“Austrian” school of economics – which traces its roots to 19th-century Vienna, is more sternly pre-Freudian: more inhibition, not less, is its prescription. Its adherents believe that part of the economy’s suffering is necessary, an inevitable consequence of past excesses. They do not think the Federal Reserve can rescue the economy. They seek instead to rescue the economy from the Fed.
Automatic stabilisers – the changes in tax revenues and unemployment benefits that come automatically with movements in the economic cycle. The size of automatic stabilisers varies between countries. As a rule, the higher the ratio of taxes to GDP and the more progressive the income-tax system, the greater the impact of recession on a budget deficit. Countries where tax revenues are small relative to GDP, such as America, Britain and Japan, tend to have relatively modest automatic stabilisers.
Carry trade – investors borrow in low-yielding currencies to finance investments in higher-yielding ones.
Countercyclical fiscal policy – saving in booms and easing in recession (see Jefrey Frankel Article .)
Deflation – general fall in prices.
Fiscal cliff – automatic tax increases and spending cuts (see Nouriel Roubini Article).
Flexicurity– first coined in Denmark, this is an appalling word for an appealing idea: that Europeans will tolerate more flexible labour markets (ie, quicker firing) so long as they have the security of generous social assistance if things go wrong.
Grexit is a newly-coined term created by Citigroup’s Ebrahim Rahbari and first published in an informational paper authored by him and Citi Chief Economist Willem Buiter. It combines “Greek” or “Greece” with the word “exit” and refers to the possibility of Greece leaving the Eurozone. The word has been picked up by media worldwide and it may well worm its way into the official lexicon. And it certainly has Greek roots beyond the obvious “Gr” – the word “exit” itself comes from the Greek “exodos”, meaning “going out”.
“informal” or “grey” economy – In essence, the grey economy consists of legal activities whose participants fail to pay tax or comply with regulations. The informal (or “underground” or “parallel” economy) is often taken to mean something broader, including illegal activities such as prostitution and drug dealing as well, although there is no agreed strict definition.
incentive compatible, optimal tax system – that is, it must give people an incentive to tell the truth, as it were, about their productivity through their choice of how hard to work. So if the government designs a tax scheme in which it wants more productive people to work harder, it must choose tax rates that induce them to do so. This is the most important insight of James Mirrlees,who together with William Vickrey have won the 1996 Nobel prize in economics for helping to answer an important question: how do you deal with someone who knows more than you do?
Lafferite belief – lower tax rates would encourage people to work so much harder, or draw so many new people into the workforce, that the government ended up with higher revenues.
Lump-sum taxes—poll taxes.
Market monetarists – favour more audacity in the monetary realm. Tight money caused America’s Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can.
NEET is a government acronym for people currently “not in education, employment, or training”. People under the designation are called NEETs (or Neets).
neo-chartalism – (sometimes called “Modern Monetary Theory”. The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.
Portfolio rebalancing – the investors who sell securities to the central bank then take the proceeds and buy other assets, raising their prices. Lower bond yields encourage borrowing; higher equity prices raise consumption; both help investment and boost demand. To the extent that investors add foreign assets, portfolio rebalancing also weakens the domestic currency, fuelling exports.
Poverty paradox – the fact that most of the world’s extreme poor no longer live in the world’s poorest countries. (see Andy Sumner‘s paper)
Quantitative easing (QE) – the creation of money to buy assets.
Rubinomics – (after Robert Rubin, Bill Clinton’s treasury secretary), other things equal, a higher long-run budget deficit—or a smaller surplus—reduces national saving. This could be avoided only if larger deficits were fully offset by higher saving in the private sector, as households, recognising that deficits today meant higher taxes tomorrow, saved more to make up for the government’s profligacy.
Uncovered interest parity – Countries that offer high interest rates should be compensating investors for the risk that their currency will depreciate. In other words, the forward rate should be a good guess of the likely future spot rate.
(Published February 2000) Glossary on macroeconomics from a gender perspective, by Patricia Alexander with Sally Baden