ALL BLOG POSTS
When I wrote my master thesis many years ago the topic was a mathematical formalization of Austrian Business Cycle Theory. In hindsight I think it is incredible that I able to pull it off and I am still pretty happy with that master thesis. It, however, convinced me that Hayek's version of Austrian Business Cycle theory was seriously flawed. Furthermore, the math in my modeling never really satisfied me. It was just not good enough.
I am increasingly realising that a key problem in the Market Monetarist arguments for NGDP level targeting is that we have not been very clear in our arguments concerning how it would actually work.
The fears of economists and politicians with regard to flexible exchange rates can largely be traced back to the policies of the 1920s following the collapse of the gold standard. The most famous criticism of flexible exchange rates is probably that made by the Estonian economist Ragnar Nurkse. Nurkse claimed that the 1920s demonstrated that flexible exchange rates are destabilising.
In a post today Scott Sumner pays tribute to Bennett McCallum. I am as Scott is a big fan of Dr. McCallum (and of Scott).
The momentum for NGDP targeting is clearly building. Anybody who is interested in monetary policy and in what will be driving the global market sentiment going forward should have a look this issue.
Only two major countries - China and Spain - were not on the Gold Standard at the onset of the Great Depression in 1929. As a consequence both countries avoided the most negative consequences of the Great Depression. That is a forcefully demonstration of how the "wrong" exchange rate regimes can mean disaster, but also a reminder of Milton Friedman's dictum never to underestimate the importance of luck.