Working Papers

2012 02

FIRB Transparency and the Colmer Doctrine Revisited

Nomura’s head of mergers and acquisitions, Grant Chamberlain, has called for greater transparency in the regulation of foreign direct investment, as reported in The Australian:

There were generally clear guidelines when it came to FIRB policy, but “but when it comes to SOEs, the picture changes”.

He said the only public information recently had been the “Colmer doctrine”, comments made by then FIRB executive director Patrick Colmer at a conference on Australia-China investment in September 2009.

Mr Colmer said the Australian government preferred that foreign investment by state-owned enterprises was kept to less than 50 per cent for greenfields projects and less than 15 per cent for major producers.

Mr Chamberlain said that it was impossible to actually get a copy of Colmer’s comments and that there was confusion about what would be considered as a “major producer”.

In fact, it is possible to get a copy of the speech here, but only due to a Freedom of Information request I made of the FIRB. The saga behind the speech and my efforts to obtain a copy are detailed in this op-ed in The Australian. Chamberlain’s speech proves the point I made in my original FOI application that releasing the speech was in the public interest.

posted on 28 February 2012 by skirchner in Economics, Financial Markets, Foreign Investment

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The $1.7 trillion Road Not Taken

It turns out that Christina Romer recommended the Obama Administration implement a $1.7 trillion rather than $800 billion stimulus in late 2008 in order to “eliminate the output gap by 2011-Q1.” In one respect, it’s unfortunate that this was not implemented. While one can have an argument about whether an $800 billion stimulus was large enough, it would have been impossible to rationalise the failure of a $1.7 trillion stimulus. It would have been a definitive, even if disastrous, macroeconomic policy experiment.

posted on 22 February 2012 by skirchner in Economics, Fiscal Policy

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Mortgage Interest Rate Margins in Australia and the US

A story in the WSJ about mortgage interest rate spreads in the United States perfectly parallels the debate in Australia. The story notes that:

Analysts stress it is difficult to disentangle how much of the spread is due to pricing power from banks with more control of the market, and how much might represent structurally higher costs of doing business in the U.S. mortgage market reshaped by the crisis.

However, the fact that the US and Australia are experiencing essentially the same phenomenon argues against country-specific factors as the explanation. Capital markets are global and Australia is necessarily a price-taker in these global markets, a point forever lost on our parochial media and politicians.

posted on 22 February 2012 by skirchner in Economics, Financial Markets

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Future Funds or Future Eaters? The Case Against a Sovereign Wealth Fund for Australia

CIS have published a new Policy Monograph by Robert Carling and myself making the case against the use of sovereign wealth funds in the Australian context. We argue that the desirable objectives of a sovereign wealth fund can be better met through greater use of fiscal responsibility legislation.

The Business Council of Australia also argues against a SWF and in favour of fiscal policy rules in its just released 2012 budget submission.

posted on 19 February 2012 by skirchner in Economics, Fiscal Policy

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Quiggin versus Carling and Kirchner

John Quiggin accuses Robert Carling and I of ‘an appalling breach of elementary standards of research’ for not acknowledging that Alberto Alesina’s work on the effectiveness of fiscal stimulus and consolidations is ‘highly controversial.’ In fact, we referenced Alesina’s work precisely because it has featured so prominently in public debate, including in the pages of The Economist magazine. We also referenced Alesina for the comprehensiveness of his research. His papers include balanced summaries of the relevant literature. Alesina has responded to the criticisms of his work.

Even the most casual reader could not be unaware that this is a controversial topic, not least among academic economists. The op-ed was entirely premised on the existence of this controversy. We could have cited other literature on this question on both sides of the debate, but an op-ed is not the place for a literature review (Sinclair Davidson addresses the issue of peer review here). Alesina’s work and the debate around it is simply the most accessible, as John demonstrates.

It should be no surprise that there is conflicting evidence and debate on this question, something Alesina and we are happy to acknowledge even if we come down on one side of the debate. In the absence of some definitive natural experiment or methodological breakthrough, this is a controversy that will be with us for some time yet, despite John’s determination to see this and so many other controversies dead and buried in his favour.

posted on 09 February 2012 by skirchner in Economics, Fiscal Policy

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Give Austerity a Chance

Robert Carling and I have an op-ed in today’s AFR making the case for fiscal austerity. Drawing on the work of Alberto Alesina and his co-authors, we note that austerity may work politically as well as economically:

Interestingly enough, Alesina and his co-authors also show that fiscal consolidations do not generally reduce the popularity of governments or make it more likely they will lose elections.

Indeed, they go so far as to say that “it is impossible to find systematic evidence of predictable political losses following fiscal adjustments”.

This is entirely consistent with their finding that fiscal consolidations need not have adverse implications for economic growth and may even support growth. Electorates seem to recognise this, even if politicians do not.

posted on 08 February 2012 by skirchner in Economics, Fiscal Policy, Monetary Policy

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