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Labor Market Slack in the United Kingdom

October 21, 2014 Comments off

Labor Market Slack in the United Kingdom (PDF)
Source: Peterson Institute for International Economics

This paper examines the amount of slack in the UK labor market and finds the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment invalid. Without evidence to support its assessment of the output gap, the MPC reduces the level of unemployment based on its claim that long-term unemployment does not affect wages. The authors produce evidence to the contrary and present arguments on why the MPC’s halving of the level of underemployment in the United Kingdom is inappropriate. Bell and Blanchflower set out arguments on why they believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.

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Using US Strategic Reserves to Moderate Potential Oil Price Increases from Sanctions on Iran

March 19, 2012 Comments off

Using US Strategic Reserves to Moderate Potential Oil Price Increases from Sanctions on Iran
Source: Peterson Institute for International Economics

The new, draconian sanctions introduced by the United States and the European Union to prevent Iran from earning money from its crude oil exports could pose a serious economic threat to oil-importing countries that also trade heavily with the US and EU economies. Nations such as China, South Korea, and Japan, which obtain significant amount of oil from Iran while enjoying large trade surpluses with the United States, are justifiably anxious. These countries and others worry that by pushing Iran from the global crude market, the new US and EU sanctions will disrupt oil markets, increase crude prices, and further slow global economic growth, which, at a minimum, would cut their export revenues. Saudi Arabia and other members of the Oil and Petroleum Exporting Countries (OPEC) have indicated they would replace oil previously purchased from Iran, but these offers have done little to allay the apprehensions.

Verleger suggests a way to put real pressure on Iran while moderating or eliminating economic fallout for the US and EU economies and those of their trading partners: selling oil from the US Strategic Petroleum Reserve (SPR), which now holds far more oil than required by treaty obligations—more than 280 million surplus barrels. This strategic use of the SPR will increase the effectiveness of sanctions on Iran and ease the adjustment difficulties that confront US allies. The sales might also reduce any price pressure caused by removal of light Iranian crude from the market.

+ Full Paper (PDF)

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