures, Merkel became popular among the German taxpayers and voters. This triggered credit rating agencies to downgrade the government bonds of the periphery eurozone countries and investors to sell these bonds, driving their prices to zero. Periphery eurozone countries came close to bankruptcy but were jointly bailed out by the EU and the IMF, though this prolonged the crisis. As a result of the imposed austerity, which was unnecessary and avoidable, millions of people became unemployed and experienced poverty, loss of dignity, and humiliation and Greece was the country hit hardest. For Merkel, placing national interests above EU interests was the most important mistake in her career; it took, however, a bigger crisis (i.e., the COVID-19 pandemic), to convince Merkel to place EU interests above national interests

US Monetary-Fiscal Policy Mix Evidence from a Quatrovariate VECM

This study investigates the effectiveness of monetary and fiscal policies in the US by employing cointegration and a quatrovariate Vector Error Correction Model together with Granger causality tests. Two models are estimated: (i) nominal national income, the ten-year government bond yield, and two policy variables, the federal government deficit and the federal funds rate; (ii) real national income, and the other same three variables. Monetary and fiscal policies are jointly ineffective in influencing nominal national income. However, monetary and fiscal policies are jointly effective in influencing real national income. In contrast to the first model, only monetary policy was found to be reactive to changes in real national income and the long-term interest rate. The asymmetric responses of the two policies to changes in real economic activity are attributed to the fact that monetary policy is much more efficient in promptly responding to changes in economic conditions than fiscal policy