Jesus Ferreiro

Similarities and Differences in the Composition of Public Expenditures in the European Union

The European Union (EU) is putting emphasis on the need to change the composition of public expenditures to what, according to the public policies endogenous models, is considered a high quality of public finances (i.e., a higher share of productive expenditures). These recommendations are the same for all EU member states. Together with the fiscal requirements arising from the Maastricht Treaty and the Stability and Growth Pact, EU authorities are promoting a one-size-fits-all fiscal policy model. Our paper analyzes the differences existing in the composition of public expenditures in the EU. If this composition is significantly different, that would mean that in the EU there are differences in the national preferences about the role/size of public expenditures, something that would not allow implementing a single model of public sector and fiscal policy.

Is the composition of public expenditures converging in EMU countries

The literature on fiscal policy is paying increasing attention to the impact of the composition of public expenditures on long-term economic growth. Public policy endogenous growth models recommend to change the composition of public expenditures to items considered as productive expenditures. Based on these models, European institutions are encouraging to increase the share of outlays, such as public investments, research and development, active labor market policies, and so on. This paper analyzes whether a convergence to a new pattern of public finances with a higher share of productive expenditures is arising in the euro zone.

Inflation targeting and inflation expectations in Mexico

In this article we analyse inflation expectations in Mexico. After a review of the theoretical and empirical literature, we apply unit root, normality and cointegration tests to the data provided by Banco de México (Banxico) in the Survey on the Expectations of the Private Sector Economics Specialists. Our results reject the null hypothesis of normality for inflation expectations over the period 2004:01–2011:12. The exchange rate has become one of the most relevant variables in the transmission mechanism of monetary policy in a small open economy. In this regard, we show the existence of a long-run relationship between nominal exchange rate and interest rate where inflation expectations matter for long-term dynamics.

The Economic Crisis in Spain: Contagion Effects and Distinctive Factors

Since the year 2008, the Spanish economy has been immersed in the deepest crisis of its history. From being one of the most dynamic European economies in the decade of the 2000s, Spain has moved to be a nearly stagnant economy whose short-term prospects are far from being optimistic, clearly worse than those of most European countries. The aim of the chapter is to provide an explanation of the bad performance of Spain’s economy since 2008. In this chapter we argue that the current economic problems of Spain can be found in the unsustainable strategy of economic growth that was followed since the early 1990s. This expansion was based on an excessive resource to the external funding, leading to an unsustainable growth of the external debt, whose problems unleashed, first with the financial turmoils that took place in the years 2007 and 2008, and, second, with the crisis of the sovereign debt in the euro area that started with the crises of Greece, Ireland and Portugal. Also, there is the existence of unsolved structural problems in the labour market, namely the excessive use of the fixed-term employment contracts, which since the early 1990s have contributed to amplifying any shock affecting the Spanish economy, making it more unstable and pro-cyclical; and, finally, the wrong fiscal policy implemented both before and during the crisis, which led to a pro-cyclical fiscal stance before the crisis, to the generation of an unsustainable fiscal deficit at the very beginning of the crisis, and to a pro-cyclical fiscal stance during the crisis because of the need to adjust the fiscal deficit.

Fiscal Adjustment and Composition of Public Expenditures in the EMU

The rules and norms set out in the Maastrich Treaty and in the Stability and Growth Pact (SGP) have involved for the European Monetary Union (EMU) member states the implementation of an orthodox strategy of fiscal policy based on the correction of fiscal imbalances and cuts in the current sizes of public revenues and expenditures.

Financialisation and the economic crisis in Spain

The aim of this chapter is to analyse the relationship between the financial crisis and the real economic crisis in Spain. The main hypothesis put forward by is that financialisation, which lies at the root of the financial crisis, has also implied changes in the real and financial behaviour of private (and public) agents, which explain the extent and prolonged duration of the crisis in European and other advanced economies, in general, and in Spain in particular. With this aim in mind, we first analyse the financialisation process of the Spanish economy, and then its effects on households, non-financial corporations, and the external sector. Finally, we focus on the mistakes in the management of fiscal policy and in the management of the Spanish banking crisis that have helped to deepen the economic crisis.

Institutions, Expectations and Aggregate Demand

The concept of rational expectations is the cornerstone of orthodox economic theory. As Minford and Peel (2002) argue: ‘in its modern guise macroeconomics is based entirely on the idea that agents are rational. Hence rational expectations are central to the subject today’ (p. 41). Although the conclusions reached by the mainstream about, for instance, the reasons for and duration of economic disequilibria, the causes of economic cycles, and the impact of economic policy are based on this way of analysing the economic behaviour of individuals, in most undergraduate textbooks, this way of representing how individuals make their economic decisions is not made explicit. In fact, in most textbooks that discuss competing schools of economic thought and their main differences, it is not explained that these schools can be grouped into two main approaches, according to their treatment of the information problems: schools that identify information problems with situations of risk, and schools that treat information problems in terms of uncertainty.

Latin American inflation differentials with USA inflation: does Inflation Targeting make a difference?

The objective of the paper is to analyse whether the use of Inflation Targeting (IT) has had an impact on the process of convergence of inflation rates between Latin American countries and the United States. The analysis is made using non-habitual convergence tests. Some implications arise from our analysis. First, IT countries have lower inflation than countries with different monetary strategies. Second, the disinflationary process has been widespread, taking place in Latin America later than in developed countries. Finally, countries with other monetary policy strategies have also reduced the levels and dispersion of their inflation rates.

The Impact of the Current Crisis on Emerging Market and Developing Countries

When analysing the relations between developed economies and emerging market and developing economies, it is easy to see how the latter have been traditionally dependent and influenced by the cyclical behaviour of the former and by the turmoils generated in them. Expansions in advanced economies implied a positive development framework for developing countries, which benefited from higher export flows and from a suitable financial environment in the shape of higher capital inflows. By contrast, recessions in developed economies dragged developing economies with them due to the negative impact generated on exports and net capital inflows. Even more, the economic deterioration in developing economies was aggravated by episodes of currency and banking crisis and by the inability of these countries the application of anti-cyclical policies. In fact, the need to restore some sound macro-economic foundations, mainly to reduce fiscal unbalances and ensure capital inflows, forced to apply restrictive demand-side policies, which, in turn, damaged the economic situation. The final result was a strong convergence and synchrony of the economic cycle of developed and developing economies, but where the cycle volatility was bigger for the latter.

The impact of the financial and economic crises on European Union member states

Although the Great Recession is a global phenomenon, with roots outside the European Union (EU), its impact has been deeper and longer lasting in the EU than elsewhere. However, the impact of the Great Recession has not been the same in all the European countries. The objective of this chapter is to analyse the different effects of the economic and financial crisis among the European Union member states, focusing on the behaviour of a number of real and financial variables since the year 2003 to evaluate the impact of the crisis. Thus, we will analyse the performance of 17 economic variables grouped into seven categories: economic activity, labour market, income distribution, inflation, balance of payments, public finances, and financial balance sheets of total economy and sectors.