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With President Milei's election in Argentina, dollarization is suddenly on the table. I'm for it. Here's why. Why not? A standard of valueStart with "why not?'' Dollarization, not a national currency, is actually a sensible default. The dollar is the US standard of value. We measure length in feet, weight in pounds, and the value of goods in dollars. Why should different countries use different measures of value? Wouldn't it make sense to use a common standard of value? Once upon a time every country, and often every city, had its own weights and measures. That made trade difficult, so we eventually converged on international weights and measures. (Feet and pounds are actually a US anachronism since everyone else uses meters and kilograms.  Clearly if we had to start over we'd use SI units, as science and engineering already do.) Moreover, nobody thinks it's a good idea to periodically shorten the meter in order to stimulate the economy, say by making the sale of cloth more profitable. As soon as people figure out they need to buy more cloth to make the same jeans, the profit goes away. PrecommitmentPrecommitment is, I think,  the most powerful argument for dollarization (as for euorization of, say, Greece): A country that dollarizes cannot print money to spend more than it receives in taxes. A country that dollarizes must also borrow entirely in dollars, and must endure costly default rather than relatively less costly inflation if it doesn't want to repay debts. Ex post inflation and devaluation is always tempting, to pay deficits, to avoid paying debt, to transfer money from savers to borrowers, to advantage exporters, or to goose the economy ahead of elections. If a government can precommit itself to eschew inflation and devaluation, then it can borrow a lot more money on better terms, and its economy will be far better off in the long run. An independent central bank is often advocated for precommitment value. Well, locating the central bank 5,000 miles away in a country that doesn't care about your economy is as independent as you can get!The Siren Vase. Greek 480-470 BC. Source: The Culture CriticPrecommitment is an old idea. See picture. It's hard. A country must set things up so that it cannot give in to temptation ex post, and it will regret and try to wriggle out of that commitment when the time comes. A lot of the structure of our laws and government amount to a set of precommitments. An independent central bank with a price-level mandate is a precommitment not to inflate. A constitution and property rights are precommitments not to expropriate electoral minorities. Especially in Argentina's case, precommitment is why full dollarization is better than an exchange rate peg or a currency board. A true exchange rate peg -- one dollar for one peso, as much as you like -- would seem to solve the temptation-to-inflate problem. But the country can always abrogate the peg, reinstitute currency controls, and inflate. An exchange rate peg is ultimately a fiscal promise; the country will raise enough taxes so that it can get the dollars necessary to back its currency. When that seems too hard, countries devalue the peg or abandon it altogether. A currency board is tougher. Under a currency board,  every peso issued by the government is backed by a dollar. That seems to ensure adequate reserves to handle any conceivable run. But a strapped government eyes the great Uncle-Scrooge swimming pool full of dollars at the currency board, and is tempted to abrogate the board, grab the assets and spend them. That's exactly how Argentina's currency board ended. Dollarization is a burn the ships strategy. There is no return. Reserves are neither necessary nor sufficient for an exchange rate peg. The peg is a fiscal promise and stands and falls with fiscal policy. A currency board, to the governmentFull dollarization -- the country uses actual dollars, and abandons its currency -- cannot be so swiftly undone. The country would have to pass laws to reinstitute the peso, declare all dollar contracts to be Peso contracts, ban the use of dollars and try to confiscate them. Dollars pervading the country would make that hard. People who understand their wealth is being confiscated and replaced by monopoly money would make it harder -- harder than some technical change in the amount of backing at the central bank for the same peso notes and bank accounts underlying a devalued peg or even an abrogated currency board. The design of dollarization should make it harder to undo. The point is precommitment, to make it as costly as possible for a following government to de-dollarize, after all. It's hard to confiscate physical cash, but if domestic Argentine banks have dollar accounts and dollar assets, it is relatively easy to pronounce the accounts in pesos and grab the assets. It would be better if dollarization were accompanied by full financial, capital, and trade liberalization, including allowing foreign banks to operate freely and Argentinian banks to become subsidiaries of foreign banks. Absence of a central bank and domestic deposit insurance will make that even more desirable. Then Argentinian bank "accounts" could be claims to dollar assets held offshore, that remain intact no matter what a future Peronist government does. Governments in fiscal stress that print up money, like Argentina, also impose an array of economy-killing policies to try to prop up the value of their currency, so the money printing generates more revenue. They restrict imports with tariffs, quotas, and red tape; they can restrict exports to try to steer supply to home markets at lower prices; they restrict currency conversion and do so at manipulated rates; they restrict capital markets, stopping people from investing abroad or borrowing abroad; they force people to hold money in oligopolized bank accounts at artificially low interest rates. Dollarization is also a precommitment to avoid or at least reduce all these harmful policies, as generating a demand for a country's currency doesn't do any good to the government budget when there isn't a currency. Zimbabwe dollarized in 2009, giving up on its currency after the greatest hyperinflation ever seen. The argument for Argentina is similar. Ecuador dollarized successfully in much less trying circumstances. It's not a new idea, and unilateral dollarization is possible. In both cases there was a period in which both currencies circulated. (Sadly, Zimbabwe ended dollarization in 2019, with a re-introduction of the domestic currency and redenomination of dollar deposits at a very unfavorable exchange rate. It is possible to undo, and the security of dollar bank accounts in face of such appropriation is an important part of the dollarization precommitment.) The limits of precommitmentDollarization is no panacea. It will work if it is accompanied by fiscal and microeconomic reform. It will be of limited value otherwise. I'll declare a motto: All successful inflation stabilizations have come from a combination of fiscal, monetary and microeconomic reform. Dollarization does not magically solve intractable budget deficits. Under dollarization, if the government cannot repay debt or borrow, it must default.  And Argentina has plenty of experience with sovereign default. Argentina already borrows abroad in dollars, because nobody abroad wants peso debt, and has repeatedly defaulted on dollar debt.  The idea of dollar debt is that explicit default is more costly than inflation, so the country will work harder to repay debt. Bond purchasers, aware of the temptation to default, will put clauses in debt contracts that make default more costly still. For you to borrow, you have to give the bank the title to the house. Sovereign debt issued under foreign law, with rights to grab assets abroad works similarly. But sovereign default is not infinitely costly and countries like Argentina sometimes choose default anyway. Where inflation may represent simply hugging the mast and promising not to let go, default is a set of loose handcuffs that you can wriggle out of painfully. Countries are like corporations. Debt denominated in the country's own currency is like corporate equity (stock): If the government can't or won't pay it back the price can fall, via inflation and currency devaluation. Debt denominated in foreign currency is like debt: If the government can't or won't pay it back, it must default. (Most often, default is partial. You get back some of what is promised, or you are forced to convert maturing debt into new debt at a lower interest rate.) The standard ideas of corporate finance tell us who issues debt and who issues equity.  Small businesses, new businesses, businesses that don't have easily valuable assets,  businesses where it is too easy for the managers to hide cash, are forced to borrow, to issue debt. You have to borrow to start a restaurant. Businesses issue equity when they have good corporate governance, good accounting, and stockholders can be sure they're getting their share. These ideas apply to countries, and the choice between borrowing in their own currency and borrowing in foreign currency. Countries with poor governance, poor accounting, out of control fiscal policies, poor institutions for repayment, have to borrow in foreign currency if they are going to borrow at all, with intrusive conditions making default even more expensive. Issuing and borrowing in your own currency, with the option to inflate, is the privilege of countries with good institutions, and democracies where voters get really mad about inflation in particular. Of course, when things get really bad, the country can't borrow in either domestic or foreign currency. Then it prints money, forcing its citizens to take it. That's where Argentina is. In personal finance, you start with no credit at all; then you can borrow; finally you can issue equity. On the scale of healthier economies, dollarizing is the next step up for Argentina. Dollarization and foreign currency debt have another advantage. If a country inflates its way out of a fiscal mess, that benefits the government but also benefits all private borrowers at the expense of private savers. Private borrowing inherits the inflation premium of government borrowing, as the effective government default induces a widespread private default. Dollarization and sovereign default can allow the sovereign to default without messing up private contracts, and all prices and wages in the economy. It is possible for sovereigns to pay higher interest rates than good companies, and the sovereign to be more likely to default than those companies. It doesn't always happen, because sovereigns about to default usually grab all the wealth they can find on the way down, but the separation of sovereign default from inflationary chaos is also an advantage. Greece is a good example, and a bit Italy as well, both in the advantages and the cautionary tale about the limitations of dollarization. Greece and Italy used to have their own currencies. They also had borders, trade controls, and capital controls. They had regular inflation and devaluation. Every day seemed to be another "crisis" demanding another "just this once" splurge. As a result, they paid quite high interest rates to borrow, since savvy bondholders wanted insurance against another "just this once."They joined the EU and the eurozone. This step precommitted them to free trade, relatively free capital markets, and no national currency.  Sovereign default was possible, but regarded as very costly. Having banks stuffed with sovereign debt made it more costly.  Leaving the euro was possible, but even more costly. Deliberately having no plan to do so made it more costly still. The ropes tying hands to the mast were pretty strong. The result: borrowing costs plummeted. Governments, people and businesses were able to borrow at unheard of low rates. And they did so, with aplomb. The borrowing could have financed public and private investment to take advantage of the new business opportunities the EU allowed. Sadly it did not. Greece soon experienced the higher ex-post costs of default that the precommitment imposed. Dollarizaton -- euroization -- is a precommitment, not a panacea. Recommitments impose costs on yourself ex post. Those costs are real.  A successful dollarization for Argentina has to be part of a joint monetary, fiscal, and microeconomic reform. (Did I say that already? :) ) If public finances aren't sorted out, a default will come eventually. And public finances don't need a sharp bout of "austerity" to please the IMF. They need decades of small primary surpluses, tax revenues slightly higher than spending, to credibly pay down any debt. To get decades of revenue, the best answer is growth. Tax revenue equals tax rate times income. More income is a lot easier than higher tax rate, which at least partially lowers income. Greece and Italy did not accomplish the microeconomic reform part. Fortunately, for Argentina, microeconomic reform is low-hanging fruit, especially for a Libertarian president. TransitionWell, so much for the Promised Land, they may have asked of Moses, how do we get there? And let's not spend 40 years wandering the Sinai on the way. Transition isn't necessarily hard. On 1 January 1999, Italy switched from Lira to Euro. Every price changed overnight, every bank account redenominated, every contract reinterpreted, all instantly and seamlessly. People turned in Lira banknotes for Euro banknotes. The biggest complaint is that stores might have rounded up converted prices. If only Argentina could have such problems. Why is Argentina not the same? Well, for a lot of reasons. Before getting to the euro, Italy had adopted the EU open market. Exchange rates had been successfully pegged at the conversion rate, and no funny business about multiple rates. The ECB (really the Italian central bank) could simply print up euros to hand out in exchange for lira. The assets of the Italian central bank and other national central banks were also redenominated in euro, so printing up euros to soak up national currencies was not inflationary -- assets still equal liabilities. Banks with lira deposits that convert to Euro also have lira assets that convert to euro. And there was no sovereign debt crisis, bank crisis,  or big inflation going on. Italian government debt was trading freely on an open market. Italy would spend and receive taxes in euros, so if the debt was worth its current price in lira as the present value of surpluses,  it was worth exactly the same price, at the conversion rate, in euro. None of this is true in Argentina. The central problem, of course, is that the government is broke. The government does not have dollars to exchange for Pesos. Normally, this would not be a problem. Reserves don't matter, the fiscal capacity to get reserves matters. The government could simply borrow dollars internationally, give the dollars out in exchange for pesos, and slowly pay off the resulting debt. If Argentina redenominated interest-bearing peso debt to dollars at a market exchange rate, that would have no effect on the value of the debt. Obviously, borrowing additional dollars would likely be difficult for Argentina right now. To the extent that its remaining debt is a claim to future inflationary seigniorage revenues, its debt is also worth less once converted to dollars, even at a free market rate, because without seigniorage or fiscal reforms, budget deficits will increase. And that leads to the primary argument against dollarization I hear these days. Yes it might be the promised land, but it's too hard to get there. I don't hear loudly enough, though, what is the alternative? One more muddle of currency boards, central bank rules, promises to the IMF and so forth? How do you suddenly create the kind of stable institutions that Argentina has lacked for a century to justify a respectable currency? One might say this is a problem of price, not of quantity. Pick the right exchange rate, and conversion is possible. But that is not even clearly true. If the state is truly broke, if pesos are only worth anything because of the legal restrictions forcing people to hold them, then pesos and peso debt are genuinely worthless. The only route to dollarization would be essentially a complete collapse of the currency and debt. They are worth nothing. We start over. You can use dollars, but you'll have to export something to the US -- either goods or capital, i.e. stock and bonds in private companies -- to get them. (Well, to get any more of them. Lots of dollars line Argentine mattresses already.) That is enough economic chaos to really put people off. In reality, I think the fear is not a completely worthless currency, but that a move to quick dollarization would make peso and peso claims worth very little, and people would rebel against seeing their money holdings and bank accounts even more suddenly worthless than they are now. Maybe, maybe not. Just who is left in Argentina counting on a robust value of pesos? But the state is not worth nothing. It may be worth little in mark to market, or current dollar borrowing capacity. But a reformed, growing Argentina, with tax, spending, and microeconomic reform, could be a great place for investment, and for tax revenue above costs. Once international lenders are convinced those reform efforts are locked in, and Argentina will grow to anything like its amazing potential, they'll be stumbling over themselves to lend. So a better dollarization plan redeems pesos at the new greater value of the post-reform Argentine state. The question is a bit of chicken and egg: Dollarization has to be part of the reform, but only reform allows  dollarization with a decent value of peso exchange.  So there is a genuine question of sequencing of reforms. This question reminds me of the totally fruitless discussion when the Soviet Union broke up. American economists amused themselves with clever optimal sequencing of liberalization schemes. But if competent benevolent dictators (sorry, "policy-makers") were running the show, the Soviet Union wouldn't have failed in the first place. The end of hyperinflation in Germany. Price level 1919-1924. Note left-axis scale. Source: Sargent (1982) "The ends of four big inflations." A better historical analogy is, I think, the ends of hyperinflation after WWI, so beautifully described by Tom Sargent in 1982. The inflations were stopped by a sudden, simultaneous, fiscal, monetary, and (to some extent) microeconomic reform. The fiscal problem was solved by renegotiating reparations under the Versailles treaty, along with  severe cuts in domestic spending, for example firing a lot of government and (nationalized) railroad workers. There were monetary reforms, including an independent central bank forbidden to buy government debt. There were some microeconomic reforms as well. Stopping inflation took no monetary stringency or high interest rates: Interest rates fell, and the governments printed more money, as real money demand increased. There was no Phillips curve of high unemployment. Employment and the economies boomed. So I'm for almost-simultaneous and fast reforms. 1) Allow the use of dollars everywhere. Dollars and pesos can coexist. Yes, this will put downward pressure on the value of the peso, but that might be crucial to maintain interest in the other reforms, which will raise the value of the peso. 2) Instant unilateral free trade and capital opening. Argentina will have to export goods and capital to get dollars. Get out of the way. Freeing imports will lower their prices and make the economy more efficient. Capital will only come in, which it should do quickly, if it knows it can get out again. Float the peso. 3) Long list of growth - oriented microeconomic reforms. That's why you elected a Libertarian president.  4) Slash spending. Reform taxes. Low marginal rates, broad base. Subsidies in particular distort prices to transfer income. Eliminate. 5)  Once reforms are in place, and Argentina has some borrowing capacity, redenominate debt to dollars, and borrow additional dollars to exchange pesos for dollars. All existing peso contracts including bank accounts change on the date. Basically, you want people to hold peso bills and peso debt in the interim as claims on the post-reform government. Peso holders have an incentive to push for reforms that will raise the eventual exchange value of the peso.   6) Find an interim lender. The central problem is who will lend to Argentina in mid stream in order to retire pesos. This is like debtor in possession financing but for a bankrupt country. This could be a job for the IMF. The IMF could lend Argentina dollars for the purpose of retiring pesos. One couldn't ask for much better "conditionality" than a robust Libertarian pro-growth program. Having the IMF along for the ride might also help to commit Argentina to the program. (The IMF can force conditionality better than private lenders.) When things have settled down, Argentina should be able to borrow dollars privately to pay back the IMF. The IMF might charge a decent interest rate to encourage that. How much borrowing is needed? Less than you think. Interest-paying debt can simply be redenominated in dollars once you pick a rate. That might be hard to pay off, but that's a problem for later. So Argentina really only needs to borrow enough dollars to retire cash pesos. I can't find numbers, but hyper inflationary countries typically don't have much real value of cash outstanding. The US has 8% of GDP in currency outstanding. If Argentina has half that, then it needs to borrow only 4% of GDP in dollars to buy back all its currency. That's not a lot. If the peso really collapses, borrowing a little bit more (against great future growth of the reform program) to give everyone $100, the sort of fresh start that Germany did after WWII and after unification, is worth considering. Most of the worry about Argentina's borrowing ability envisions continued primary deficits with slow fiscal adjustment. Make the fiscal adjustment tomorrow."You never want a serious crisis to go to waste," said Rahm Emanuel wisely. "Sequencing" reforms means that everything promised tomorrow is up for constant renegotiation. Especially when parts of the reform depend on other parts, I'm for doing it all as fast as possible, and then adding refinements later if need be. Roosevelt had his famous 100 days, not a 8 year sequenced program. The Argentine reform program is going to hurt a lot of people, or at least recognize losses that had long been papered over in the hope they would go away. Politically, one wants  to make the case "We're all in this, we're all hurting. You give up your special deal, preferential exchange rate, special subsidy or whatever, but so will everyone else. Hang with me to make sure they don't get theirs, and in a year we'll all be better off." If reforms are in a long sequence, which means long renegotiation, it's much harder to get buy in from people who are hurt earlier on that the ones who come later will also do their part.  The standard answersOne standard critique of dollarization is  monetary policy and "optimal currency areas." By having a national currency, the country's wise central bankers can artfully inflate and devalue the currency on occasion to adapt to negative shocks, without the inconvenience and potential dislocation of everyone in the country lowering prices and wages. Suppose, say, the country produces beef, and exports it in order to import cars. If world demand for beef declines, the dollar price of beef declines. The country is going to have to import fewer cars. In a dollarized country, or with a pegged exchange rate,  the internal price of beef and wages go down. With its own country and a floating rate, the value of the currency could go down, leaving beef and wages the same inside the country, but the price of imported cars goes up.  If lowering prices and wages causes more recession and dislocation than raising import prices, then the artful devaluation is the better idea.  (To think about this question more carefully you need traded and non-traded goods; beef, cars, and haircuts. The relative price of beef, cars, and haircuts along with demand for haircuts is also different under the two regimes). Similarly, suppose there is a "lack of demand'' recession and deflation. (90 years later, economists are still struggling to say exactly where that comes from.) With its own central bank and currency, the country can artfully inflate just enough to offset the recession. A country that dollarizes also has to import not-always-optimal US inflation. Switzerland did a lot better than the US and EU once again in the covid era. This line of thinking answers the question, "OK, if Argentina ($847 bn GDP, beef exports) should have its own currency in order to artfully offset shocks, why shouldn't Colorado ($484 bn GDP, beef exports)?''  Colorado is  more dependent on trade with the rest of the US than is Argentina. But, the story goes, people can more easily move across states. A common federal government shoves "fiscal stimulus" to states in trouble. Most of all, "lack of demand" recessions seem to be national, in part because of the high integration of states, so recessions are fought by national policy and don't need state-specific monetary stimulus. This is the standard "optimal currency area" line of thinking, which recommends a common currency in an integrated free trade zone such as US, small Latin American countries that trade a lot with the US, and Europe. Standard thinking especially likes a common currency in a fiscal union.  Some commenters felt Greece should keep or revert to the Drachma because the EU didn't have enough common countercyclical fiscal policy. It likes independent currencies elsewhere.I hope you're laughing out loud by now. A wise central bank, coupled with a thrifty national government, that artfully inflates and devalues just enough to technocratically exploit price stickiness and financial frictions, offsetting national "shocks" with minimum disruption, is a laughable description of Argentina's fiscal and monetary policies. Periodic inflation, hyperinflation and default, together with a wildly overregulated economy with far too much capital and trade controls is more like it. The lure of technocratic stabilization policy in the face of Argentina's fiscal and monetary chaos is like fantasizing whether you want the tan or black leather on your new Porsche while you're on the bus to Carmax to see if you can afford a 10-year old Toyota. Another reason people argue that even small countries should have their own currencies is to keep the seigniorage. Actual cash pays no interest. Thus, a government that issues cash earns the interest spread between government bonds and interest. Equivalently, if demand for cash is proportional to GDP, then as GDP grows, say 2% per year, then the government can let cash grow 2% per year as well, i.e. it can print up that much cash and spend it. But this sort of seigniorage is small for modern economies that don't have inflation. Without inflation, a well run economy might pay 2% for its debt, so save 2% by issuing currency. 2% interest times cash which is 10% of GDP is 0.2% of GDP. On the scale of Argentinian (or US) debt and deficits, that's couch change.  When inflation is higher, interest rates are higher, and seigniorage or the "inflation tax" is higher. Argentina is living off that now. But the point is not to inflate forever and to forswear bigger inflation taxes. Keeping this small seigniorage is one reason for countries to keep their currency and peg to the dollar or run a currency board. The currency board holds interest-bearing dollar assets, and the government gets the interest. Nice. But as I judge above, the extra precommitment value of total dollarization is worth the small lost seigniorage.  Facing Argentina's crisis, plus its catastrophic century of lost growth, lost seigniorage is a cost that I judge far below the benefit. Other countries dollarize, but agree with the US Fed to rebate them some money for the seigniorage. Indeed, if Argentina dollarizes and holds 10% of its GDP in non-interest-bearing US dollars, that's a nice little present to the US. A dollarization agreement with Argentina to give them back the seignorage would be the least we can do. But I don't think Argentina should hold off waiting for Jay Powell to answer the phone. The Fed has other fires to put out. If Argentina unilaterally dollarizes, they can work this sort of thing out later. Dollarization would obviously be a lot easier if it is worked out together with the US government and US banks. Getting cash sent to Argentina, getting banks to have easy payment systems in dollars and links to US banks would make it all easier. If Argentina gets rid of its central bank it still needs a payment system to settle claims in dollars. Accounts at, say, Chase could function as a central bank. But it would all be easier if the US cooperates. Updates:Some commenters point out that Argentina may be importing US monetary policy just as the US imports Argentine fiscal policy. That would lead to importing a big inflation. They suggest a Latin American Monetary Union, like the euro, or using a third country's currency. The Swiss franc is pretty good. Maybe the Swiss can set the world standard of value. Both are good theoretical ideas but a lot harder to achieve in the short run. Dollarization will be hard enough. Argentines have a lot of dollars already, most trade is invoiced in dollars so getting dollars via trade is relatively easy, the Swiss have not built out a banking infrastructure capable of being a global currency. The EMU lives on top of the EU, and has its own fiscal/monetary problems. Building a new currency before solving Argentina's problems sounds like a long road. The question asked was dollarization, so I stuck to that for now. I imagined here unilateral dollarization. But I didn't emphasize enough: The US should encourage dollarization! China has figured this out and desperately wants anyone to use its currency. Why should we not want more people to use our currency? Not just for the seigniorage revenue, but for the ease of trade and international linkages it promotes. The Treasury and Fed should have a "how to dollarize your economy" package ready to go for anyone who wants it. Full integration is not trivial, including access to currency, getting bank access to the Fed's clearing systems, instituting cyber and money laundering protocols, and so forth. Important update: Daniel Raisbeck and Gabriela Calderon de Burgos at CATO have a lovely essay on Argentinian dollarization, also debunking an earlier Economist article that proclaimed it impossible. They include facts and comparison with other dollarization experiences, not just theory as I did. (Thanks to the correspondent who pointed me to the essay.) Some quotes:At the end of 2022, Argentines held over $246 billion in foreign bank accounts, safe deposit boxes, and mostly undeclared cash, according to Argentina's National Institute of Statistics and Census. This amounts to over 50 percent of Argentina's GDP in current dollars for 2021 ($487 billion). Hence, the dollar scarcity pertains only to the Argentine state....The last two dollarization processes in Latin American countries prove that "purchasing" the entire monetary base with U.S. dollars from one moment to the next is not only impractical, but it is also unnecessary. In both Ecuador and El Salvador, which dollarized in 2000 and 2001 respectively, dollarization involved parallel processes. In both countries, the most straightforward process was the dollarization of all existing deposits, which can be converted into dollars at the determined exchange rate instantly.in both Ecuador and El Salvador, dollarization not only did not lead to bank runs; it led to a rapid and sharp increase in deposits, even amid economic and political turmoil in Ecuador's case....There is a general feature of ending hyperinflation: People hold more money. In this case, people hold more bank accounts once they know those accounts are safe. Short summary of the rest, all those dollar deposits (out of mattresses into the banking system) allowed the central bank to retire its local currency liabilities. Emilio Ocampo, the Argentine economist whom Milei has put in charge of plans for Argentina's dollarization should he win the presidency, summarizes Ecuador's experience thus:People exchanged their dollars through the banks and a large part of those dollars were deposited in the same banks. The central bank had virtually no need to disburse reserves. This was not by design but was a spontaneous result.In El Salvador also, Dollar deposits also increased spontaneously in El Salvador, a country that dollarized in 2001. By the end of 2022, the country's deposits amounted to 49.6 percent of GDP—in Panama, another dollarized peer, deposits stood at 117 percent of GDP.El Salvador's banking system was dollarized immediately, but the conversion of the circulating currency was voluntary, with citizens allowed to decide if and when to exchange their colones for dollars. Ocampo notes that, in both Ecuador and El Salvador, only 30 percent of the circulating currency had been exchanged for dollars four months after dollarization was announced so that both currencies circulated simultaneously. In the latter country, it took over two years for 90 percent of the monetary base to be dollar‐​based.Cachanosky explains that, in an El Salvador‐​type, voluntary dollarization scenario, the circulating national currency can be dollarized as it is deposited or used to pay taxes, in which case the sums are converted to dollars once they enter a state‐​owned bank account. Hence, "there is no need for the central bank to buy the circulating currency" at a moment's notice.Dollarization starts with both currencies and a peg. As long as people trust that dollarization will happen at the peg, the conversion can take a while. You do not need dollars to soak up every peso on day 1. Dollarization is, above, a commitment that the peg will last for years, not a necessary commitment that the peg will last a day. I speculated about private borrowing at lower rates than the sovereign, once default rather than inflation is the only way out for the sovereign. This happened: ... as Manuel Hinds, a former finance minister in El Salvador, has explained, solvent Salvadorans in the private sector can borrow at rates of around 7 percent on their mortgages while international sovereign bond markets will only lend to the Salvadoran government at far higher rates. As Hinds writes, under dollarization, "the government cannot transfer its financial costs to the private sector by printing domestic money and devaluing it."A nice bottom line: Ask people in Ecuador, El Salvador, and Panama what they think:This is yet another lesson of dollarization's actual experience in Latin American countries. It is also a reason why the vast majority of the population in the dollarized nations has no desire for a return to a national currency. The monetary experiences of daily life have taught them that dollarization's palpable benefits far outweigh its theoretical drawbacks. Even more important update:From Nicolás Cachonosky How to Dollarize Argentina  The central problem is non-money liabilities of the central bank. A detailed plan. Many other blog posts at the link. See his comment below.  Tyler Cowen on dollarization in Bloomberg. Great quote: The question is not how to adopt a new currency, it is how to adopt a new currency and retain a reasonable value for the old one. Dollarization is easy. Hyperinflate the Peso to zero a la Zimbabwe.  Repeat quote. Emilio Ocampo on dollarization as a commitment device. One of the main reasons to dollarize is to eliminate high, persistent, and volatile inflation. However, to be effective, dollarization must generate sufficient credibility, which in turn depends critically on whether its expected probability of reversal is low.... The evidence suggests that, in the long-run, the strongest insurance against reversal is the support of the electorate, but in the short-run, institutional design [dollarization] can play a critical role.Fifty years ago, in testimony to U.S. Congress, Milton Friedman argued that "the whole reason why it is an advantage for a developing country to tie to a major country is that, historically speaking, the internal policies of developing countries have been very bad. U.S. policy has been bad, but their policies have been far worse. ... (1973, p.127)."In this respect, not much has changed in Argentina since. Craig Richardson explains how dollarization failed in Zimbabwe, a wonderful cautionary tale. Deficits did not stop, the government issued "bonds" and forced banks to buy them, bank accounts became de linked from currency. Gresham's law prevailed, the government "bonds" circulating at half face value drove out cash dollars. With persistent government and trade deficits there was a "dollar shortage." 

Industry and financial profiles of MENA firms may underpin the observation that MENA country exports are below potential and skewed toward low value-added goods that are unable to spur rapid job creation and inclusive growth. To assess this link, the paper combines analysis highlighting external financing as a determinant of export performance, and analysis highlighting sector asset tangibility and governance. Why? Because high value-added sectors tend to have higher shares of intangible assets and to create innovative products requiring substantial research and development or investments, thereby making these sectors more dependent on external financing. Using sector- and firm-level export data with country-level indicators, the results indicate that countries with more developed financial sectors and stronger governance tend to have higher exports from sectors that are more reliant on finance external to the firm, and lower exports from sectors with higher shares of tangible assets. Interestingly, financial sector development boosts exports less in MENA than in non-MENA countries. To foster expansion of higher value exports, the results suggest a critical need for: (i) deeper financial sector development that strengthens market-based systems, such as asset registries and credit reporting agencies, and (ii) strengthening of legal and governance frameworks.

This paper presents new data on the micro structure of the export sector for 45 countries and studies how exporter behavior varies with country size and stage of development. Larger countries and more developed countries have more exporters, larger exporters, and a greater share of exports controlled by the top 5 percent. The extensive margin (more firms) plays a greater role than the intensive margin (average size) in supporting exports of larger countries. In contrast, the intensive margin is relatively more important in explaining the exports of richer countries. Exporter entry and exit rates are higher and entrant survival is lower at an early stage of development. The paper discusses the results in light of trade theories with heterogeneous firms and the empirical literature on resource allocation, firm size, and development. An implication from the findings is that developing countries export less because the top of the firm-size distribution is truncated.

Part of the rationale for the North American Free Trade Agreement (NAFTA) was that it will increase trade and foreign direct investment (FDI) flows, creating jobs and reducing migration to the United States (U.S.). Since poor data on illegal migration to the United States make direct measurement difficult, data on migration within Mexico, where census data permit careful analysis, are used instead to evaluate the mechanism behind predictions on migration to the United States. Specifications are provided for migration within Mexico, incorporating measures of cost of living, amenities, and networks. Contrary to much of the literature, labor market variables enter very significantly and as predicted once possible credit constraint effects are controlled for. Greater exposure to FDI and trade deters outmigration, with the effects working partly through the labor market. Finally, some tentative inferences are presented about the impact of increased FDI on Mexico- U.S. migration. On average, a doubling of FDI inflows leads to a 1.5 to 2 percent drop in migration.

The theoretical case for industrial policy is a strong one. The market failures that industrial policies target in markets for credit, labor, products, and knowledge have long been at the core of what development economists study. The conventional case against industrial policy rests on practical difficulties with its implementation. Even though the issues could in principle be settled by empirical evidence, the evidence to date remains uninformative. Moreover, the conceptual difficulties involved in statistical inference in this area are so great that it is hard to see how statistical evidence could ever yield a convincing verdict. A review of industrial policy in three non-Asian settings El Salvador, Uruguay, and South Africa highlights the extensive amount of industrial policy that is already being carried out and frames the need for industrial policy in the specific circumstances of individual countries. The traditional informational and bureaucratic constraints on the exercise of industrial policy are not givens; they can be molded and rendered less binding through appropriate institutional design. Three key design attributes that industrial policy must possess are embeddedness, carrots-and-sticks, and accountability.

Tese de doutoramento em Economia, apresentada à Faculdade de Economia da Universidade de Coimbra ; Many countries strive to attract Foreign Direct Investment (FDI) by liberalizing their FDI regulations and providing investment incentives, including lower income taxes or income tax holidays, as well as import duty exemptions. The rationale for these policies stems from the expectation of externalities from FDI, since foreign firms possess technological advantages such as advanced know-how, marketing and managerial skills and international experience, that can be transmitted to domestic firms through different channels, and may stimulate technological changes in the host country. We draw on macroeconomic models of technology diffusion to uncover empirical patterns of externalities from FDI for the Portuguese manufacturing sector, using a new balanced panel dataset with a total of 5,045 manufacturing firms (domestic and foreign) for the period 1995-2007. Subsequently, we attempt to make policy recommendations to boost productivity and growth, through the analysis of the transitional dynamics under the real convergence process, in which the mechanism of technological catching-up allows to relate FDI with the manufacturing productivity, clustered by technological groups, following Pavitt (1984). In contrast with earlier literature for the Portuguese manufacturing sector, that find controversial results for 1996-2000, our results seem to confirm that foreign presence is positively and significantly correlated with TFP growth, but only in certain industries and depending on the size of the domestic firms. In one-period lag, we find positive externalities in small firms in scale-intensive industries, through backward linkages, (basic metals and other transport equipment) and through forward linkages (metal products). Our research highlights the fact that the heterogeneous nature of manufacturing firms and the uneven distribution of externalities across industries that entail time to occur, require the use of dynamic models with panel data disaggregated by technological groups and firm size. To pursuit our research objectives, we start by analysing the transmission mechanisms of externalities from FDI to the productivity of domestic firms, focusing on linkages with foreign customers (backward) and suppliers (forward). We focus on five Western European countries to provide a broader picture of the determinant factors of externalities from FDI in Developed Countries (DCs), through its classification, along the lines of the Theory of Heterogeneous Firms. This allows for a better understanding of the relevant variables to include in the empirical studies that focus on DCs, which are concentration, domestic and foreign R&D expenditures, scale, technological gap, and capital intensity. In addition, applying multiple imputation in Stata 13.0, we construct a database that integrates a significant number of the variables necessary to empirically investigate the existence of externalities from FDI in the Portuguese manufacturing sector. The variables, collected from AMADEUS, Quadros do Pessoal, EU Klems and OCDE databases, measure three dimensions: Total Factor Productivity; foreign presence; and variables that may influence the productivity of domestic firms, either directly or indirectly, i.e., affecting the impact of foreign presence on the Total Factor Productivity, such as indicators of firm efficiency and R&D activities, Our new panel data provides a set of useful 15 indicators for 4,685 domestic firms and 360 firms with foreign capital, in the manufacturing sector. The empirical analysis follows a two-stage strategy. First, we employ the Wooldridge-Levinshon and Petrin estimator, which is considered a robust method to estimate the TFP. Then, we regress the TFP on several explanatory variables using the system-GMM estimator that is unbiased and consistent in the presence of omitted variables and endogenous explanatory variables. Our dynamic model consider time lags up to two periods. Our analysis at the aggregate level (i.e. for the whole manufacturing sector) shows positive and significant externalities via backward and forward linkages, in one-period lag, However, we found negative horizontal externalities in the three periods, as well as negative vertical externalities, both in the current period and with a two-period lag. The analysis with industry breakdown (classified by technological groups), and controlling for firm size, showed that firms (small and large) of scale-intensive industries, and small firms in science-based industries, benefit from positive externalities. Finally, we analyse the relationship between FDI inward flows and a set of innovation (such as R&D expenditures as a percentage of GDP and the number of scientific publications) and absorptive capacity indicators (such as the GDP per capita and the number of graduates). The purpose is twofold. First, we assess whether FDI inflows, during the last 30 years of European integration, have contributed to increase the productivity, Secondly, we evaluate the efficacy of FDI policies to promote innovation and its coordination with measures aiming to promote the absorptive capacity. To promote innovation, the Investment promotion agency should continue to encourage foreign projects in traditional industries because they appear to benefit more from vertical externalities from FDI, followed by the industries where Portugal has a comparative advantage. Regarding absorptive capacity, we suggest new strategies, such as the resumption of focus on productivity and the articulation of this goal with the innovation policy to support research and education. Since, as we have proved, that real convergence is not an automatic process triggered by foreign presence, we suggest that, it can be assisted by a reinforcement of supply-side measures, with an integrated industrial policy, favouring certain industries where there is evidence of positive externalities from FDI. This is crucial because, Portugal is a small open economy that makes it vulnerable to external factors that hinder the economic growth. Since the new millennium, the country lost the backwardness advantages from which it benefited since the 1950's. In addition, the global financial crisis led to a drop in industrial production accompanied by a reduction in FDI attraction. In this context, technology transfer, that can occur due to foreign presence, can increase the TFP and promote long-term growth, especially in the manufacturing sector, which is a driver of technological change, because it can generate high rates of innovation and drag capabilities to other sectors. Our policy recommendations regarding the kind of FDI projects to attract to the manufacturing sector represent an important contribute since, to the best of our knowledge, there are no prior attempts to perform a normative analysis of the investment promotion policy in Portugal, other than those that are inherent to the sphere of action of AICEP, which cannot be disclosed to the academic community. ; Muitos países se têm empenhado em atrair Investimento Direto Estrangeiro (IDE), liberalizando a sua legislação sobre investimento estrangeiro e concedendo incentivos aos projetos de investimento estrangeiro, incluindo benefícios fiscais. A razão para essas políticas decorre da expectativa de ocorrência de externalidades de IDE, uma vez que as empresas estrangeiras possuem vantagens tecnológicas, como conhecimentos, capacidades de marketing e de gestão e experiência internacional, que podem ser transmitidas para as empresas nacionais, através de diferentes canais e podem estimular a mudança tecnológica no país hospedeiro. Nós baseamo-nos em modelos macroeconómicos de difusão tecnológica para revelar os padrões empíricos de externalidades do IDE na industria transformadora portuguesa, utilizando um novo conjunto de dados em painel balanceado, com um total de 5.045 empresas (nacionais e estrangeiras) para o período 1995-2007. Posteriormente, tentamos fazer recomendações de política tendentes ao aumento da produtividade e ao crescimento económico, através da análise da dinâmica de transição no processo de convergência real, em que o mecanismo de recuperação tecnológica permite relacionar o IDE com a produtividade, agrupada por grupos tecnológicos, de acordo com Pavitt (1984). Em contraste com a literatura anterior para a industria transformadora portuguesa, que revela resultados controversos para o período 1996-2000, os nossos resultados parecem confirmar que a presença estrangeira está correlacionada positiva e significativamente com o crescimento da produtividade total dos fatores, mas apenas em certas indústrias e dependendo do tamanho das empresas nacionais. Com um desfasamento de um período, encontramos externalidades positivas em pequenas empresas nas indústrias escala-intensivas, através de ligações para trás (metais básicos e outro equipamento de transporte) e através de ligações para a frente (produtos metálicos). A nossa pesquisa destaca o fato de que a natureza heterogénea das empresas da industria transformadora, a distribuição desigual de externalidades entre indústrias, e o fato das externalidades requererem algum tempo para se materializarem, requer a utilização de modelos dinâmicos com dados em painel e uma análise desagregada por grupos tecnológicos e dimensão das empresas. Visando a prossecução dos nossos objetivos de pesquisa, começamos por analisar os mecanismos de transmissão de externalidades do IDE para a produtividade das empresas nacionais, com foco nas ligações com clientes (ligações para trás) e fornecedores estrangeiros (ligações para a frente). Nós concentramo-nos em cinco países da Europa Ocidental, com vista a fornecer uma imagem mais ampla dos fatores determinantes das externalidades do IDE em países desenvolvidos, através da sua classificação, de acordo com a Teoria das Empresas Heterogéneas. Tal permite uma melhor compreensão das variáveis relevantes a incluir nos estudos empíricos que se concentram nos países desenvolvidos, e que são: a concentração, as despesas em I&D (de empresas nacionais e estrangeiras), a escala, o hiato tecnológico e a intensidade capitalística das empresas. Além disso, utilizando imputação múltipla no Stata 13.0, construímos uma base de dados que integra um número significativo de variáveis necessárias para investigar empiricamente a existência de externalidades de IDE na indústria transformadora Portuguesa. As variáveis, recolhidas das bases de dados AMADEUS, Quadros do Pessoal, EU Klems e OCDE, medem três dimensões: produtividade total dos fatores (PTF), presença estrangeira e variáveis que podem influenciar a produtividade das empresas nacionais, direta ou indiretamente, ou seja, afetando o impacto da presença estrangeira na PTF, tais como indicadores de eficiência da empresa e atividades de I&D. Os nossos dados em painel fornecem um conjunto de 15 indicadores úteis para 4.685 empresas nacionais e 360 empresas com capital estrangeiro, na industria transformadora. A análise empírica segue uma estratégia de duas etapas. Primeiro, utilizamos o estimador Wooldridge-Levinshon e Petrin, que é considerado um método robusto para estimar a PTF. Em seguida, regredimos a PTF em diversas variáveis explicativas usando o estimador SYS-GMM que é não-enviesado e consistente na presença de variáveis omitidas e variáveis explicativas endógenas. O nosso modelo dinâmico contempla desfasamentos temporais até dois períodos. A nossa análise ao nível agregado (i.e, para o conjunto dos ramos da indústria transformadora) permitiu encontrar resultados positivos e significativos, com um desfasamento temporal de um período, através de ligações para trás e de ligações para a frente. No entanto, encontramos externalidades horizontais negativas nos três períodos considerados, bem como externalidades verticais negativas, quer no período corrente, quer com um desfasamento de dois períodos. A analise empírica com desagregação por industrias (classificadas por grupos tecnológicos), e controlando a dimensão das empresas, revelou que as empresas (pequenas e grandes) das indústrias escala-intensivas, e as pequenas empresas em indústrias baseadas na ciência, beneficiam de externalidades positivas significativas. Finalmente, analisamos a relação entre os fluxos de entrada de IDE e um conjunto de indicadores de inovação (como as despesas de I&D em percentagem do PIB e o número de publicações científicas) e indicadores de capacidade de absorção (como o PIB per capita e o número de licenciados). O nosso objetivo é duplo. Primeiro avaliamos se os fluxos de entrada de IDE, nos últimos 30 anos de integração europeia, contribuíram para aumentar a produtividade. Em segundo lugar, avaliamos a eficácia das políticas de IDE para promover a inovação e a sua coordenação com medidas destinadas a promover a capacidade de absorção. Para promover a inovação, a agência de promoção de investimentos (AICEP) deverá continuar a encorajar os projetos de investimento estrangeiro nas indústrias tradicionais, porque estas parecem beneficiar mais de externalidades verticais do IDE, seguidas pelas indústrias onde Portugal possui uma vantagem comparativa. Em relação à capacidade de absorção, sugerimos novas estratégias, como a retoma do foco na produtividade e a articulação desse objetivo com a política de inovação para apoiar a investigação e a educação. Como provamos que a convergência real não é um processo automático desencadeado pela presença estrangeira, sugerimos que o processo de convergência deve ser assistido por um reforço das medidas do lado da oferta, com uma política industrial integrada, favorecendo certos ramos da indústria transformadora onde há evidências de externalidades positivas do IDE. Isto é crucial porque, Portugal é uma pequena economia aberta que a torna vulnerável a fatores externos que impedem o crescimento económico. Desde o novo milénio, o país perdeu as vantagens de atraso de que tinha vindo a beneficiar desde a década de 1950. Além disso, a crise financeira global levou a uma queda na produção industrial, acompanhada por uma redução na atração de IDE. Neste contexto, a transferência de tecnologia que pode ocorrer devido à presença estrangeira pode contribuir para o aumento da PTF e promover o crescimento económico a longo prazo, em particular, na industria transformadora, que é um setor motor de mudança tecnológica, na medida em que tem capacidade para gerar elevadas taxas de inovação e possui capacidade de arrasto para outros setores da economia. As nossas recomendações de política quanto ao tipo de projetos de IDE que devem ser captados para a industria transformadora constituem um importante contributo. Tanto quanto é do nosso conhecimento, não existem tentativas anteriores de realizar uma análise normativa da política de promoção de investimentos em Portugal, além daquelas inerentes à esfera de ação da AICEP, que não podem ser divulgadas para a comunidade académica.

Relevance of the research topic. The development and improvement of the financial system of Ukraine is hindered by the low social responsibility of the state, society, and business. The modern transformation of principles and approaches to the determination of socially important social standards and the sources of their financing requires a deep theoretical understanding of the problems of social security of the population, therefore, the study of the issue of financing social guarantees by the state is timely and relevant. Formulation of the problem. Social guarantees are those essential elements in the functioning of the state, determine the stability of society and its security, and affect the implementation of the social and economic policies of the government. It is this element that should ensure the guarantee of a decent standard and quality of life for every citizen, and, consequently, a high level of well-being of the population as a whole. Analysis of recent research and publications. The role and essence of social guarantees in the fulfillment of the social function of the state has been thoroughly investigated in many scientific works of modern economists. A separate issue of financial support of social guarantees is the work of О. D. Vasilik,S. H. Batazhok, V. M. Grineva, V. P. Gorina, D. I. Sukhovиy, N. D. Hlazko, L. V. Lysyak, V. M. Oparin, V. B. Tropinа, V. M. Fedosov and others. Highlighting unexplored parts of a common problem. The question of ways to overcome the contradiction between the real needs of citizens receiving social support of the state and those financial opportunities (resources) of the state with which it can provide these needs of the population remains insufficiently studied. Setting goals, research objectives. The purpose of the article is to identify contemporary problems of financing state social guarantees in Ukraine. The goal determines the need to solve the following tasks: to analyze the nature, types of social guarantees, evaluate budget indicators of social security of citizens, identify obstacles and necessary steps towards the implementation of a full-fledged mechanism of financial guarantees of social protection of the population. Method or methodology of the study. When writing the article, a set of scientific research methods was used: general scientific and special methods, in particular, system-structural analysis and synthesis, the method of statistical analysis, comparison, generalization, as well as graphical and tabular methods to clearly illustrate the phenomena studied and the like. Statement of the main material (results of work). The article reveals the essence of state social guarantees as a system of financial support of an adequate standard of living of an individual. Priority tasks for ensuring the functioning in Ukraine of an effective financial mechanism for providing social guarantees to the population are highlighted. The article states that most of the financing of social guarantees is based on the expenses of the state budget and local budgets. The basic standard on the basis of which the calculation of the volume of social guarantees and benefits aimed at social protection and social security is carried out is the cost of living. An important source of financial support for social guarantees are social non-budget funds, which include the Pension Fund of Ukraine, the Social Insurance Fund and the Compulsory State Social Insurance Fund for Unemployment. The financial resources accumulated in them are directed to the material support of a significant part of the citizens of the state who are participants in the system of national pension and social insurance and are designed to overcome the consequences of social insurance events. Scope of the results. The theoretical provisions, conclusions and suggestions presented in the article, developed on the basis of the analysis of indicators of state financial support of social guarantees, develop the theory and practice of the policy of financing social guarantees in the country, allow us to identify ways and directions for improving it to achieve social protection and increase the welfare of the population. Conclusions and results can be used in planning social expenditures of the government, in socio-economic research of scientific analytical centers, in the educational process of economic faculties of higher educational institutions. Conclusions are consistent with the article. State social guarantees play an important role in the functioning of the state, because through the system of social guarantees the state affects the redistribution of GDP, under their influence indicators of financing various social programs are formed, which determines the directions and priorities of state policy. Based on the results of the study, it was concluded that it is necessary to draw up and publish a "social" budget - a product of public dialogue between state and non-state financial institutions, employers, independent authoritative economists, and public organizations, which will contribute to the development of civil society in a socially oriented country.

The article is devoted to the investigation of the specific models of the countries` of Central and Eastern Europe (CEE) globalization, formed after the "great expansion to the East" in 2004. The analysis was based on the general indicator of the globalization level of certain countries - the KOF index and its specially synthesized components. It was decided that, on the whole, European integration contributed to the positive dynamics of globalization in the group of analyzed countries. However, a more detailed analysis revealed a different level of dependence between globalization and GDP for different countries over the analyzed period, which points to the unequal benefits of European integration for general global economic expansion and increasement of real production in the case of diverse CEE national economies. By distinguishing the intermediate indicators of the general economic situation, political environment, sociocultural conditions, information development and trade activity in the KOF index, it became possible to take into consideration the current competitive differences of globalization models within CEE and to distinguish three main models, as well as to study the level of lagging from the European indicators. The countries of Central and Eastern Europe are the EU's geostrategic resource, the so-called second EU border. At the same time, they are in geographical, mental and economic proximity to Ukraine, as well as undergoing the process of their economic model's transformation in the context of market relations internationalization. Thus, by analyzing the global competitiveness' of Central and Eastern Europe countries models and using the obtained data in accordance with national peculiarities of Ukraine, it is possible to form an optimal development model for it. The article uses general scientific methods inherent in economic research in a global context: analysis of literary sources and statistical materials provided by international and national profile institutions or organizations, econometric analysis methods, in particular, correlation and cluster analysis. ; Статья посвящена исследованию специфических моделей глобализации стран Центральной и Восточной Европы (ЦВЕ), сформировавшихся после «большого расширения на Восток» 2004 года. Основу анализа составил общий показатель уровня глобализированности определенных государств - индекс KOF- и его специально синтезированные составляющие. Установлено, что, в целом, евроинтеграция способствовала положительной динамике глобализации в группе анализируемых стран, однако более детальный анализ показал различный для отдельных стран Центральной и Восточной Европы уровень зависимости между глобализованностью и ВВП за рассматриваемый период. Это указывает на неодинаковость полученных преимуществ от евроинтеграции для общей глобальной экономической экспансии и расширения реального производства в случае отдельных национальных экономик Центральной и Восточной Европы. Благодаря выделению в составе индекса KOF промежуточных показателей общей экономической ситуации, политической среды, социо-культурных условий, информационного развития и торговой активности, стало возможно говорить о современных конкурентных отличиях моделей глобализации внутри ЦВЕ и выделить три основных модели, а также изучить степень отставания от среднеевропейских показателей. Страны Центральной и Восточной Европы являются геостратегическим ресурсом ЕС, так называемым вторым рубежом ЕС. В то же время они находятся в географической, ментальной и экономической близости к Украине, так же переживали процесс трансформации своей экономической модели в контексте интернационализации рыночных отношений. Таким образом, проанализировав модели глобальной конкурентоспособности стран Центральной и Восточной Европы и спроектировав полученные данные в соответствии с национальными особенностями Украины, можно сформировать оптимальную модель развития и для нее. В статье использованы общенаучные методы, присущие экономическим исследованиям в глобальном контексте: анализ литературных источников и статистических материалов, предоставленных международными и национальными профильными учреждениями или организациями, методы эконометрического анализа, в частности, корреляционного и кластерного анализа. ; Стаття присвячена дослідженню специфічних моделей глобалізації країн Центральної та Східної Європи (ЦСЄ), що сформувалися після «великого розширення на Схід» 2004 року. Основу аналізу склав загальний показник рівня глобалізованості визначених держав - індекс KOF- та його спеціально синтезовані складові. Встановлено, що, в цілому, євроінтеграція сприяла позитивній динаміці глобалізації в групі аналізованих країн, проте більш детальний аналіз засвідчив різний для окремих країн Центральної та Східної Європи рівень залежності між глобалізованістю та ВВП за аналізований період. Це вказує на неоднаковість отриманих переваг від євроінтеграції для загальної глобальної економічної експансії та розширення реального виробництва у випадку окремих національних економік Центральної та Східної Європи. Завдяки виокремленню у складі індексу KOF проміжних показників загально економічної ситуації, політичного середовища, соціо-культурних умов, інформаційного розвитку та торгівельної активності, стало можливо говорити про сучасні конкурентні відмінності моделей глобалізації всередині ЦСЄ та виділити три основні моделі, а також вивчити ступінь відставання від середньоєвропейських показників. Країни Центральної та Східної Європи є геостратегічним ресурсом ЄС, так званим другим кордоном ЄС. В той же час вони знаходяться в географічний, ментальній та економічній близькості до України, так само переживали процес трансформації своєї економічної моделі в контексті інтернаціоналізації ринкових відносин. Таким чином, проаналізувавши моделі глобальної конкурентоспроможності країн Центральної та Східної Європи і спроектувавши отримані дані відповідно до національних особливостей України, можна сформувати оптимальну модель розвитку і для неї. У статті використано загальнонаукові методи, притаманні економічним дослідженням у глобальному контексті: аналіз літературних джерел та статистичних матеріалів, наданих міжнародними та національними профільними установами або організаціями, методи економетричного аналізу, зокрема, кореляційного та кластерного аналізу.

The article is devoted to the investigation of the specific models of the countries` of Central and Eastern Europe (CEE) globalization, formed after the "great expansion to the East" in 2004. The analysis was based on the general indicator of the globalization level of certain countries - the KOF index and its specially synthesized components. It was decided that, on the whole, European integration contributed to the positive dynamics of globalization in the group of analyzed countries. However, a more detailed analysis revealed a different level of dependence between globalization and GDP for different countries over the analyzed period, which points to the unequal benefits of European integration for general global economic expansion and increasement of real production in the case of diverse CEE national economies. By distinguishing the intermediate indicators of the general economic situation, political environment, sociocultural conditions, information development and trade activity in the KOF index, it became possible to take into consideration the current competitive differences of globalization models within CEE and to distinguish three main models, as well as to study the level of lagging from the European indicators. The countries of Central and Eastern Europe are the EU's geostrategic resource, the so-called second EU border. At the same time, they are in geographical, mental and economic proximity to Ukraine, as well as undergoing the process of their economic model's transformation in the context of market relations internationalization. Thus, by analyzing the global competitiveness' of Central and Eastern Europe countries models and using the obtained data in accordance with national peculiarities of Ukraine, it is possible to form an optimal development model for it. The article uses general scientific methods inherent in economic research in a global context: analysis of literary sources and statistical materials provided by international and national profile institutions or organizations, econometric analysis methods, in particular, correlation and cluster analysis. ; Статья посвящена исследованию специфических моделей глобализации стран Центральной и Восточной Европы (ЦВЕ), сформировавшихся после «большого расширения на Восток» 2004 года. Основу анализа составил общий показатель уровня глобализированности определенных государств - индекс KOF- и его специально синтезированные составляющие. Установлено, что, в целом, евроинтеграция способствовала положительной динамике глобализации в группе анализируемых стран, однако более детальный анализ показал различный для отдельных стран Центральной и Восточной Европы уровень зависимости между глобализованностью и ВВП за рассматриваемый период. Это указывает на неодинаковость полученных преимуществ от евроинтеграции для общей глобальной экономической экспансии и расширения реального производства в случае отдельных национальных экономик Центральной и Восточной Европы. Благодаря выделению в составе индекса KOF промежуточных показателей общей экономической ситуации, политической среды, социо-культурных условий, информационного развития и торговой активности, стало возможно говорить о современных конкурентных отличиях моделей глобализации внутри ЦВЕ и выделить три основных модели, а также изучить степень отставания от среднеевропейских показателей. Страны Центральной и Восточной Европы являются геостратегическим ресурсом ЕС, так называемым вторым рубежом ЕС. В то же время они находятся в географической, ментальной и экономической близости к Украине, так же переживали процесс трансформации своей экономической модели в контексте интернационализации рыночных отношений. Таким образом, проанализировав модели глобальной конкурентоспособности стран Центральной и Восточной Европы и спроектировав полученные данные в соответствии с национальными особенностями Украины, можно сформировать оптимальную модель развития и для нее. В статье использованы общенаучные методы, присущие экономическим исследованиям в глобальном контексте: анализ литературных источников и статистических материалов, предоставленных международными и национальными профильными учреждениями или организациями, методы эконометрического анализа, в частности, корреляционного и кластерного анализа. ; Стаття присвячена дослідженню специфічних моделей глобалізації країн Центральної та Східної Європи (ЦСЄ), що сформувалися після «великого розширення на Схід» 2004 року. Основу аналізу склав загальний показник рівня глобалізованості визначених держав - індекс KOF- та його спеціально синтезовані складові. Встановлено, що, в цілому, євроінтеграція сприяла позитивній динаміці глобалізації в групі аналізованих країн, проте більш детальний аналіз засвідчив різний для окремих країн Центральної та Східної Європи рівень залежності між глобалізованістю та ВВП за аналізований період. Це вказує на неоднаковість отриманих переваг від євроінтеграції для загальної глобальної економічної експансії та розширення реального виробництва у випадку окремих національних економік Центральної та Східної Європи. Завдяки виокремленню у складі індексу KOF проміжних показників загально економічної ситуації, політичного середовища, соціо-культурних умов, інформаційного розвитку та торгівельної активності, стало можливо говорити про сучасні конкурентні відмінності моделей глобалізації всередині ЦСЄ та виділити три основні моделі, а також вивчити ступінь відставання від середньоєвропейських показників. Країни Центральної та Східної Європи є геостратегічним ресурсом ЄС, так званим другим кордоном ЄС. В той же час вони знаходяться в географічний, ментальній та економічній близькості до України, так само переживали процес трансформації своєї економічної моделі в контексті інтернаціоналізації ринкових відносин. Таким чином, проаналізувавши моделі глобальної конкурентоспроможності країн Центральної та Східної Європи і спроектувавши отримані дані відповідно до національних особливостей України, можна сформувати оптимальну модель розвитку і для неї. У статті використано загальнонаукові методи, притаманні економічним дослідженням у глобальному контексті: аналіз літературних джерел та статистичних матеріалів, наданих міжнародними та національними профільними установами або організаціями, методи економетричного аналізу, зокрема, кореляційного та кластерного аналізу.

Small and medium-sized enterprises (SME) play a major role in economic growth and provide major external benefits such as creation of new jobs and increase in employment. Increase of employment is the main social policy or the government. As in the case or public goods, the SMEs faces market failures and other barriers. Therefore, SMEs have specific strengths and weaknesses that require special policy responses. SMEs face many problems: lack of financing, difficulties in exploiting technology, constrained managerial capabilities, low productivity. regulatory burdens. The government should improve SMEs access to financing, information infrastructures and international markets. Providing the regulatory, legal and financial frameworks conductive to entrepreneurship and small firm start-up and growth is a priority.Government policy initiatives should take account of the regional and local factors that affect entrepreneurship and on this basis to foster the partnership of small firms. Building on local strengths. SME policies need to address the new dynamics of entrepreneurship, and small firm clusters should meet the challenges of globalization.Fostering public-private partnerships and small-firm networks and clusters may be the most expeditious path to a dynamic SME sector. Grouped in the local system of production, SME arc more flexible and responsive to customer needs than large integrated firms. They can pool resources, share costs of training, research and marketing. Clustering facilitates exchange of personnel and diffusion of technology, creates efficiency gains and helps to meet the challenges of globalization. SME in clusters seek international opportunities also through strategic alliances, franchising and joint ventures.Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g., universities, standards agencies, trade associations) in a particular field that compete but also cooperate. Clusters, or critical masses of unusual competitive success in particular business areas, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. Clusters represent a new way of thinking about national, state, and local economics, and they necessitate new roles for companies, for various levels of government, and for other institutions in enhancing competitiveness. For companies, the thinking about competition and strategy has been dominated by what goes on inside the organization. Clusters suggest that a good deal of competitive advantage lies outside companies and even outside their industries. residing instead in the locations at which their business units arc based. This creates important new agendas for management that are rarely recognized. For example, clusters represent a new unit of competitive analysis along with the firm and industry. Cluster thinking suggests that companies have a tangible and important stake in the business environments where they are located, in ways that go far beyond taxes, electricity costs, and wage rates. The health of the cluster is important to the health of the company. Companies might actually benefit from having more local competitors. Trade associations can be competitive assets, not merely lobbying and social organizations. Clusters are important because they allow companies to be more productive and innovative than they could be in isolation. And clusters are important because they reduce the barriers for new business creation relative to other locations.The article deals with criteria for the government support to SME efficiency. A methodology of government support efficiency evaluation based on sustainability criteria is proposed. The criteria for selection of SME support measures should address all dimensions of sustainable development: social, economic and environmental. The methodology can be applied on country, region or enterprise level. Economic indicators for support effectiveness evaluation on enterprise level include the positive changes in financial indicators of a company on receiving support. Social indicators on such level arc the new jobs created and the increase of income. Environmental indicators such as pollutant emission reductions in an enterprise allow to evaluate the social effect of support. Therefore, a complex system of indicators needs to be developed to evaluate the efficiency of support provided to SMS according to economic, social and environmental criteria. The system of sustainability criteria may be applied on a country level and include more general indicators such as: GDP growth, increase of employment, higher real income of population, decrease of inequality of income, pollution reduction in the country, etc. ; Straipsnyje analizuojamos paramos smulkiam ir vidutiniam verslui (SW) efektyvumo vertinimo problemos, pateikiami argumentai, kodėl būtina sukurti paramos SW efektyvumo vertinimo daugiakriterinę metodiką, pagrįstą socialinio, ekonominio ir aplinkosauginio poveikio vertinimu. Straipsnis yra apžvalginio analitinio pobūdžio. Jo tikslas pagrįsti paramos SW vertinimo efektyvumą pagal paramos įtaką darnios plėtros tikslams. Pagrindiniai straipsnio uždaviniai yra suformuluoti paramos SW efektyvumo vertinimo metodologiją, pagrįstą daugiakriterine analize, ir pateikti konkretų šios metodikos taikymo pavyzdį.

The existing trajectory of U.S. policy risks sacrificing Western Europe for the sake of Ukraine, and U.S. policymakers need to wake up to this risk. If this were to happen, it would be one of the worst bargains in the entire history of U.S. strategy. Western and Central Europe, and not Ukraine, are and have been for more than a century the area of truly vital U.S. interests on the European continent. Moreover, the crippling of Western Europe and the European Union would destroy Ukraine's own real chances of future democratic prosperity and stability; for these depend chiefly on links to the E.U., not the United States. All the evidence at present suggests that the Ukrainian counter-offensive has failed, with only very small gains and enormous losses. Nor is there any evidence-based reason to hope for greater Ukrainian success next year, given the balance of military and economic forces between Ukraine and Russia. Faced with this reality, there is increasing official and unofficial talk of arming and supporting Ukraine for an indefinite struggle (though of course this cannot in fact be guaranteed given the opposition of one faction of the Republican Party). An analogy has been made to the case of Israel, which developed as a prosperous and secure quasi-democracy while remaining in a state of frozen conflict and unresolved territorial disputes with its neighbors.Quite apart from the dreadful events of recent days, there are many reasons why this idea is profoundly foolish. They include the fact that if Syria were Russia, Israel would not be Israel. In other words, if Israel had bordered not on a shambolic and impoverished country with a fraction of its GDP and technological capacity, but a nuclear armed power with fourteen times its GDP, Israel would most certainly not have developed as a successful and prosperous democracy. There is no way that the U.S. can secure Ukraine permanently in an open-ended war with Russia.Perhaps most important of all however is the way in which this vision totally ignores the effects on Europe, and U.S. interests in Europe. This would not matter much if European countries were economically successful and politically stable, but this is rapidly ceasing to be the case.In the old heartland of the EU, liberal democratic politics are crumbling. Italy is ruled by a radical conservative government. Opinion polls in France suggest that if elections were held today, Marine Le Pen would win by a wide margin. In Sweden — almost unbelievably for someone who lived through the long dull summer of Abbaesque Swedish social democracy — the army is being called on for help in combating violence by immigrant drug gangs, and the radical nationalist Sweden Democrats are the second largest party. Above all, there is Germany, without which no stable and successful European Union is possible. As German historian Tarik Cyrul Amar has written: "Germany's perfect adherence to Western policy on Russia and China has an ominous price…We have assumed that the first country to buckle under the economic strain of the war over Ukraine would be Russia. But what if it is Germany that stumbles first? Germans stressed about their economy, distrusting their elites as favoring foreign interests, and disenchanted with centrist values and methods— a picture too familiar for comfort." The state elections in Bavaria and Hesse this month showed a surge in support for the right-wing nationalist Alternative fuer Deutschland (AfD) and Freie Waehler (Free Voter) parties. According to opinion polls, AfD now has the second largest support nationwide, behind the Christian Democrats but pushing the Social Democrats into third place, and far ahead of the Greens and the Liberals.Up to now, all the traditional mainstream parties have been united in their refusal to form coalitions with the AfD. If continued, the rise in the party's support will however make this approach increasingly unworkable. Either the CDU will have to form governing coalitions with the AfD (as the CDU's sister party, the Christian Social Union, has already done with the Freie Waehler in Bavaria), or all the mainstream parties will have to form permanent coalitions to keep them out of office.The latter course would recall the last years of the Weimar Republic, and would almost certainly strengthen the radical parties still further, since critics of government policies would have nowhere else to go. The most radical proposal is to dub AfD a neo-Nazi party and ban it, but this would lead to massive protests and drive its supporters towards violence. Whatever happens, Germany seems set for a prolonged period of deep political instability and polarization.The original roots of support for AfD and similar parties in Europe lie in fear of mass migration and hostility to the centralizing (and sometimes dictatorial) tendencies of the European Union. Their support has however been greatly increased by the deepening economic recession into which Germany has been plunged by the rise in energy prices consequent on the war in Ukraine. German economic success in recent decades was largely built on cheap, plentiful and reliable Russian gas.This factor helped mask worsening structural defects in the German economy, which the present crisis is exposing. Coupled with the end of the Chinese boom and U.S.-driven economic warfare against China, the result is that there is now serious talk in Germany of "de-industrialization." Should this in fact occur, the political, social, cultural and psychological results could be catastrophic; for the rebuilding of the German national identity after 1945 took place largely on the basis of the "economic miracle," and the belief that this reflected a superior German model of cooperation between capital and labor, and a strong industry-based middle class (the so called Mittelstand). If belief in these collapses, we could be looking at something akin to a national nervous breakdown.An unending semi-frozen war in Ukraine would drastically worsen Germany's — and Europe's – economic decline and consequent political disorder. Especially if coupled with repeated crises in the Middle East, it would make the restoration of stability in energy prices impossible. Such a conflict would inevitably break out periodically into major battles, possibly leading to new Russian victories. There would be the perpetual risk that an unintended collision between Russia and NATO could escalate towards nuclear war. It should not be hard to imagine what this would do to business confidence in Europe.There is a tendency now for Americans to congratulate themselves on the submission of Europe to American strategy as a result of the war in Ukraine. This underestimates the threat to Europe and of U.S. interests there. The threat, as described, is overwhelmingly an internal one, resulting from a deadly cocktail of economic stagnation, uncontrolled migration, and political extremism, worsened by the war in Ukraine. If present patterns continue, the result will be to cripple Europe both economically and politically.Economic prosperity and liberal democracy in Europe form a key pillar of America's own power in the world and therefore a vital U.S. national interest. Without them, America's own economic power will be gravely weakened, and the prestige of democracy in the world shattered. There will be little point in the U.S. presenting itself as the leader of democracy in Asia if it has collapsed in Europe.Moreover, the United States waged two world wars and a Cold War in Europe to prevent the great economies of Western Europe from falling under the control of a hostile great power. Until a decade or so ago, no American ever dreamed of seeing Ukraine in this way. If therefore the U.S. analysis is that Ukraine cannot win, for the sake of Europe and U.S. vital interests there, Washington should lend all its efforts to bring about an early peace.Sophia Ampgkarian contributed to the research for this article.

I was recently asked whether I'd like to share my thoughts on monetary policy in a post-pandemic world. Sure, why not? Thanks to Jan Eckhout for thinking of me. The panel was hosted by the European Economic Association last month and moderated by Diane Coyle. I was honored to speak alongside Ricardo Reis and Beata Javorcik, both of whom provided riveting presentations. For what it's worth, I thought I'd provide a transcript of my remarks here. Lunch Panel EEA-ESEM CopenhagenAugust 25, 2021I want to focus my discussion on the U.S. economy
and from the perspective of a Fed official concerned with the challenges the
Fed may face in fulfilling its Congressional mandates in a post-pandemic world.

First, to provide a bit of context, let me offer
a bit of history on policy and, in particular, on what I think were some
policy mistakes. Let me begin with the 2008-09 financial crisis, which is
something I think most people would agree should never have happened. Whether a sufficiently aggressive Fed lender-of-last-resort operation would have averted the crisis remains a open question. Even if it had been successful, such an operation would have had costs. It may, for example, have elicited
an even greater political backlash than we saw at the time--and who knows how this
may have manifested itself as undesirable changes to the FRA. As well, such an
intervention may have just pushed mounting structural problems down the road.
In particular, while it's now clear that some private sector lending practices
needed to change, it's not clear where the incentive to do so would have come
from absent a crisis. In any case, the crisis happened. How was it managed?

The ensuing recession was deep and the recovery
dynamic very slow. The prime-age employment-to-population ratio did not reach
its pre-pandemic level until 2019, a full decade later. Nevertheless, on the
whole, I think the Fed followed an appropriate interest rate policy. There were
one or two times the FOMC exhibited a little too much enthusiasm for
"normalizing" policy, but I think the slow recovery dynamic had more to do with
insufficient fiscal stimulus—especially at the state and local level—rather
than a consequence of inappropriate monetary policy. The evidence for this can
also be seen by the fact that inflation remained below the Fed's 2% target for
most of the time the policy rate was close to its ELB. The Fed has interpreted
this low inflation episode as partly a monetary policy mistake, something its
new AIT regime is designed to address. But my own view is that persistently low
inflation—and the low money market yields that go along with it—have more to do
with the supply and demand for U.S. Treasury securities. This is something the
Fed does not have very much direct control over.

I know many people are skeptical of fiscal
theories of the price-level, but in virtually every economic model I know, a
fiscal anchor is necessary to pin down the long-run rate of inflation. Monetary
policy—specifically, interest rate policy—can, of course, influence the
price-level, so monetary policy can influence inflation dynamics. But it can do
so only in the "short run." Interest rate policy alone cannot, in my view,
determine the long-run rate of inflation, at least, not without appropriate
fiscal support.

Now, I know many of you may be asking how I can
think fiscal policy has very much to do with inflation given how rapidly the
debt has risen since the financial crisis and again with the C-19 crisis, all
with little apparent pressure on long-run inflation expectations and on
long-term bond yields. We should, however, keep in mind that an observed change
in the quantity of an object may entail both supply and demand considerations.
And one can easily point to several forces that have contributed to increases
in the global demand for UST securities in recent decades. For example, the
growing use of USTs as collateral in repo and credit derivatives markets
beginning in the 1970s and accelerating through the 1980s. The growing demand
for USTs as a safe store of value from EMEs. The evaporation of private-label
safe assets during the financial crisis that left a gaping hole for USTs to
fill. Next, we had a large increase in the regulatory demand for USTs coming
out of Dodd-Frank and Basel III. The Fed's SRF and FIMA facility should further
enhance the demand for USTs. On top of all this, we've witnessed an emergent
class of money funds called "stablecoins" that are further contributing to the
demand for USTs. These forces have been disinflationary, leading bond investors
to revise down their expectation of the future path of policy interest rates.
It is interesting to ponder a counterfactual here. In particular, think of what
may have transpired absent an accommodating U.S. fiscal policy. We may very
well have experienced the mother of all deflations. If this is correct, then an
elevated debt-to-GDP ratio, given a relatively stable inflation and interest
rate structure, reflects an elevated real demand for outside assets. The
problem is not that the debt-to-GDP ratio is going up. The problem is what
disruptions might occur if it goes down
owing to a sudden and unexpected inflation.

The recent rise in inflation is concentrated in
durable goods, and I think is mostly attributable to ongoing supply-chain
issues associated with the pandemic. This effect is likely to reverse itself,
the way lumber prices recently have. Some of what I think is temporarily high
inflation may not reverse itself, leading to a permanently higher price-level. In
this case, households will worry whether their wages will keep pace with the
higher the cost of living. There is even the possibility—though I think less
likely—that the rate of inflation itself will remain elevated and that
inflation expectations will rise well above the Fed's 2% target. This may
happen, for example, if the traditional bipartisan support for fiscal anchoring
in the new generation of Congressional representatives is perceived to wane, or
if the global demand for safe assets slows. If either or both of these things happen
and are persistent, then the Fed may find itself faced with what Sargent and
Wallace phrase an "unpleasant monetarist arithmetic." That paper, which was
published exactly 40 years ago, warned how tightening monetary policy without
fiscal support might actually make inflation go higher rather than lower.

The implications for U.S. monetary policy are
quite interesting should an event like this unfold. A determined Fed may try to
fight inflation by raising its policy rate. The result is likely to be a temporary
disinflation and recession.  Should fiscal policy remain unaltered, the
logic provided by Sargent and Wallace implies that inflation will return even
higher than before as the deficit must increase to finance a larger interest
expense on the debt. The best the Fed can do in this case is to lower its
policy rate, announce a temporarily higher inflation target, and hope that the
fiscal authority gets its house in order. The notion that a Volcker-like policy
would lower the long-run rate of inflation depends on fiscal capitulation. This
capitulation to some extent did happen under Volcker, although keep in mind he
had considerable Congressional support from both sides of the aisle. I do not
think this type of political support is something one can count on, especially
given today's political climate. So, you may want to buckle up, as we may be in
for some interesting times ahead.Related Readings:Is it Time for Some Unpleasant Monetarist Arithmetic? Link to blog post. Link to paper.

Purpose. To determine sustainable development conditions according to the criteria of emissions of harmful substances and waste generation when modelling impact factors of the parameters and general environmental situation in Ukraine. Methods. In the research general scientific (analysis and synthesis, induction and deduction, analytical grouping) and special (abstraction, modelling, etc.) methods of studying economic phenomena and processes have been used. Results. For modelling of national sustainable development parameters by the parameters of emissions of harmful substances and waste generation it has been proposed to apply sectoral approach and the model of the environmental Kuznets curve (EKC). It has been proved that the EKC model should be used not only to model parameters of emissions of harmful substances, but also for waste generation. Besides, it has been proved that it is necessary to take into account not only national level indicators, but also the contribution of the leading sectors driving national economy. Modelling has been carried out for the following industries: processing; mining and quarry development; agriculture, forestry and fisheries; supply of electricity, gas, steam and conditioned air; transport, warehousing, post and courier services. The models are based on correlation between GDP, average nominal income per capita, environmental costs, waste generation and emissions of harmful substances at the national level and by its leading industries. It has been determined that reaching the "turning point" on sectoral EKCs correlates waste generation and emissions with industry`s rate of remuneration, value added (sectoral GDP) and sectoral investment in environmental protection in the context of industry`s specifics. It has been demonstrated that in Ukraine the "turning point" on the EKC has been provided by 20% of economically active population in industries that generate 46% of emissions amid country's average nominal income per employee and steady growth of environmental expenses for at least two years. Conclusions. It has been proved that the EKC for Ukraine should be analyzed by the sectors of national economy. To form effective national environmental policy, sectoral EKCs should be applied to determine emissions of harmful substances and waste generation. It has been determined that the key factor to ensure country`s sustainable development is environmental investment both at the national level and by its driving economic sectors. Thus, the sectoral EKC reflects the progress towards industries` sustainable development that form main revenue receipts of the government and determine the rate of remuneration in the real sector. Modelling of the EKC parameters for waste and emissions of harmful substances fully corresponds to the trends of sustainable economic growth and its transition to the innovative type of development. ; Цель. Определение условий обеспечения устойчивого развития по критериям выбросов вредных веществ и образования отходов с моделированием факторов влияния на эти параметры и общую экологическую ситуацию в Украине. Методы. В процессе проведения исследования использованы общенаучные (анализ и синтез, индукция и дедукция, аналитическое группировки) и специальные (абстрагирование, моделирование и т. д.) методы изучения экономических явлений и процессов. Результаты. Моделирование параметров устойчивого развития национального хозяйства по параметрам выбросов вредных веществ и образования отходов предложено использовать отраслевой подход и модель экологической кривой Кузнеца (ЭКК). Доказано, что модель ЭКК целесообразно использовать не только для моделирования параметров выбросов вредных веществ, но и для объемов образования отходов. Кроме того, доказано, что необходимо учитывать показатели не только на уровне страны, но и с учетом вклада ведущих отраслей национального хозяйства. Моделирование осуществлено для таких отраслей: перерабатывающая; добывающая и разработки карьеров; сельское, лесное и рыбное хозяйство; поставки электроэнергии, газа и кондиционированного воздуха; транспорт, складское хозяйство, почта и курьерская служба. Модели строились на основе взаимосвязи между ВВП, средним номинальным доходом на одного работающего, расходами на охрану окружающей среды и объемами образования отходов и количеством вредных вещественных на уровне национальной экономики и ее ведущих отраслей. Установлено, что достижение «поворотной точки» на отраслевых ЭКК для образования отходов и выбросов вредных веществ зависит от уровня оплаты труда в отрасли, величины добавленной стоимости (отраслевого ВВП), объемов отраслевых инвестиций в охрану окружающей среды и зависит от специфики отрасли. Доказано, что в Украине «поворотная точка» на ЭКК была обеспечена 20% работающего населения страны в отраслях, которые создают 46% выбросов вредных веществ при достижении среднего по стране уровня номинальных доходов на одного работающего и устойчивого повышения темпов роста расходов на охрану окружающей среды в течение как минимум двух лет. Выводы. Доказано, что ЭКК для Украины необходимо анализировать с позиции отраслей национального хозяйства. Для построения эффективной экологической политики в стране целесообразно использовать отраслевые ЭКК как для определения объемов выбросов вредных веществ, так и для образования отходов. Доказано, что важным фактором обеспечения устойчивого развития страны являются инвестиции в природоохранные мероприятия как на уровне страны, так и на уровне ведущих отраслей национального хозяйства. Таким образом, отраслевая ЭКК отражает прогресс на пути к устойчивому развитию отраслей, которые формируют основные поступления в бюджет и определяют уровень оплаты труда в реальном секторе экономики. Моделирование параметров ЭКК для отходов и выбросов вредных веществ в полной мере соответствуют тенденциям устойчивого роста экономики и перехода ее на инновационный путь развития. ; Мета. Визначення умов забезпечення сталого розвитку за критеріями викидів шкідливих речовин та утворення відходів із моделюванням факторів впливу на ці параметри та загальну екологічну ситуацію в Україні. Методи. Використані загальнонаукові (аналіз та синтез, індукція та дедукція, аналітичне групування) та спеціальні (абстрагування, моделювання і т. ін.) методи вивчення економічних явищ і процесів. Результати. Моделювання параметрів сталого розвитку національного господарства за параметрами викидів шкідливих речовин та утворення відходів запропоновано використати галузевий підхід та модель екологічної кривої Кузнеця (ЕКК). Доведено, що модель ЕКК доцільно використовувати не тільки для моделювання параметрів викидів шкідливих речовин, а й для обсягів утворення відходів. Крім того, доведено, що необхідно враховувати показники не тільки на рівні країни, а й з урахуванням внеску провідних галузей національного господарства. Моделювання здійснене для таких галузей: переробна; добувна і розроблення кар'єрів; сільське, лісове та рибне господарство; постачання електроенергії, газу, пари та кондиційованого повітря; транспорт, складське господарство, пошта та кур'єрська служба. Моделі будувались на основі взаємозв'язку між ВВП, середнім номінальним доходом на одного працюючого, витратами на охорону навколишнього середовища та обсягами утворення відходів та кількістю шкідливих речових на рівні національної економіки та її провідних галузей. Встановлено, що у досягнення «поворотної точки» на галузевих ЕКК для утворення відходів та викидів шкідливих речовин залежить від рівня оплати праці в галузі, величини доданої вартості (галузевого ВВП) та обсягів галузевих інвестицій в охорону навколишнього середовища і залежить від специфіки галузі. Доведено, що в Україні «поворотна точка» на ЕКК була забезпечена 20% працюючого населення країни у галузях, що створюють 46% викидів шкідливих речовин за умови досягнення середнього по країні рівня номінальних доходів на одного працюючого та стійкого підвищення темпів зростання видатків на охорону навколишнього середовища впродовж як мінімум двох років. Висновки. Доведено, що ЕКК для України необхідно аналізувати с позиції галузей національного господарства. Задля побудови ефективної екологічної політики у країні необхідно доцільно використовувати галузеві ЕКК як для визначення обсягів викидів шкідливих речовин, так і для утворення відходів. Доведено, що важливим фактором щодо забезпечення сталого розвитку країни є інвестиції у природоохоронні заходи як на рівні країни, так і на рівні провідних галузей національного господарства. Таким чином, галузева ЕКК відбиває прогрес на шляху до сталого розвитку галузей, які формують основні надходження до бюджету та визначають рівень оплати праці в реальному секторі економіки. Моделювання параметрів ЕКК для відходів та викидів шкідливих речовин повною мірою відповідають тенденціям сталого зростання економіки та переходу її на інноваційний шлях розвитку.

The vitriolic dispute between Poland and Ukraine brings out some aspects of the West's approach to the war in Ukraine that the Ukrainian government would do well to study carefully.

The dispute originated in charges by Poland and other central European governments that Ukraine's greatly increased grain exports to Europe — a consequence of the Russian closure of the Black Sea to Ukrainian maritime trade — were flooding European markets and depressing prices for Polish and other farmers.

The relaxation of EU limits on Ukrainian shipments was supposed to allow Ukraine to resume exports to Egypt and other countries where vulnerable populations are suffering from increased prices as a result of the war. A considerable proportion has in fact gone to the EU itself instead. The EU imposed a temporary ban, which, however, it refused to lift when it expired on September 15th. Poland, Hungary and Slovakia have however continued the ban, in defiance of EU rules.

The Ukrainian government has brought charges against Poland at the World Trade Organization, and alleged that the Polish move has been motivated chiefly by the government's desire to hold onto farmers' votes in next month's Polish general elections. Speaking to the United Nations, President Volodymyr Zelensky accused Poland and other countries of engaging in theatrics and "making a thriller out of grain." Polish Prime Minister Mateusz Morawiecki hit back ferociously:

"I want to tell President Zelensky never to insult Poles again, as he did recently during his speech at the U.N. The Polish people will never allow this to happen, and defending the good name of Poland is not only my duty and honor, but also the most important task of the Polish government."

Polish President Andrzej Duda added:

"Ukraine is behaving like a drowning person clinging to anything available. A drowning person is extremely dangerous, capable of pulling you down to the depths…and drowning its rescuer."

In a move widely interpreted as retaliation for Ukraine's protests against the grain ban, moreover, Poland has halted arms shipments to Ukraine, insisting that it will now concentrate on equipping its own armed forces to defend Poland.

What makes this so extraordinary is that Poland has long portrayed itself as Ukraine's greatest friend in the West, and has accused other Western governments of cowardice for not doing more to arm and support Ukraine.

The first lesson to be learned from all this is that even in countries whose populations are most supportive of Ukraine, that support will have limits when it imposes high and visible costs on themselves, and that politicians will inevitably exploit the resulting political backlash. This has implications in particular for Ukraine's chances of joining the European Union.

In the case of Poland and other former Communist states of Central Europe, their path to EU membership was helped by copious amounts of EU financial assistance. The EU's Regional Development Fund continues to support depressed areas of Poland and its neighbors. Supporting Ukraine to the point where it could enter the EU will, however, be a task of a different order of magnitude. Even before the Russian invasion, Ukraine was one of the poorest countries in Europe, with an average GDP per capita in 2021 of only $4,828 (compared to an EU average of $38,436) and its chances of joining the EU in the foreseeable future were considered vanishingly small.

Moreover, EU countries (in Western as well as Central Europe) were always fearful of cheap Ukrainian food imports. Ukraine's Association Agreement with the EU explicitly barred most Ukrainian grain exports as part of the EU's strategy of defending European farmers through its Common Agricultural Policy (CAP). This ban was removed by Brussels only in response to the Russian invasion and blockade. Poland has now restored it.

In March of this year, the World Bank estimated the cost of postwar reconstruction up until then at around $411 billion, and that cost will of course increase further the longer the war goes on. The whole of EU spending on depressed areas within the EU in the seven years from 2014 to 2021 was $200 billion. To judge by Poland's latest moves, it seems improbable that a future Polish government would ask its voters to pay Poland's share of such costs; and if Poland won't, who will?

The other thing to which Ukrainians should pay attention is that, as dramatized by Poland's latest actions, hatred for Russia and real sympathy for Ukraine are not at all the same thing and may even contradict each other. Concerning Polish hatred of Russia, there can be no doubt; but underlying the remarkably harsh rhetoric of recent days has been the fact that historically speaking, Poles and Ukrainians also used to be bitter enemies.
The Polish kingdom, and the Polish republic between 1919 and 1939, sought to Polonize their Ukrainian subjects just as the Russians tried to Russify theirs. Ukrainian revolts against Polish rule massacred Poles along with Jews. Political struggles between Poles and Ukrainians for control of Galicia helped undermine the Austro-Hungarian Empire in the years before 1914. After 1918, Poland annexed the Ukrainian areas of Galicia by force, and held them until they were transferred to Soviet Ukraine by Josef Stalin as a result of the Molotov-Ribbentrop Pact - which is why they are in Ukraine today, and not in Poland.
During and immediately after the Second World War, Ukrainian nationalist partisans massacred tens of thousands of ethnic Poles, and Ukrainians serving in the 1st Galician Division of the Waffen SS participated in ruthless German operations against the Polish resistance. In recent years, both Kyiv and Warsaw have sought to play down this history, but memories of it continue to flow very close to the surface on both sides.

This history is peculiar to Poland and Ukraine; but with regard to the United States too, Ukrainians should ask themselves how much of U.S. support for Ukraine is motivated by real sympathy for them, and how much is devoted to killing as many Russians as possible and weakening Russia as much as possible, no matter how many Ukrainians die and how much Ukraine is weakened in the process — as some statements by U.S. politicians and officials have tended to suggest. Thus Sen. Mitch McConnell (R-Ky) recently boasted, "We are destroying the Russian army without losing a single American soldier."

Other hawkish U.S. commentators have argued that it is necessary to defeat Russia in Ukraine in order to weaken China - which is not why Ukrainian soldiers think they are fighting and dying.
An indefinite war with no clear victor will indeed weaken Russia; but it will also ruin independent Ukraine — something that now appears to be a key Russian war aim; and a ruined Ukraine will never be able to join the EU. If this is the case, then Western promises and declarations about Ukraine's Western path will ultimately count for nothing. Ukraine will remain — as it was for most of history — an impoverished borderland between Poland and Russia.That is not an outcome that the West should be working towards, however much Russia may also be hurt in the process.

At the AEI fiscal theory event last Tuesday Tom Sargent and Eric Leeper made some key points about the current situation, with reference to lessons of history. Tom's comments updated his excellent paper with George Hall "Three World Wars" (at pnas,  summary essay in the Hoover Conference volume). Tom and George liken covid to a war: a large emergency requiring immense expenditure. We can quibble about "require" but not the expenditure. (2008 was a little war in this sense as well.) Since outlays are well ahead of receipts, these huge temporary expenditures are financed by issuing debt and printing money, as optimal tax theory says they should be. In all three cases, you see a ratcheting up of outlays after the war. That's happening now, and in 2008, just as in WWI and WWII. After WWI and WWII, there is a period of primary surpluses -- tax receipts greater than spending -- which helps to pay back the debt. This time is notable for the absence of that effect. We see that most clearly by plotting the primary deficits directly. The data update since Tom and George's original paper (dots) makes that clear. To a fiscal theorist, this is a worrisome difference. We are not following historical tradition of regular, full employment, peacetime surpluses. The two world wars were also financed by a considerable inflation. The important consequence of inflation is that it inflates away government debt. Essentially, we pay for part of the war by a default on debt, engineered via inflation. 1947 is an interesting case. As now, inflation broke out, the Fed left interest rates alone, and the inflation went away once it had inflated away enough debt. That too is an interesting episode in the debate whether the Fed must move rates more than one for one to keep inflation from spiraling away. The effect of inflation is clearer in the next graph, which plots the real return on government bonds: Yes, the inflation of 1920 did inflate away a lot of the WWI debt, though the deflation of 1921 brought a lot of that back. (This is an episode we would do well to remember more! The price level doubled from 1916 through 1920. It then retreated by a third in 1920-1921. There was a sharp recession, but the economy recovered very quickly with no stimulus or heroic measures. The conventional wisdom that wringing out WWI inflation caused the UK 1920s doldrums needs to consider this counterexample. But back to our point) This is also consistent with standard optimal tax theory, which says that in the event of a disaster that happens once every 50 years or so, it is right to execute a "state contingent default" (Lucas and Stokey), and inflation is a natural way to do it. But... "state contingent default" is supposed to happen at the beginning of a war. These inflations happened at the end of the war. How did governments sell bonds to people who should have expected them to be inflated away? Yes, there were some price controls and financial repression, but it's still an important puzzle to standard public finance theory.  My concern, of course, is that we've had two once in a hundred year events in a row (2008, 2020), I can think of lots more that might come soon, and you can only do this occasionally. Hit people over the head a few too many times and they start to duck. We will head to the next crisis with no history of steady surpluses in good times, 100% debt to GDP ratio, and a painful reminder of what happens if you lend to the US right in the rear view mirror. We start the H5N1/Taiwan war crisis with the same debt we had at the end of WWII. And who owns the debt leads to some fascinating speculation which I'll let you fill in with your chat GPT.  Tom closed by echoing my favorite bright idea for avoiding the debt limit: Since the limit applies to par value not market value, the Treasury can issue all the perpetuities it wants. That's far better than the trillion dollar coin, though I suspect the Supreme Court would take just as dim a view of it. Eric  brought up a great point from his super Recovery of 1933 paper with Margaret Jacobson and Bruce Preston. In 1933, we had a disastrous deflation. The gold standard is a lovely fiscal commitment device to try to contain inflation, but it has an Achilles heel. If there is a deflation, the government has to raise taxes to pay an unexpected real windfall to bondholders. In 1933, the Roosevelt Administration abrogated the gold standard. It was a default on the legal terms of the bonds. And look what happened to inflation! Eric also brought up a second central point of his 1933 paper: The Roosevelt Administration separated the budget into a "regular" budget, in which we should expect deficits to be paid back, and an "emergency" budget, unbacked (in our language) by expected surpluses. That cleverly allowed inflationary finance in 1933, but once the "emergency" was over in 1941, it preserved the US reputation for repaying wartime debts with subsequent surpluses, and allowed it to borrow for WWII. This loss of "back to normal," of expectations that we are now in "regular" not "emergency" finance is worrisome today. Finally, Eric brought some nice evidence to bear on the question, why 2020 but not 2008? Well, in part, we can look at statements of public officials. In 2008, they explicitly said, deficit now, repayment later. In 2020 they explicitly said the opposite. ("Offsets" is Washington-speak for "taxes" or later spending cuts.) Don't read a pejorative in this analysis. If you want to borrow, finance crisis expenditures and not create inflation, you "maintain the norm." If you want to create a "state contingent default" and pay for crisis expenditures by inflating away debt, you have to "violate the norm." That is darn hard -- ask the Japanese. How do you convince people you're not going to repay some part of the debt, despite a good reputation, but just some part, and if WWII comes along you're good for additional debts? Well, announcing your intentions helps!  And it worked. We very quickly inflated away the debt. Creating a state contingent default via inflation is not easy. Still to be seen though is whether we can return to "normal" "Hamilton norm" once it's over. Robert Barro also had great comments, but more directed at the book and with no great graphs to pass along. Thanks anyway!