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The one additional factor that has come out that leads me to raise a question about this is the evidence that a single currency—currency unification— tends to very sharply increase the trade among the various political units. If international trade goes up enough, it may reduce some of the harm that comes from the inability of individual countries to adjust to asynchronous shocks. You know, the various countries in the euro are not a natural currency trading group.
They are not a currency area. There is very little mobility of people among the countries. They have extensive controls and regulations and rules, and so they need some kind of an adjustment mechanism to adjust to asynchronous shocks—and the floating exchange rate gave them one. They have no mechanism now.
Before that, Europe had the snake, and then it broke down into something else. Give it time to develop its troubles.
Countries with a flexible exchange rate need a nominal target for monetary policy to anchor expectations. Do you feel that inflation targeting provides a useful nominal target? The problem I have is this: We know from the past that interest rates can be a very deceptive indicator of the state of affairs. A low interest rate may be a sign of an expansive monetary policy or of an earlier restrictive policy. And similarly, a high rate may be a sign of restriction, of trying to hold things down; or it may be a sign of past inflation.
The s offer the classical illustration in which there were high interest rates that were reflecting the Fisher effect of inflation expectations. But, I think that having a given inflation target is a good objective. The question is, how long will you be able to keep it? Many commentators are claiming that, in Japan, with short interest rates essentially at zero, monetary policy is as expansionary as it can get, but has had no stimulative effect on the economy.
Do you have a view on this issue? As far as Japan is concerned, the situation is very clear.
The Japanese bank has supposedly had, until very recently, a zero interest rate policy. Yet that zero interest rate policy was evidence of an extremely tight monetary policy. Essentially, you had deflation. The real interest rate was positive; it was not negative.
Tales from a crisis: On 14th June, Randall Henning will present his latest book on the Euro crisis and we will discuss how financial assistance should be governed in the euro area in the future. Amazon Music Stream millions of songs. Read article More on this topic. That was in Portuguese, and here I have more. You are commenting using your WordPress. Under the euro, that possibility is not there.
What you needed in Japan was more liquidity. A tour de force from the master. A great theoretician but also a great educator. I wonder how Milton Friedman might critique the latest post by Ben Bernanke on the large Fed balance sheet. Nevertheless, it has the optimistic prediction that growth rates could be quite strong when the economy starts recovering even if after such a long depression the ceiling itself may have been affected by years of underinvestment and an immense loss of human capital.
As can be seen in Figure 3a above, our very simple regressions suggest that the size of the contraction is predictive of growth rates during the recovery the P-value is 0. On the other hand, the size of the boom that precedes the recession — Figure 3b — is not predictive of the yearly average GDP contraction in a way that is statistically different from zero P-value of 0. These results appear to validate the plucking theory predictions made by Friedman.
In other words, the strong recoveries observed in European countries like Latvia and Estonia seem to be directly proportional to the size of their GDP-losses during the crisis.
Editorial Reviews. About the Author. Eamonn Butler is director of the Adam Smith Institute, rated Milton Friedman (Portuguese Edition) by [Butler, Eamonn]. Capitalismo e Liberdade (Portuguese Edition) - Kindle edition by Milton Friedman, Rose D. Friedman. Download it once and read it on your Kindle device , PC.
If these quick recoveries are the natural counterpart of the previous recessions, it makes it difficult to infer anything on the success or failure of the policies implemented since the beginning of the crisis, and therefore to use these countries as role model in order to recommend similar policies to other European countries. Bruegel considers itself a public good and takes no institutional standpoint.
Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post. This Policy Contribution looks at the evolution of public debt in Belgium and Italy since and uses the debt dynamics equation to explain the contrasting evolution in the two countries in the run-up to the introduction of the euro, during the early years of the euro and since the beginning of the crisis, arguing that the euro could have been used also by Italy to undertake sufficiently large fiscal adjustment.
This event featured a presentation by Ashoka Mody of his new book, which argues that the Euro is at the root of the problems the European Union faces today. Why did the eurozone have such difficulties coming to terms with its own shortcomings? The authors believe they have found part of the answer, through an algorithm-based cross-country media analysis.
While the prospect of a gridlock reassured investors about the short-term risk of an anti-establishment government, Italy still needs a profound economic shake-up and is in no position to afford months or years of dormant governments. Who gets the blame for the crisis? How did narratives of the crisis develop since ?
The authors of this paper tried to identify the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries. At this event Tamim Bayoumi will present his upcoming book on the financial crisis, showing how the Euro crisis and U. While the Euro has frequently been blamed for the poor growth performance of Italy over the years, a long-term analysis shows deteriorating growth before the introduction of the Euro.
On 14th June, Randall Henning will present his latest book on the Euro crisis and we will discuss how financial assistance should be governed in the euro area in the future.
Asian countries can draw several lessons from European experiences. However, some have argued that Europe is going through a serious identity crisis, whose roots are to be found in the economic crisis and whose implications could challenge further steps towards integration. We review the recent contributions to this debate. Earlier this month, the IMF and the European institutions clashed over conditions for sustainability of the Greek debt.
Whose assessment should be trusted and are there reasons to worry? An analysis of macroecnomic developments shows that Central and Eastern European CEE EU member states fared much better in the aftermath of the crisis compared to euro-area periphery countries. Furthermore, they have a better chance to avoid the problems that the euro-periphery countries faced before the crisis.
We use cookies to function our website. To read about our cookie usage and our privacy policy click here. Republishing and referencing Bruegel considers itself a public good and takes no institutional standpoint. High public debt in euro-area countries: Read about event More on this topic.