Economist Gita Gopinath’s idea fuelling Francois Hollande’s revival strategy for France
When French President Francois Hollande unveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.
Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. "Fiscal devaluation" is helping France turn the corner during a period of extreme budget constraints, former Airbus chief Louis Gallois said in a business-competitiveness report Hollande commissioned.
Gopinath's support for the theory took shape through her years teaching at Harvard and the University of Chicago and particularly as a PhD student at Princeton University under the guidance of Kenneth Rogoff, Pierre-Olivier Gourinchas and Ben Bernanke, now chairman of the Federal Reserve. While her earlier work on current accounts and balance of payments garnered praise, it is her recent focus on the 17 euro nations that has national leaders paying action.
"Gita is already a major star, at the top of her cohort in international macroeconomics and still rapidly growing as a scholar," Rogoff said in an e-mail. "Her empirical work on price rigidities is simply stunning and has had everyone going back to the drawing boards. Her theoretical work on international debt and default defines the state of the art in the field," he said, calling her strategies for the Eurozone to achieve internal devaluations "very influential".
PARENTAL ADVICE
Gopinath's path to becoming an economist and the first Indian woman to receive tenure at Harvard began almost by chance in the South Indian city of Mysore where she grew up. Like many Indian highschool students, she sought her parents' advice on what to study at university, and like many Indian parents of the time, they wanted her to land a respectable job as a government official in the Indian Administrative Services.
The best way to achieve that, they were told by some friends in the services, was for Gopinath to get a bachelor's degree in economics from the University of Delhi. "It was purely accidental," Gopinath said in a telephone interview. "Luckily, I found out fairly quickly that I had more of an academic leaning and little aptitude for administration."
Her bachelor's in economics from Lady Shri Ram College for Women in 1992 was followed by a first master's at the Delhi School of Economics and a second in the US at the University of Washington in 1996. After receiving her doctorate at Princeton, she taught at the University of Chicago from 2001 to 2005 before moving to Harvard, where she was first invited as a visiting assistant professor for a semester in 2005.
At the end of that stint, the university made her an offer to stay. Her PhD thesis, titled "Three Essays on International Capital Flows: A Search Theoretic Approach," was far ahead of its time, said Rogoff, who has an office a few doors from hers at Harvard and describes her as a "gifted and popular" teacher. She advocated fiscal devaluation for Europe's currency union in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former student Oleg Itskhoki, an assistant professor at Princeton in New Jersey.
FORMAL ANALYSIS
"Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations," they wrote. "This paper is intended to bridge this gap." The paper examines a "remarkably simple alternative" that does not require countries to abandon the euro and devalue their currencies, Gopinath said.
LESS PRAISE
She has less praise for policy makers in her country of birth. India's current-account deficit, at 5.4% of gross domestic product, is "worrying," Gopinath said, because it's driven by lower savings rates. The shortfall has triggered memories of India's fiscal crisis in 1990-91, when an overvalued currency led to a massive current-account deficit and a sharp decline in foreign reserves.
More than two decades after the country airlifted gold reserves to pledge as collateral for a loan from IMF, India is grappling with its widest-ever shortfall, which has led to warnings of a downgrade to junk by ratings companies."The reason I'm an international economist now is partly because of the exposure I had back then," said Gopinath, who was in college in New Delhi at the time. "That was when I really got into the subject, and it stuck with me."
Source : BLOOMBERG ,ET
Gopinath, a professor at Harvard University has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates.
When French President Francois Hollande unveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.
Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. "Fiscal devaluation" is helping France turn the corner during a period of extreme budget constraints, former Airbus chief Louis Gallois said in a business-competitiveness report Hollande commissioned.
Gopinath's support for the theory took shape through her years teaching at Harvard and the University of Chicago and particularly as a PhD student at Princeton University under the guidance of Kenneth Rogoff, Pierre-Olivier Gourinchas and Ben Bernanke, now chairman of the Federal Reserve. While her earlier work on current accounts and balance of payments garnered praise, it is her recent focus on the 17 euro nations that has national leaders paying action.
"Gita is already a major star, at the top of her cohort in international macroeconomics and still rapidly growing as a scholar," Rogoff said in an e-mail. "Her empirical work on price rigidities is simply stunning and has had everyone going back to the drawing boards. Her theoretical work on international debt and default defines the state of the art in the field," he said, calling her strategies for the Eurozone to achieve internal devaluations "very influential".
PARENTAL ADVICE
Gopinath's path to becoming an economist and the first Indian woman to receive tenure at Harvard began almost by chance in the South Indian city of Mysore where she grew up. Like many Indian highschool students, she sought her parents' advice on what to study at university, and like many Indian parents of the time, they wanted her to land a respectable job as a government official in the Indian Administrative Services.
The best way to achieve that, they were told by some friends in the services, was for Gopinath to get a bachelor's degree in economics from the University of Delhi. "It was purely accidental," Gopinath said in a telephone interview. "Luckily, I found out fairly quickly that I had more of an academic leaning and little aptitude for administration."
Her bachelor's in economics from Lady Shri Ram College for Women in 1992 was followed by a first master's at the Delhi School of Economics and a second in the US at the University of Washington in 1996. After receiving her doctorate at Princeton, she taught at the University of Chicago from 2001 to 2005 before moving to Harvard, where she was first invited as a visiting assistant professor for a semester in 2005.
At the end of that stint, the university made her an offer to stay. Her PhD thesis, titled "Three Essays on International Capital Flows: A Search Theoretic Approach," was far ahead of its time, said Rogoff, who has an office a few doors from hers at Harvard and describes her as a "gifted and popular" teacher. She advocated fiscal devaluation for Europe's currency union in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former student Oleg Itskhoki, an assistant professor at Princeton in New Jersey.
FORMAL ANALYSIS
"Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations," they wrote. "This paper is intended to bridge this gap." The paper examines a "remarkably simple alternative" that does not require countries to abandon the euro and devalue their currencies, Gopinath said.
LESS PRAISE
She has less praise for policy makers in her country of birth. India's current-account deficit, at 5.4% of gross domestic product, is "worrying," Gopinath said, because it's driven by lower savings rates. The shortfall has triggered memories of India's fiscal crisis in 1990-91, when an overvalued currency led to a massive current-account deficit and a sharp decline in foreign reserves.
More than two decades after the country airlifted gold reserves to pledge as collateral for a loan from IMF, India is grappling with its widest-ever shortfall, which has led to warnings of a downgrade to junk by ratings companies."The reason I'm an international economist now is partly because of the exposure I had back then," said Gopinath, who was in college in New Delhi at the time. "That was when I really got into the subject, and it stuck with me."
Source : BLOOMBERG ,ET
