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It is always a pleasure to read The Economist. Normally, however, I do not find the letters to the editor especially interesting. However, when I picked up this week’s edition of the magazine today I stumbled on an interesting letter from Paul DeRosa. Mr. DeRosa writes about what Milton Friedman might have thought of the present crisis.
This week we are celebrating Milton Friedman’s centennial. Milton Friedman was known for a lot of things and one of them was his generally skeptical view of pegged exchange rates. In his famous article "The Case for Flexible Exchange Rates" he argued strongly against pegged exchange rates and for flexible exchange rates.
Happy birthday. I am sure that you are celebrating it with your beloved wife Rose in economist heaven.
I just took out a few books from my bookshelf. What do you think when you see the titles of these books:
It is not only in Europe that the idea of currency union has considerable political backing. This is certainly also the case in Africa. In fact there is already de facto a currency union (officially two currency unions) in Central and Western Africa in the form of the two CFA franc zones. Furthermore, there are also discussions about currency unions in Eastern Africa and in Southern Africa.
University of Chicago economics professor Casey Mulligan has a new comment on Economix. In his post "Who cares about Fed funds?" Mulligan has the following remarkable quote:
When crisis hit in 2008 it was mostly called the subprime crisis and it was normally assumed that the crisis had an US origin. I have always been skeptical about the US centric description of the crisis. As I see it the initial “impulse” to the crisis came from Europe rather than the US. However, the consequence of this impulse stemming from Europe led to a “passive” tightening of US monetary conditions as the Fed failed to meet the increased demand for dollars.
It is no secret that I would prefer that the ECB would introduce an NGDP level target. However, that is obviously utopian - I might be a dreamer, but I am not naïve. Furthermore, I think less could do it. In fact I believe that the ECB could end the euro crisis by just simply returning to the old second pillar of monetary policy in the euro zone - the M3 reference rate - and sticking to that rather than the highly damaging focus on headline inflation (HICP inflation).