Hayek uses flawless logic to prove that Keynesian economics, which is touted today as our own modern monetary policy, is inflationary economics. The end result of this application can only be a situation which is worse than the one it was intended to remedy. Hayek proves that individuals acting independently are unable to provide the consistent statistical information necessary on which to base an ordered economy.
The recent credit crisis in the United States ushered in a new era
of uncertainty. In some ways it was just another bubble in a long
line of fi nancial manias. Like any other bubble, it was born out of
an extended period of easy money that fueled prosperity, engendered
speculation, and ended in a spectacular crash. In some very
important ways, however, the lingering impacts are different than
the bubbles of recent memory.
The role of monetary analysis in the ECB’s
monetary policy strategy is founded on the
robust positive relationship between longer-term
movements in broad money growth and inflation,
whereby money growth leads inflationary
developments. This relationship is found to hold
true across countries and monetary policy
Intermarket Analysis and the Business Cycle. Over the past two centuries, the American economy has gone through repeated boom and bust cycles. Sometimes these cycles have been dramatic (such as the Great Depression of the 1930s and the runaway inflationary spiral of the 1970s)
The case for a rise can be put quite simply. An early increase in Bank Rate makes it more likely that the
inflation target can be met in two to three years time because it allows for greater subsequent flexibility. If
inflationary pressures subsequently prove more severe than the central part of our forecast suggests, then it
will be a help to have started to raise interest rates earlier. But if they prove less strong then subsequent
increases can be slower than would otherwise be the case. Indeed, if the economy is extremely weak,
interest rates can be...
merica's Great Depression is the classic treatise on the 1930s Great Depression and its root causes. Author Rothbard blames government interventionist policies for magnifying the duration, breadth, and intensity of the Great Depression. He explains how government manipulation of the money supply sets the stage for the familiar "boom-bust" phases of the modern market which we know all too well.
As a starting point, we look at publications from investment banks and at the
development of interest rate swap spreads around key fiscal policy events. The euro
interest rate swap spread seems to be a good indicator of the relative risk of private
versus government long-term bonds versus the private inter-bank market. The main
result of our review of investment bank newsletters and notes is that market
participants closely observe and contribute to the debate on the SGP and its
A further issue is whether fiscal policy problems have lead to higher long-term
inflation expectations. The bold line in Figure 3, depicting long-term inflationary
expectations, as extracted from long-term index linked bond prices, indicates that this
was not the case. After an initial increase until May, break-even inflation decreased to
its initial level in October, and remained stable thereafter.
The other extreme is “monetary dominance”. Central banks raise interest rates to avoid the
inflationary effects of excessive budget deficits. Real interest rates rise across the maturity
spectrum and the prospect of higher-and-higher debt service costs then forces governments
to reduce their primary deficits. This seems to fit the UK story in the late 1980s and early
1990s when tighter macroeconomic policies (monetary and fiscal) brought down inflation.
The financial statements of foreign operations are translated into the Dutch guilder, the
Company's reporting currency. Assets and liabilities are translated using the exchange rates
on the respective balance sheet dates. Income and expense items are translated based on the
average rates of exchange for the periods involved. The resulting translation adjustments
are charged or credited to stockholders' equity. Cumulative translation adjustments are
recognized as income or expense upon disposal of foreign operations.
order to combat rising inflationary pressures, monetary tightening remains In
underway in the US. The Federal Open Market Committee has raised the
target for the Federal Funds rate by ¼ point at each of its meetings since June
2004, to reach 4.5 per cent in January 2006. This reflects a cumulative rise of
350 basis points. The ECB has also raised rates by 50 basis points since our
last forecast, having held the interest rate on the main refinancing operations in
the Euro Area stable at 2 per cent since June 2003. We have...
The international consequences of zero-interest-rate policies are also negative. With
interbank markets in the U.S. and Europe congested, forward foreign exchange markets become
more difficult to organize. Without forward cover, exporters and importers find it more difficult
to secure normal letters of credit. In the financial panic of 2008, foreign trade imploded much
more than domestic trade.
In addition, the Fed’s zero interest rate strategy inevitably weakens the dollar in the
The socialist fiscal system was implicit in the vertical structure of planning and
prices. In the Soviet Union, virtually all investment activity was channeled through the
budget. The primary nominal sources of tax revenue were enterprise profits and resource
rents, turnover taxes charged on the difference between retail prices of consumer goods
and their nominal enterprise cost, and profits of a foreign trade monopoly.
Chapter 11 - The structural stagnation policy dilemma. After reading this chapter, you should be able to: Differentiate a structural stagnation from a standard recession, demonstrate in the AS/AD model how globalization can mask inflationary pressures caused by expansionary policies, explain the role of globalization and the financial bubble in creating a structural stagnation problem, outline the policy choices that policy makers have to deal with structural stagnation.
Since the latter half of 2008, both short-term and long-term Treasury rates and the effective
federal fund rate are at historic lows (Exhibit 5). Should a broad-based economic recovery
take shape, interest rates would be expected to go up at some point. Elevated inflationary
expectations would also cause interest rates to rise. Both of these effects would positively
affect bank loan returns.
The Czech National Bank (CNB) is another central bank that has been able to achieve price
stability irrespective of its negative equity situation (other examples include Slovakia, Israel,
Mexico and Thailand). This country case has been described by Frait (2005), Cincibuch et al.
(2008, 2009) and Frait and Holub (2011), who stressed the non-inflationary nature of the CNB’s
accounting losses related to large FX reserves and assessed the bank’s ability to get out of its
negative equity situation in the future without resorting to faster price growth.
Chapter 19 - Wage changes, price inflation and unemployment. This chapter presents the following content: The connection between aggregate wage changes and unemployment rate, the relationship between inflation and unemployment, anti-inflationary policies, persistence of unemployment, wage rigidity.
Chapter 9 - Aggregate demand and aggregate supply. After studying this chapter you will be able to understand: Why the aggregate demand curve is downward sloping, and what factors shift the entire curve; what determines the shape of the short run aggregate supply curve, and what factors shift the entire curve; how the equilibrium price level and real GDP are determined; the distinction between the short-run and long-run supply curve; the nature and causes of recessionary and inflationary gaps.
Chapter 28 - The aggregate expenditures model. In this chapter, you will learn to: Aggregate expenditures for a private closed economy, characteristics of equilibrium real GDP in a private closed economy, changes in equilibrium real GDP and the multiplier, adding the government and international sectors, recessionary and inflationary expenditure gaps.
Chapter 28 - The structural stagnation policy dilemma. After reading this chapter, you should be able to: Differentiate a structural stagnation from a standard recession, demonstrate in the AS/AD model how globalization can mask inflationary pressures caused by expansionary policies, explain the role of globalization and the financial bubble in creating a structural stagnation problem, outline the policy choices that policy makers have to deal with structural stagnation.