Did Latvia really lose that much competitiveness???

Please think of this as a supplement and a slight challenge to Ed’s fine 23 May 2011 piece on Latvia. Besides giving us the most interesting (or weird? :) ) title for a long while, he raises some very important questions: Is the Latvian internal devaluation really over and has it been successful? Ed is not convinced – neither am I but I am not as pessimistic as he seems to be. Continue reading

Latvia compared to Iceland: A tale of “The Harder They Come, the Harder They Fall*”

Paul Krugman, Nobel Prize winner in economics 2008, when in need of the antithesis of a role model for economic policy often chooses Latvia. He has been very critical of the insistence of the authorities to maintain the fixed exchange rate when the country faces recession and double-digit unemployment and of course he has a point. For me it is still not clear that the strategy of internal devaluation is better than an external one although I (still, especially if the authorities support it with reform-friendly 2011 and 2012 budgets) support the former. His Riga Mortis piece was fun but this post from 17 December 2010 lacks balance, I think, and certainly deserves some comment. Not to defend Latvia – the reckless boom-time ultra-procyclical fiscal policy in particular is very much the culprit of the current woes as I have argued previously (**) and its effects rightly produces comments and interest from Prof. Krugman and many others. Continue reading

Latvia: No victory yet, no defeat either

Some comments or, perhaps better, some additions to Ed Hugh’s piece of February 26, To Soon To Cry “Victory” on Latvia?, by Morten Hansen, Stockholm School of Economics in Riga.

Thanks a lot to Ed for welcoming some comments/further arguments on the debate on whether Latvia can indeed cry “Victory” (as seemingly suggested by Edward Lucas in The Economist) in the internal devaluation battle that it is fighting. Continue reading