1,721,021 research outputs found
Debt cycles, instability and fiscal rules: A Godley-Minsky synthesis
Get PDF© The Author(s) 2017. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved. Wynne Godley and Hyman Minsky were two macroeconomists who 'saw the crisis coming'. This paper develops a simple macrodynamic model that synthesises some key perspectives of their analytical frameworks. The model incorporates Godley's financial balances approach and postulates that private sector's propensity to spend is driven by a stock-flow norm (the target net private debt-to-income ratio) that changes endogenously via a Minsky mechanism. It also includes two fiscal rules: a Maastricht-type fiscal rule, according to which the fiscal authorities adjust the government expenditures based on a target net government debt ratio; and a Godley- Minsky fiscal rule, which links government expenditures with private indebtedness following a counter-cyclical logic. The analysis shows that (i) the interaction between the propensity to spend and net private indebtedness can generate cycles and instability; (ii) instability is more likely when the propensity to spend responds strongly to deviations from the stock-flow norm and when the expectations that determine the stock-flow norm are highly sensitive to the economic cycle; (iii) the Maastricht-type fiscal rule is destabilising while the Godley-Minsky fiscal rule is stabilising; and (iv) the paradox of debt can apply both to the private sector and the government sector
Climate finance and global justice
Get PDFAs the climate crisis deepens, efforts to incorporate climate issues into finance intensify. However, a significant limitation of the ongoing climate-related initiatives and policies in finance is that they ignore global climate justice issues, enhancing thereby processes that increase injustice. This paper first provides a classification of the channels by which climate finance initiatives and policies are exacerbating global climate injustice. These are (i) the ‘exposing by self-protecting’ channel that reflects how the ongoing attempts of private finance to protect itself from climate risks can increase climate vulnerability in the Global South, (ii) the ‘decarbonising by exploiting’ channel that captures how climate finance can exacerbate green extractivism and (iii) the ‘climate derisking’ channel that refers to the attempts of private global financial institutions to create new sources of profitability at low risks by exploiting the need for climate change mitigation and adaptation in the Global South. The paper then puts forward three pillars that should be incorporated into national and international climate finance so as for climate finance injustices to be addressed and the financial system to become consistent with global climate justice principles. Pillar I refers to the differentiated climate responsibilities for Global North and Global South financial institutions. Pillar II captures the need for Global North financial institutions’ climate mitigation actions to be consistent with global justice. Pillar III suggests the establishment of permanent mechanisms by which the Global North will support the financing of climate spending in the Global South, based on climate debt responsibilities as well as capabilities associated with the hierarchies of the global financial architecture. The paper also outlines the political economy and technical challenges that the incorporation of these pillars into the global financial system would face
The climate crisis meets the ECB: tinkering around the edges or paradigm shift?
Get PDFThe European Central Bank (ECB) has recently incorporated climate considerations into its operations. In this paper, I assess whether the ECB’s approach is consistent with the challenges of the climate crisis era. I first identify three transformative implications of the climate crisis for central banking. These are that central banks (i) are becoming less able to control inflation via monetary policy tools, (ii) can no longer ignore their responsibility to support decarbonisation, and (iii) cannot rely on traditional risk exposure approaches to prevent financial instability that stems from physical risks. I then analyse to what extent these implications are reflected in the ECB climate actions and plans, showing that there is a very significant gap between the ECB’s ‘tinkering around the edges’ approach and the central banking challenges posed by the climate crisis. Using post-Keynesian, critical macro-finance and political economy perspectives, I develop the theoretical underpinnings of a climate-aligned central banking paradigm and analyse the implications of this paradigm for the ECB policy toolbox and mandate. I also identify the ideological and political economy factors that prevent the ECB from undergoing a climate paradigm shift
Greening Q.E.: Evaluating effects of Green Quantitative Easing on Global Warming using a global ecological macroeconomic model
No full textCurrent implementation of Quantitative Easing (QE) by the European Central Bank (ECB) contributes to global warming and counteracts a transition to a carbon-free economy. The research formulates green alternatives for current QE policy that are consistent with the ECB’s mandate. Evaluation in a stock-flow-fund ecological macroeconomic model shows that global implementation of these alternatives can significantly contribute to a mitigation of climate change. Through lowering financing costs, green QE leads to higher shares of green investment and green capital, apparent immediately after implementation. More green capital leads to higher shares of renewable energy which leads to lower levels of carbon emissions. In the most extensive policy alternative, this results in a mitigation of atmospheric temperature rise of approximately 12% compared to a baseline scenario, to approximately 6% in a limited policy alternative. Macroeconomic performance or the stability of the financial system are not affected by these policies in the short to medium term, and positively in the long term. These effects justify a consideration on whether green QE should become ECB policy.Master ThesisEngineering and Policy Analysi
Review of: Hein, E., Money, Distribution Conflict and Capital Accumulation: Contributions to ‘Monetary Analysis’, Palgrave Macmillan, 2008
No full textClimate change, central banking and financial supervision: beyond the risk exposure approach
Get PDFIt is now increasingly accepted that central banks and financial supervisors can no longer ignore climate change. However, there is no consensus on how they should address climate issues. On the one hand, there is a view that central banks and financial supervisors should mainly contribute to the assessment of the exposure of the financial system to climate-related financial risks, considering at the same time the possibility of incorporating climate risks into monetary policy and financial supervision and regulation. On the other hand, it is argued that central banks and financial supervisors need to take action such that they contribute directly to the decarbonisation of our economies and the prevention of climate systemic risks. In this paper, I analyse the main premises and implications of these two approaches and I explain why a systemic risk approach is necessary in the age of climate emergency. I also discuss the challenges involved in a policy agenda aiming at the reduction of climate systemic risks and I outline how these challenges can be tackled
Towards a climate just financial system
Get PDFIn recent years, private and public financial institutions have increasingly focused on addressing the implications of the climate crisis. However, existing efforts to align the financial system with climate change suffer from a significant limitation: they exacerbate global climate injustice. In this paper, I identify several climate finance injustice channels and explain how these can be addressed via the development of a ‘climate just financial system’. I define the latter as a system whereby climate justice criteria are incorporated into the policies governing public and private financial institutions, and the financing of private and public climate spending is in line with the principle of common but differentiated responsibilities and respective capabilities. A climate just financial system has three key elements: (i) differentiated climate responsibilities for global North and global South financial institutions, with the latter primarily focusing on climate adaptation and the former prioritising climate mitigation; (ii) climate justice stabilising mechanisms that establish a permanent commitment by global North countries to provide climate financing support to global South countries without making the latter more financially vulnerable; and (iii) the incorporation of climate justice criteria in the design and use of climate mitigation tools by global North financial institutions. Creating a climate just financial system requires significant transformations in multilateral financial mechanisms, public banking, central banking, financial regulation and private financial institutions. Although these transformations would face political and technical challenges, they can potentially be overcome if climate justice gets centre stage in the climate policy agenda
Climate change, central banking and financial supervision: beyond the risk exposure approach
No full textIt is now increasingly accepted that central banks and financial supervisors can no longer ignore climate change. However, there is no consensus on how they should address climate issues. On the one hand, there is a view that central banks and financial supervisors should mainly contribute to the assessment of the exposure of the financial system to climate-related financial risks, considering at the same time the possibility of incorporating climate risks into monetary policy and financial supervision and regulation. On the other hand, it is argued that central banks and financial supervisors need to take action such that they contribute directly to the decarbonisation of our economies and the prevention of climate systemic risks. In this chapter, I analyse the main premises and implications of these two approaches and I explain why a systemic risk approach is necessary in the age of climate emergency. I also discuss the challenges involved in a policy agenda aiming at the reduction of climate systemic risks and I outline how these challenges can be tackled
The climate crisis meets the ECB: tinkering around the edges or paradigm shift?
Get PDFIn recent years, the European Central Bank (ECB) has integrated climate considerations into its policy framework. This paper assesses whether the ECB’s approach adequately responds to the challenges posed by the climate crisis. I identify three transformative implications of the climate crisis for the ECB: (i) the diminishing effectiveness of traditional monetary policy tools in controlling inflation; (ii) the growing necessity for the ECB to actively support decarbonisation in line with the EU’s net-zero targets; and (iii) the insufficiency of traditional risk exposure approaches to address financial instability arising from physical climate risks. I examine the extent to which these implications are reflected in the ECB’s climate actions and plans, arguing that a significant gap exists between the ECB’s ‘tinkering around the edges’ approach and the systemic transformation of central banking required in the climate crisis era. Drawing on post-Keynesian and critical macro-finance perspectives, I develop the theoretical foundations of a climate-aligned central banking paradigm and explore its implications for the ECB’s policy toolbox and mandate
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