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Guest post: Part 2 – Keynes: Evidence for Monetary Policy Ineffectiveness (continued)
I am extremely happy to announce that my blog this week will feature four guest posts by Clark Johnson. I have for some time tried to convince Clark to write something for my blog so I was very happy when Clark's manuscript for his paper "Keynes: Evidence for Monetary Policy Ineffectiveness?" arrived in my in-box recently. Clark and I have decided to split up the paper in four parts which will be published in the coming four days.
The ECB so far has refused to sufficiently increase the money base to meet the increase in the demand of money and as a result euro zone money-velocity has contracted. We are basically in a monetary disequilibrium. Normally we would say an excess demand for money can be reduced in two ways. Either you can increase the money supply or the price of money can increase sufficiently to reduce the demand for money until it matches the supply of money. An increase in the price of money of course means a drop in all other prices - deflation.
The author of the great book ‘Lords of Finance: The Bankers Who Broke the World’ Liaquat Ahamed has a comment on ft.com on the euro crisis and the parallels of the behavior of today's European central bankers with that of the central bankers of the 1930s. I have been making the argument many times that we are in the process of making the same mistakes as we did in the 1930s - particularly in Europe. Ahamed agrees.
Yesterday, Anna Schwartz passed away in her New York City home at an age of 96. Anna Schwartz undoubtedly was one of the greatest monetary historians ever and her masterpiece "A Monetary History of the United States, 1867-1960" , which she co-authored with Milton Friedman was instrumental in changing how economic historians view the causes of the Great Depression.
When the eurocrat Mario Monti became Prime Minister last year we were told that he was the man to turn around the Italian economy. We were told that technocrats would do the job rotten and incompetent politicians were not able to do. However, the eurocrat Papademos did not last long in Greece and now Mario Monti is beginning to sound rather desperate. On Thursday he told reporters that EU policy makers had one week to save the euro. That is somewhat of a stern warning from somebody who is supposed to be a cool-headed technocrat.
I have always said that my blog should be open to debate and I am happy to have guest posts from clever and inlighted economists (and non-economists) about monetary matters. I am therefore delighted that my good friend and colleague Jens Pedersen (I used to be his boss...) has offered to write a reply to "Integral's" post on price level targeting versus NGDP level targeting. Jens who recently graduated from University of Copenhagen. His master thesis was about Price Level Targeting.
Guest post: Measuring the stance of monetary policy through NGDP and Prices
By chance I today found an ECB working paper from 2004 - "The Great Depression and the Friedman-Schwartz hypothesis" by Christiano, Motto and Rostagno.
It is very easy to get frustrated about the discussion of monetary policy in today’s world. However, this morning we got something to cheer about as Vince Cable British Minister for Business, Innovation and Skills gave a speech on the UK recovery in the 1930s and the parallels to today’s crisis at the think tank Centre Forum. The entire speech is very uplifting.