Willem H. Buiter

Bio: Willem H. Buiter is an academic researcher from Citigroup. The author has contributed to research in topics: Monetary policy & Fiscal policy. The author has an hindex of 62, co-authored 362 publications receiving 12914 citations. Previous affiliations of Willem H. Buiter include European Bank for Reconstruction and Development & Yale University.

Excessive deficits: sense and nonsense in the Treaty of Maastricht.

Abstract: Maastricht's fiscal rules Willem Buiter, Giancarlo Corsetti and Nouriel Roubini The Maastricht Treaty on Economic and Monetary Union in the EC has specified limits on both government debt and fiscal deficits. Satisfying these criteria is necessary for getting into EMU; once inside, violating these limits will also incur penalties. The fiscal requirements, especially the debt criterion, are much tougher than is required to ensure public-sector solvency. Trying to attain these targets will force the EC initially into substantial deflation and recession. Failure to correct for real growth, inflation and the business cycle makes the nominal deficit a poor basis for any policy or target. Ambiguity about how fiscal targets will in fact be interpreted might provide a way out but cannot today be relied upon to do so. Supranational fiscal rules are sometimes claimed to be justified by externalities in national fiscal policies. We find this justification wanting, both in theory and empirically. A better case might be built on the imposition of external commitments to offset domestic political distortions that systematically induce excessive deficits. Even so, we conclude that the fiscal convergence criteria on balance are harmful, and should be disregarded or applied very loosely to avoid the risk of serious fiscal overkill.

A guide to public sector debt and deficits

Abstract: Government deficits reinterpreted Willem H. Buiter Public sector debt and deficits are a matter of concern to governments throughout the world. After presenting data on the public debt and deficits in the UK and abroad, this paper considers four key issues. First, does an increase in the budget deficit today make an increase in inflation in the future more likely? In economies like the UK the answer is no, because the scope for raising revenue by money creation is limited compared to raising taxes. Second, how does one evaluate the consistency of a given spending and tax programme? A number of measures are presented which indicate the adjustment that must be made to spending and tax plans if the government is to remain solvent. Third, it is often argued that an increase in budget deficits will merely crowd-out private spending. The paper shows that the truth of this proposition depends critically on the state of the economy, the time horizon, and whether the increased deficit is temporary or permanent. Finally the question of deriving a suitable measure of fiscal stance is considered. Developing an index of fiscal impact requires a suitable economic model and a number of different measures are considered and criticized. Conventional deficit measures, whether actual, cyclically-corrected, or inflation corrected, are a poor indicator of the government's true fiscal stance.

Time Preference and International Lending and Borrowing in an Overlapping-Generations Model

Abstract: Two economies, represented by Diamond-type overlapping-generations models and differing only in their pure rates of time preference, are joined together. Capital formation, balance-of-payments behavior, and welfare are compared under autarky and openness. With a positive natural rate of growth, the low-time-preference country runs a current account surplus in the steady state but not necessarily outside it. If preexisting capital is not shiftable between countries, integration in the world economy makes the high-time-preference country worse off in the short run. The ranking of stationary utility levels under autarky and openness is ambiguous.

Alice in Euroland

Abstract: The paper contains a detailed critique of the common currency arrangements of the Economic and Monetary Union, embodied in the laws and emerging procedural arrangements that govern the actions of its key institutions: the European Central Bank and the European System of Central Banks. The main message here is 'Great idea, shame about the execution'. A number of improvements are then proposed. Some of these require amending the Treaty, including an end to the rule that each EMU member's national central bank has a seat on the Governing Council or the removal of the power of the Council of Ministers to give 'general orientations' for exchange rate policy. Others, notably in the areas of accountability, openness and transparency, could be implemented immediately, including publication of voting records, minutes and the inflation forecast. Improved arrangements are also advocated for the co-ordination of monetary and fiscal policy. And the article calls for a European Parliament that can both bark and bite.

Time Preference and International Lending and Borrowing in an Overlapping-Generations Model

Abstract: Two economies, represented by Diamond-type overlapping-generations models and differing only in their pure rates of time preference, are joined together. Capital formation, balance-of-payments behavior, and welfare are compared under autarky and openness. With a positive natural rate of growth, the low-time-preference country runs a current account surplus in the steady state but not necessarily outside it. If preexisting capital is not shiftable between countries, integration in the world economy makes the high-time-preference country worse off in the short run. The ranking of stationary utility levels under autarky and openness is ambiguous.

Booming Sector and De-Industrialisation in a Small Open Economy

Abstract: This paper presents a theoretical analysis of the 'Dutch Disease': the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors, both by directly bi ...

Looking into the Black Box: A Survey of the Matching Function

Abstract: This paper surveys the microfoundations, empirical evidence, and estimation issues underlying the aggregate matching function. There is no consensus yet on microfoundations but one is emerging on estimation. An aggregate, constant returns, Cobb-Douglas matching function with hires as a function of vacancies and unemployment has been successfully estimated for several countries. Recent work has utilized disaggregated data to go beyond aggregate estimates, with many refinements and suggestions for future research. The paper discusses spatial aggregation issues, and implications of on-the-job search and of the timing of stocks and flows for estimated matching functions.