DOCSLIB.ORG

POLICY INSIGHT No.51

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
POLICY INSIGHT No.51 abcd a POLICY INSIGHT No.51 OCTOBER 2010 Greece and the fiscal crisis in the Eurozone Willem Buiter and Ebrahim Rahbari Citigroup and CEPR; Citigroup Introduction the Eurozone than outside it with an independent national monetary and/or exchange rate policy. The saga of the Greek public finances continues. We also believe that the Eurozone as a whole But this time, Greece is not the only country that could come out of this crisis stronger than it suffers from doubts about the sustainability of went in if it uses this opportunity to remedy the its fiscal position. Quite the contrary. The public design flaw at the heart of it – the absence of a finances of most countries in the Eurozone are minimal ‘fiscal Europe’. in a worse state today than at any time since the industrial revolution, except for wartime The dimensions of the fiscal problem episodes and their immediate aftermaths. And the problems are not confined even to the Eurozone, Table 1 shows that the fiscal troubles are but extend to other EU member states, like the widespread. In fact, only a limited number of UK and Hungary, and to Japan and the US. This small industrial countries are in reasonable essay explains how and why this situation came fiscal-financial shape, i.e. Australia, New about and how it is likely to evolve during the Zealand, Denmark, Norway, Sweden, Finland rest of this decade. and Switzerland. Canada, Germany and the Netherlands, which are widely considered (and In fact, only a limited number of small consider themselves) to be in reasonably good industrial countries are in reasonable fiscal-financial condition, are so only compared fiscal-financial shape. to the truly dire conditions experienced by most of their peers. The origins of this widespread loss of fiscal At almost 115% and 14%, respectively, Greece’s control are shared by most countries and can (gross) government debt and budget deficit are be traced to pro-cyclical fiscal policy during the certainly of great concern. But these numbers boom period preceding the financial crisis that are somewhat less staggering, even in peace started in August 2007, the fiscal cost of the time, when set against a Eurozone average of financial rescue operations, the revenue losses almost 82% for gross debt and 6% for the budget caused by the recession and the discretionary deficit. And on the whole, the fiscal situation of fiscal measures taken to stimulate economic the Eurozone as a whole still appears to be more activity. But the uniquely serious situation in sustainable than that of the US, the UK, or Japan. Greece owes much to country-specific features of its economy, its political institutions and The roots of the fiscal unsustainability its policies. Fiscal sustainability in Greece and problems in Eurozone and Greece elsewhere can only be restored via fiscal pain (tax increases and/or public spending cuts), by The fiscal unsustainability problems in most inflating away the real burden of the public debt, advanced economies have four common roots: by economic growth, by sovereign default or by First, strongly pro-cyclical behaviour by a bailout, and the balance of costs and benefits the fiscal authorities during the boom period of these options can vary between different between the bursting of the tech bubble at the countries and over time. end of 2000 and the onset of the financial crisis For countries that are part of the Eurozone, this of the North Atlantic region in August 2007. cost-benefit analysis is complicated by the legal Second, the direct fiscal costs of the financial and institutional constraints of membership. crisis, that is, the bailouts and other budgetary Nevertheless, we are convinced that any fiscally- rescue measures directed at propping up the challenged Eurozone member is better off within financial system, starting with the collapse of CEPR POLICY INSIGHT No. 51 CEPR POLICY INSIGHT No. To download this and other Policy Insights, visit www.cepr.org OCTOBER 2010 2 Table 1. Fiscal troubles around the world % of 2009 nominal GDP Cyclically Gross debt Net debt Budget balance Sturctural balance adjusted primary balance Australia 15.9 -5.7 -3.9 -3.3 -2.5 Canada 82.8 28.6 -5.1 -3.2 -2.3 Czech Republic 42.0 -1.0 -5.9 -4.6 -3.7 Denmark 51.8 -5.1 -2.8 0.1 0.7 Euro area 78.7 51.7 -6.3 -3.6 -1.2 Austria 66.5 37.2 -3.5 -2.5 -0.4 Belgium 96.7 80.7 -6.1 -2.8 0.4 Finland 44.0 -63.2 -2.7 1.1 0.6 France 77.6 50.6 -7.6 -5.7 -3.7 Germany 73.2 48.3 -3.3 -1.4 0.8 Greece 115.1 87.0 -13.5 -11.7 -7.1 Ireland 64.0 27.2 -14.3 -9.9 -8.2 Italy 115.8 101.0 -5.2 -2.7 1.5 Luxembourg 14.5 -0.7 1.1 -0.2 Netherlands 60.9 28.5 -5.3 -4.6 -3.0 Norway 43.7 -153.4 9.7 -0.8 -3.8 Portugal 76.8 57.9 -9.4 -7.4 -4.7 Slovak Republic 35.7 12.4 -6.8 Slovenia 35.9 -5.5 Spain 53.2 34.8 -11.2 -8.3 -7.1 Hungary 84.0 58.0 -3.9 -1.6 2.2 Iceland 122.7 41.0 -9.1 -7.4 -5.0 Japan 189.3 96.5 -7.2 -5.5 -4.5 Korea 34.9 -31.0 0.0 New Zealand 35.0 -8.1 -3.5 -1.4 -2.3 Poland 58.4 22.3 -7.1 -7.3 -5.3 Sweden 51.8 -23.4 -1.1 2.3 2.6 Switzerland 5.5 0.7 1.3 1.7 United Kingdom 72.3 43.5 -11.3 -8.6 -7.0 Unites States 83.9 56.4 -11.0 -9.1 -7.6 Notes: Gross Debt: "General Government Gross Financial Liabilites", OECD EO and "General Government Debt", Eurostat; Net Debt: "General Government Net Financial Liabilites", OECD EO; Budget Balance: "Government Net Lending", OECD EO and "General Government: Net Lending/Borrowing", Eurostat; Structural Balance: "General Government Cyclically Adjusted Balances", OECD EO; Cyclically Adjusted Primary Balance: "Cyclically Adjusted Government Primary Balance", OECD EO. Source: Gross Debt and Budget Balance for Euro Area (and countries in Euro Area) from Eurostat, otherwise OECD Economic Outlook (EO). Northern Rock in September 2007, and expanding Fourth, the end of asset booms and bubbles, massively with the rescue of Fannie and Freddie especially in real estate markets, plus the by the Federal government on September 7, 2008, normalisation, from extraordinary heights, of the Lehman Brothers insolvency on September profits and pay in the financial sector, are likely 15, 2008, and the last-minute rescue by the to produce a lasting reduction in the buoyancy Federal government and the Fed of AIG and its of government revenues with respect to GDP counterparties in a number of interventions that in countries with significant construction and started on September 16, 2008. financial sectors, resulting in an increase in the Third, the worldwide recession that started structural primary (non-interest) deficit of the in 2008 and lasted in most of the advanced sovereign. industrial countries until the end of 2009.1 The Together, these four developments caused recession weakened many government revenue an unprecedented peacetime deterioration in sources and boosted certain public expenditure the public finances of most of the advanced categories (like unemployment benefits) for industrial countries.2 the usual cyclical or automatic fiscal stabiliser In Greece, a number of country-specific factors reasons. 2 They also caused a sharp deterioration in the public 1 According to the NBER Business Cycle Dating Committee, finances of a number of emerging market economies – the latest US recession started in December 2007 and mainly in Central and Eastern Europe and the countries of reached a trough in June 2009. The recovery in the US is the Commonwealth of Independent States ( the successor therefore 15 months old at the time of writing (September states of the former Soviet Union minus the three Baltic CEPR POLICY INSIGHT No. 51 CEPR POLICY INSIGHT No. 27, 2010). nations). To download this and other Policy Insights, visit www.cepr.org OCTOBER 2010 3 Figure 1 Public debt in emerging economies and 20 added to these common causes of the fiscal developed economies troubles. In October 2009, following the Greek general election and change of government, Greece’s general government budget deficit was 140 Emerging Markets revealed by the new government to be 12.7% 120 Developed Economies of GDP rather than the 6.0% reported by the old government, and the 3.7% promised to the 100 European Commission at the beginning of 2009. 80 The most recent estimate from Eurostat puts the 60 2009 general government deficit of Greece at Debt % of GDP 13.6% of GDP. And, while the finances of many 40 sovereigns deteriorated strongly as a result of the 20 recent crisis, Greece entered the downturn with a 0 large underlying public deficit already. 2009 2014 Source: IMF The deterioration in the fiscal positions of most industrialised countries has been spectacular, even more so when set against is only one emerging market amongst the high- the remarkable fiscal restraint demonstrated government deficit countries in 2009 – India. by most emerging markets And India, with a gross general government debt to GDP ratio of over 80% during 2009 (see IMF (2010)), is much better able to manage a 10% Greece’s budgetary problems owe much to high of GDP general government deficit, because entitlement and age-related spending, poor tax during 2009 it had a growth rate of nominal administration and a bloated public sector.
Load more

Recommended publications
  • University of Surrey Discussion Papers in Economics By
    råáp=== = = ======råáîÉêëáíó=çÑ=pìêêÉó Discussion Papers in Economics THE DISSENT VOTING BEHAVIOUR OF BANK OF ENGLAND MPC MEMBERS By Christopher Spencer (University of Surrey) DP 03/06 Department of Economics University of Surrey Guildford Surrey GU2 7XH, UK Telephone +44 (0)1483 689380 Facsimile +44 (0)1483 689548 Web www.econ.surrey.ac.uk ISSN: 1749-5075 The Dissent Voting Behaviour of Bank of England MPC Members∗ Christopher Spencer† Department of Economics, University of Surrey Abstract I examine the propensity of Bank of England Monetary Policy Committee (BoEMPC) members to cast dissenting votes. In particular, I compare the type and frequency of dissenting votes cast by so- called insiders (members of the committee chosen from within the ranks of bank staff)andoutsiders (committee members chosen from outside the ranks of bank staff). Significant differences in the dissent voting behaviour associated with these groups is evidenced. Outsiders are significantly more likely to dissent than insiders; however, whereas outsiders tend to dissent on the side of monetary ease, insiders do so on the side of monetary tightness. I also seek to rationalise why such differences might arise, and in particular, why BoEMPC members might be incentivised to dissent. Amongst other factors, the impact of career backgrounds on dissent voting is examined. Estimates from logit analysis suggest that the effect of career backgrounds is negligible. Keywords: Monetary Policy Committee, insiders, outsiders, dissent voting, career backgrounds, ap- pointment procedures. Contents 1 Introduction 2 2 Relationship to the Literature 2 3 Rationalising Dissent Amongst Insiders and Outsiders - Some Priors 3 3.1CareerIncentives........................................... 4 3.2CareerBackgrounds........................................
    [Show full text]
  • Monetary Economics and the Political Economy of Central Banking
    Monetary Economics and the Political Economy of Central Banking: * ** Inflation Targeting and Central Bank Independence Revisited 27-01-2008 Willem H. Buiter Professor of European Political Economy, European Institute. London School of Economics and Political Science * © Willem H. Buiter, 2006, 2007 ** Paper presented at the Session: ‘Changing Doctrinal Perspectives in Central Banking’ at the Central Bank of Argentina 2007 Money and Banking Conference “Monetary Policy Under Uncertainty”, June 4-5 2007, Buenos Aires, Argentina. An earlier version of this paper provided the background to a lecture given at the XI Meeting of the Research Network of Central Banks of the Americas, Buenos Aires, 22 - 24 November 2006. I would like to thank Charlie Bean, Tim Besley, Mario Blejer, Guillermo Calvo, Howard Davies, Katherine Hennings, Christopher Kent, Manuel Ramos Francia, Katerina Smidkova, Klaus Schmidt-Hebbel for comments on earlier versions of this paper. 1 Introduction There is a widespread consensus among practicing and practical central bankers as well as among theoretical and applied monetary economists, that the canonical global best practice central bank is operationally independent 1 and targets inflation 2. Historically, whenever a near-universal consensus takes hold of the economics profession, it tends to be at least half wrong. A concern that this may be happening in the areas of inflation targeting and central bank independence prompted the choice of subject for this lecture. I. Inflation targeting Inflation targeting – the pursuit of a low and stable rate of inflation over the medium-to-long term for some broadly based index of consumer prices or cost-of-living index - is best rationalised as the operational expression of the pursuit of the more fundamental objective of price stability.
    [Show full text]
  • Center on Capitalism and Society At
    CENTER ON CAPITALISM AND SOCIETY AT CCS Conference on the Financial Crisis Friday, February 20, 2009 Italian Academy, Columbia University 1161 Amsterdam Avenue (between 116th and 118th Streets) Program 9:00 am: Introductory Remarks Prof. Edmund S. Phelps, Director, Center on Capitalism and Society, and McVickar Professor of Political Economy, Columbia University. Winner of 2006 Nobel Prize in Economics. 9:10am – 10:40am: Panel 1: Reforming the Financial Sector Chair: To be announced Prof. Edmund S. Phelps, Director, Center on Capitalism and Society, and McVickar Professor of Political Economy, Columbia University. Winner of 2006 Nobel Prize in Economics. [confirmed] Prof. Amar Bhidé, Glaubinger Professor of Business, Graduate School of Business, Columbia University. Co-editor, Capitalism and Society. [confirmed] Dr. Richard Robb, CEO of Christofferson, Robb and Company. Associate Professor of Professional Practice in International Finance, School of International and Public Affairs at Columbia University. [confirmed] Mr. Leo Tilman, President of L.M. Tilman & Co. Author of Financial Darwinism: Create Value or Self-Destruct in a World of Risk. [confirmed] Mr. John Kay, Member, Council of Economic Advisers, Scottish Government. Author of The Truth about Markets and contributor, Financial Times. [confirmed] Prof. Jose A. Scheinkman, Theodore A. Wells Professor of Economics, Princeton University 10:40 – 10:55am: Coffee 10:55am – 12:25pm: Panel 2: Regulating the new Financial Sector Chair: To be announced Mrs. Christine Lagarde, Minister of Economics, Industry and Employment, France. [confirmed] Dr. Malcolm Knight, Vice-Chairman, Deutsche Bank. Former General Manager, BIS. [confirmed] Prof. Joseph Stiglitz, University Professor, Columbia University. Chair, Committee on Global Thought, Columbia University. Executive Director, Initiative for Policy Dialogue, Columbia University.
    [Show full text]
  • Transforming Uncertainty Into Opportunity
    Citi Private Bank cordially invites you to: Transforming Uncertainty into Opportunity Print Next > Close Foreword It is my pleasure to cordially invite you to Citi Private Bank’s Global Outlook 2013: Transforming Uncertainty into Opportunity. At this annual Outlook roadshow that runs across the Europe, Middle East and Africa region, you will hear from Citi’s top analysts and strategists on various topical issues — views on investment opportunities and challenges awaiting investors; perspectives on global and regional geopolitical and economic developments; markets insight by asset class and geography; and informed opinions about managing one’s wealth in 2013. We look forward to your participation at the event, and for the opportunity of more thoughtful and productive discussions with our bankers and investment specialists on your wealth management plans. Luigi Pigorini Chief Executive Officer Citi Private Bank, Europe, Middle East and Africa Print < Back Next > Close Date & Time Thursday 17 January 2013 15.30 — 18.15 Location Ballroom The Berkeley Wilton Place The Berkeley Knightsbridge London SW1X 7RL Dress code Business-casual RSVP (by 8/1/13) Please email [email protected] or contact your Private Banker. Please let us know if you have any special dietary requirements Print < Back Next > Close Agenda 15.30 Welcome Refreshments 16.00 Welcome Address 16.05 2012 Retrospective and 2013 Outlook Willem Buiter, Chief Economist, Citi 16.30 2012 Political Review and 2013 Political Outlook Tina Fordham, Senior Political Analyst, Citi 17.00
    [Show full text]
  • Inflation Report
    Inflation Report November 1998 The Inflation Report is produced quarterly by Bank staff under the guidance of the members of the Monetary Policy Committee. It serves a dual purpose. First, its preparation provides a comprehensive and forward-looking framework for discussion among MPC members as an aid to our decision making. Second, its publication allows us to share our thinking and explain the reasons for our decisions to those whom they affect. Although not every member will agree with every assumption on which our projections are based, the fan charts represent the MPC’s best collective judgment about the most likely path for inflation and output, and the uncertainties surrounding those central projections. This Report has been prepared and published by the Bank of England in accordance with section 18 of the Bank of England Act 1998. The Monetary Policy Committee: Eddie George, Governor Mervyn King, Deputy Governor responsible for monetary policy David Clementi, Deputy Governor responsible for financial stability Alan Budd Willem Buiter Charles Goodhart DeAnne Julius Ian Plenderleith John Vickers The Overview of this Inflation Report is available on the Bank’s web site: www.bankofengland.co.uk/infrep.htm. The entire Report is available in PDF format on www.bankofengland.co.uk/ir.htm. Printed by Park Communications Ltd © Bank of England 1998 ISBN 1 85730 181 1 ISSN 1353–6737 Overview The Monetary Policy Committee sets interest rates to maintain a path for inflation looking ahead that is consistent with the 2.5% target for inflation on the RPIX measure. This requires the Committee to act in response to prospective deviations—downwards or upwards—from the inflation target in a symmetrical fashion.
    [Show full text]
  • [Presentation Title/Subject]
    May 26, 2017 Global Economic Outlook Willem BuiterAC Global Chief Economist [email protected] +1 212-816-2363 See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures Citi Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.. Investors should consider this report as only a single factor in making their investment decision. Certain products (not inconsistent with the author's published research) are available only on Citi's portals. This presentation was approved for distribution on 21 May 2017; the disclosures in Appendix A1 are current as of the same date. Global growth looks relatively stable with some signs of a pick up We see a cyclical pickup in GDP growth across AEs and EMs with industrial production and trade growth leading the way Global— Real GDP Growth (%YY) Global—Composite, Mfg and Services PMI % YoY Diffusion index (50+= Expansion) 6 56 Global Forecasts Global 5 AE 55 Manufacturing EM Services 54 4 53 3 52 2 51 50 1 49 0 48 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Note: Aggregates at market exchange rates. Global and EM aggregates exclude Sources: Markit and Citi Research. Venezuela. Source: National Statistical Offices, IMF and Citi Research US and China – Industrial Production AE and EM – Goods Exports and Imports %3M/3M saar 20 3m3m saar 30 18 US AE Exports AE Imports 16 25 14 China 20 EM Exports EM Imports 12 15 10 8 10 6 5 4 0 2 0 -5 -2 -10 -4 -15 -6 Mar-17 Feb-17 -8 -20 2010 2011 2012 2013 2014 2015 2016 2017 2014 2015 2016 2017 Sources: FRB, NBS and Citi Research.
    [Show full text]
  • Tilburg University Gorby Games Güth, W.; Van Damme, E.E.C
    Tilburg University Gorby games Güth, W.; van Damme, E.E.C. Publication date: 1991 Link to publication in Tilburg University Research Portal Citation for published version (APA): Güth, W., & van Damme, E. E. C. (1991). Gorby games: A game theoretic analysis of disarmament campaigns and the defense efficiency-hypothesis. (Reprint series / CentER for Economic Research; Vol. 62). Unknown Publisher. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 29. sep. 2021 ~~~~ cBM R for ~mic Research 8823 IIIIIIIIIIIullllIIIIIIIIINIIIIIIIIIIIIIIIIIIII 1991 62 Gorby Games - A Game Theoretic Analysis of Disarmament Campaigns and the Defense Efficiency - Hypothesis - by Werner Guth and Eric van Damme Reprinted from R. Avenhaus, H. Karkar and M. Rudnianski (eds.), Defense Decision Making - Analytical Support
    [Show full text]
  • Unbundling 'Too Big to Fail'
    AP PHOTO/MARK LENNIHAN PHOTO/MARK AP Unbundling ‘Too Big to Fail’ Why Big Is Bad and What to Do About It By Ganesh Sitaraman July 2014 WWW.AMERICANPROGRESS.ORG Unbundling ‘Too Big to Fail’ Why Big Is Bad and What to Do About It By Ganesh Sitaraman July 2014 Contents 1 Introduction and summary 2 Unbundling too big to fail 9 Reforming too big to fail 18 Conclusion 20 Endnotes Introduction and summary Since the 2008 financial crisis, the problem of financial institutions being “too big to fail,” or TBTF, has been front and center in the public debate over the reform and regulation of the financial industry. Commentators across the political spectrum decried bailouts of the biggest Wall Street financial institutions, arguing that bail- outs would establish too big to fail as public policy. When it was time for reform, legislators tried to address this problem, and even incorporated into the full title of the Dodd-Frank Act that one of the bill’s purposes was “to end ‘too big to fail.’”1 Yet more than five years after the financial crash, the biggest banks are 37 percent larger than they were before,2 and the debate over what to do about the size of finan- cial institutions continues. Policy proposals range from improving resolution mecha- nisms, to more stringent prudential standards such as leverage limits, to charging fees to eliminate the implicit government subsidy the biggest banks receive, to capping the size of the banks, to instituting a new Glass-Steagall Act. Each approach is hotly contested, with commentators frequently arguing that the proposed solution will not actually fix the problem of financial institutions that are too big to fail.3 The problem at the heart of the debate over too big to fail is that the popular moniker has come to mean more than the concern that big firms get a government bailout in the event of failure.
    [Show full text]
  • Central Banks: Powerful, Political and Unaccountable?
    Journal of the British Academy, 2, 269–303. DOI 10.5871/jba/002.269 Posted 19 December 2014. © The British Academy 2014 Central banks: Powerful, political and unaccountable? Keynes Lecture in Economics1 read 18 September 2014 WILLEM H. BUITER Fellow of the Academy Abstract: The economic and political importance of central banks has grown markedly in advanced economies since the start of the Great Financial Crisis in 2007. In this article I argue that the preservation of the central bank’s legitimacy and independence requires that a clear line be drawn between the central bank’s provision of liquidity and the Treasury’s solvency support for systemically important financial institutions. Central banks should not be materially involved in regulation and supervision of the financial sector. All activities of the central bank that expose it to material credit risk should be guaranteed by the Treasury. In addition, central banks must increase their accountability by increasing the transparency of their lender-of- last-resort and market-maker-of-last resort activities. Central banks ought not to engage in quasi-fiscal activities. Finally, central banks should stick to their knitting and central bankers should not become participants in public debates and deeply political arguments about matters beyond their mandate and competence, including fiscal policy and structural reform. Keywords: Quasi-fiscal, independence, legitimacy, accountability, regulation, supervision. JEL Classification: E02, E42, E52, E58, E61, E62, E63, G18, G28, H63 1. INTRODUCTION The economic and political importance of central banks has grown markedly in advanced economies since the start of the Great Financial Crisis (GFC) in 2007.
    [Show full text]
  • CEP Discussion Paper No 786 April 2007 Seigniorage Willem Buiter
    CEP Discussion Paper No 786 April 2007 Seigniorage Willem Buiter Abstract Governments through the ages have appropriated real resources through the monopoly of the ‘coinage’. In modern fiat money economies, the monopoly of the issue of legal tender is generally assigned to an agency of the state, the Central Bank, which may have varying degrees of operational and target independence from the government of the day. In this paper I analyse four different but related concepts, each of which highlights some aspect of the way in which the state acquires command over real resources through its ability to issue fiat money. They are (1) seigniorage (the change in the monetary base), (2) Central Bank revenue (the interest bill saved by the authorities on the outstanding stock of base money liabilities), (3) the inflation tax (the reduction in the real value of the stock of base money due to inflation and (4) the operating profits of the central bank, or the taxes paid by the Central Bank to the Treasury. To understand the relationship between these four concepts, an explicitly intertemporal approach is required, which focuses on the present discounted value of the current and future resource transfers between the private sector and the state. Furthermore, when the Central Bank is operationally independent, it is essential to decompose the familiar consolidated ‘government budget constraint’ and consolidated ‘government intertemporal budget constraint’ into the separate accounts and budget constraints of the Central Bank and the Treasury. Only by doing this can we appreciate the financial constraints on the Central Bank’s ability to pursue and achieve an inflation target, and the importance of cooperation and coordination between the Treasury and the Central Bank when faced with financial sector crises involving the need for long-term recapitalisation or when confronted with the need to mimic Milton Friedman’s helicopter drop of money in an economy faced with a liquidity trap.
    [Show full text]
  • Interpreting the Erm Crisis: Country-Specific and Systemic Issues
    PRINCETON STUDIES IN INTERNATIONAL FINANCE No. 84, March 1998 INTERPRETING THE ERM CRISIS: COUNTRY-SPECIFIC AND SYSTEMIC ISSUES WILLEM H. BUITER GIANCARLO M. CORSETTI AND PAOLO A. PESENTI INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS PRINCETON UNIVERSITY PRINCETON, NEW JERSEY PRINCETON STUDIES IN INTERNATIONAL FINANCE PRINCETON STUDIES IN INTERNATIONAL FINANCE are published by the International Finance Section of the Department of Economics of Princeton University. Al- though the Section sponsors the Studies, the authors are free to develop their topics as they wish. The Section welcomes the submission of manuscripts for publication in this and its other series. Please see the Notice to Contributors at the back of this Study. The authors of this Study are Willem H. Buiter, Giancarlo M. Corsetti, and Paolo A. Pesenti. Willem Buiter is Profes- sor of International Macroeconomics at the University of Cambridge and a member of the Monetary Policy Com- mittee of the Bank of England. He has previously served at Princeton and Bristol Universities, at the London School of Economics, and at Yale University, where he was Juan T. Trippe Professor of International Economics. Giancarlo Corsetti is Assistant Professor of Economics at the University of Rome III and has also taught at Yale and Columbia Universities. Paolo Pesenti is Assistant Professor of Economics and International Affairs at the Woodrow Wilson School at Princeton University. He is a research fellow of the National Bureau of Economic Research and has served as a consultant to the World Bank. The authors’ book Financial Markets and European Monetary Coop- eration: The Lessons of the 1992–93 Exchange Rate Mech- anism Crisis will be released this year by Cambridge University Press.
    [Show full text]
  • NBER WORKING PAPER SERIES NEGATIVE NOMINAL INTEREST RATES: THREE WAYS to OVERCOME the ZERO LOWER BOUND Willem H. Buiter Working
    NBER WORKING PAPER SERIES NEGATIVE NOMINAL INTEREST RATES: THREE WAYS TO OVERCOME THE ZERO LOWER BOUND Willem H. Buiter Working Paper 15118 http://www.nber.org/papers/w15118 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2009 ¸˛I would like to thank Anne Sibert, Charles Goodhart, Ben Broadbent and participants in seminars at the Center for Financial Studies at the Goethe University, Frankfurt on May 6th 2009, at the European Central Bank on May 18, 2009 and at the 13th International Conference on Macroeconomic Analysis and International Finance at the University Campus of the University of Crete in Retymno Crete, May 28-30, 2009. Comments by Fabrizio Zilibotti were especially useful in clarifying key issues involving the third method for removing the zero lower bound. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by Willem H. Buiter. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Negative Nominal Interest Rates: Three ways to overcome the zero lower bound Willem H. Buiter NBER Working Paper No. 15118 June 2009 JEL No. E31,E4,E41,E42,E43,E44,E5,E52,E58,G01 ABSTRACT The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its policy rate.
    [Show full text]