1,720,977 research outputs found
"Assessing the ECB's Performance since the Global Slowdown: A Structural Policy Bias Coming Home to Roost?"
Get PDFThis paper assesses the ECB's performance, which the author finds to be seriously lacking but which is of paramount importance to understanding euroland's ongoing stagnation and fragility. A main finding is that the series of policy blunders which characterized the bank's conduct features a bias. Institutions as well as personalities appear to be behind the bank's tendency to err systematically in one direction. Curiously, this bias is adverse not only to growth, but to price stability. The author shows that viewing the ECB through inflation-targeting lenses is very misleading, since that view does not reflect the bank's perspective at all, and that standard Taylor rule exercises are superfluous. The ECB's words and deeds may be far more consistent than is widely held, without making them any less detrimental to economic performance.
Assessing the ECB's Performance since the Global Slowdown A Structural Policy Bias Coming Home to Roost?
No full textThis paper assesses the ECB’s performance, which the author finds to be seriously lacking but which is of paramount importance to understanding euroland’s ongoing stagnation and fragility. A main finding is that the series of policy blunders which characterized the bank’s conduct features a bias. Institutions as well as personalities appear to be behind the bank’s tendency to err systematically in one direction. Curiously, this bias is adverse not only to growth, but to price stability. The author shows that viewing the ECB through inflation- targeting lenses is very misleading, since that view does not reflect the bank’s perspective at all, and that standard Taylor rule exercises are superfluous. The ECB’s words and deeds may be far more consistent than is widely held, without making them any less detrimental to economic performance.Policy inconsistencies, EMU, Inflation Targeting, Taylor rules
"Making EMU Work: Some Lessons from the 1990s"
Get PDFThis paper investigates the lessons learned from Europe's convergence process of the 1990s. The paper challenges the conventional focus on labour market institutions and "structural rigidities" as the root cause of Europe's poor employment record. Instead, it is argued that macroeconomic demand management, particularly monetary policy, played the key role. Concentrating on Germany, the analysis shows that fiscal consolidation was accompanied by monetary tightness of an extraordinary degree and duration. This finding is of interest for the past as well as the future, for the Maastricht regime much resembles the one that produced the unsound policy mix of the 1990s: a constrained fiscal authority paired with an independent monetary authority free to impose its will on the overall outcome. The analysis thus highlights a key asymmetry in the Maastricht regime that is not unlikely to continue to inflict a deflationary bias on the system. It is argued that this policy bias may be overcome only if the ECB deliberately assumes its real role of generating domestic demand-led growth, thereby resolving Euroland's key structural problem: asymmetric monetary policy. Concerning the conventional structuralist theme, the analysis debunks the "Dutch myth" of supply-led growth through structural reform. Depicting a popular fallacy of composition, we stress that the peculiar Dutch strategy of demand-led growth does not present itself as an option for Euroland.
"Financial Markets"
Get PDFThis paper provides a brief exposition of financial markets in Post Keynesian economics. Inspired by John Maynard Keynes's path-breaking insights into the role of liquidity and finance in "monetary production economies," Post Keynesian economics offers a refreshing alternative to mainstream (mis)conceptions in this area. We highlight the importance of liquidity-as provided by the financial system—to the proper functioning of real world economies under fundamental uncertainty, contrasting starkly with the fictitious modeling world of neo-Walrasian exchange economies. The mainstream vision of well-behaved financial markets, channeling saving flows from savers to investors while anchored by fundamentals, complements a notion of money as an arbitrary numeraire and mere convenience, facilitating exchange but otherwise "neutral." From a Post Keynesian perspective, money and finance are nonneutral but condition and shape real economic performance. It takes public policy to anchor asset prices and secure financial stability, with the central bank as the key public policy tool.Financial Markets; Liquidity; Uncertainty; Rate of Interest; Instability; Central Banking
"Permanent and Selective Capital Account Management Regimes as an Alternative to Self-Insurance Strategies in Emerging-market Economies"
Get PDFCurrency market intervention-cum-reserve accumulation has emerged as the favored "self-insurance" strategy in recipient countries of excessive private capital inflows. This paper argues that capital account management represents a less costly alternative line of defense deserving renewed consideration, especially in the absence of fundamental reform of the global monetary and financial order. Mainstream arguments in favor of financial globalization are found unconvincing; any indirect benefits allegedly obtainable through hot money inflows are equally obtainable without actually tolerating such inflows. The paper investigates the experiences of Brazil, Russia, India, and China (the BRICs) in the global crisis and subsequent recovery, focusing on their respective policies regarding capital flows.Capital Flows; Self-Insurance; Capital Controls; Financial Regulation
"Bad for Euroland, Worse for Germany: The ECB's Record"
Get PDFThis paper assesses the contribution of the European Central Bank (ECB) to Germany's ongoing economic crisis, a vicious circle of decline in which the country has become stuck since the early 1990s. It is argued that the ECB continues the Bundesbank tradition of asymmetric policymaking: the bank is quick to hike, but slow to ease. It thereby acts as a brake on growth. This approach has worked for the Bundesbank in the past because other banks behaved differently. Exporting the Bundesbank "success story" to Euroland has undermined its working, however; given its sheer size, Euroland simply cannot freeload on external stimuli forever. While Euroland cannot do without proper demand management, the Maastricht regime and especially the ECB are firmly geared against it. The ECB's monetary policies have been biased against growth and have thus proved bad for Euroland as a whole. Meanwhile, the German disease of protracted domestic demand weakness has spread across much of Euroland. Yet, by pursuing its peculiar traditions of wage restraint and procyclical public thrift, the ECB's policies have had even worse results for Germany. Fragility and divergence undermine the euro's long-term survival.
"How the Maastricht Regime Fosters Divergence as Well as Fragility"
Get PDFThis paper investigates the phenomenon of persistent macroeconomic divergence that has occurred across the eurozone in recent years. Optimal currency area theory would point toward asymmetric shocks and structural factors as the foremost candidate causes. The alternative hypothesis pursued here focuses on the working of the Maastricht regime itself, making it clear that the regime features powerful built-in destabilizers that foster divergence as well as fragility. Supposed adjustment mechanisms actually have turned out to undermine the operation of the currency union by making it less “optimal,” that is, less subject to a "one-size-fits-all" monetary policy and common nominal exchange rate, in view of the resulting business cycle desynchronization and related build-up of financial imbalances. The threats of fragility and divergence reinforce each other. Without regime reform these developments could potentially spiral out of control, threatening the long-term survival of EMU.
"The International Monetary (Non-)Order and the 'Global Capital Flows Paradox'"
Get PDFThis paper sets out to investigate the forces behind the so-called "global capital flows paradox" and related "dollar glut" observed in the era of advancing financial globalization. The supposed paradox is that the developing world has increasingly come to pursue policies that resulted in current account surpluses and thus net capital exports—destined primarily for the capital-rich United States. The hypothesis put forward here is that systemic deficiencies in the international monetary and financial order have been the root cause behind today's situation. Furthermore, it is argued that the United States' position as issuer of the world's premiere reserve currency and supremacy in global finance explain the related conundrum of a positive investment income balance despite a negative international investment position. The assessment is carried out in light of John Maynard Keynes’s views on a sound international monetary and financial order.
"How to Sustain the Chinese Economic Miracle? The Risk of Unraveling the Global Rebalancing"
Get PDFThis paper investigates China’s role in creating global imbalances, and the related call for a massive renminbi revaluation as a (supposed) panacea to forestall their reemergence as the world economy recovers from severe crisis. We reject the prominence widely attributed to China as a cause of global imbalances and the exclusive focus on the renminbi-dollar exchange rate as misguided. And we emphasize that China's response to the global crisis has been exemplary. Apart from acting as a growth leader in the global recovery by boosting domestic demand to offset the slump in exports, China has in the process successfully completed the first stage in rebalancing its economy, which is in stark contrast to other leading trading nations that have simply resumed previous policy patterns. The second stage in China’s rebalancing will consist of further strengthening private consumption. We argue that this will be best supported by continued reliance on renminbi stability and capital account management, so as to assure that macroeconomic policies can be framed in line with domestic development requirements.Global Imbalances; Rebalancing; Renminbi Revaluation; Stimulus Package; Export-led Growth
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