Market monetarism

from Wikipedia, the free encyclopedia

The Marktmonetarismus is a school of macroeconomic thought, which advocates that central banks instead of inflation , the nominal gross domestic product (in the literature nominal gross domestic product , NGDP ) as a monetary policy using target. In contrast to traditional monetarists , market monetarists do not believe that monetary aggregates or commodity prices such as gold are the optimal benchmark for monetary policy measures. Market monetarists also reject the New Keynesian focus on the base rate as the primary instrument of monetary policy .

Market monetarists prefer a nominal income target because of their twofold belief that rational expectations are crucial to policy and that markets react immediately to changes in their expectations of future policy ( market efficiency hypothesis ) without the "long and variable delays" postulated by Milton Friedman .

history

The term "market monetarism" was coined by Danish economist Lars Christensen in August 2011 and quickly adopted by prominent economists who advocated a nominal income target for monetary policy. Scott Sumner , an economist from George Mason University (previously: Bentley University ) and an advocate of a nominal income target, adopted the name of the market monetarist in September 2011. Sumner is considered the gray eminence of market monetarism. In addition to Scott Sumner and Lars Christensen, the economists Nick Rowe, David Beckworth, Joshua Hendrickson, Bill Woolsey and Robert Hetzel "played a key role in the formation of the views of market monetarism". Yue Chim Richard Wong, professor of economics at the University of Hong Kong , describes market monetarist economists as "relatively young in the business profession and [...] concentrated at universities". According to The Economist , Sumner's blog "has brought together like-minded economists, many of them in small schools that are a little off the center of the economic universe"; therefore, Christensen regards market monetarism as the first blogosphere- born economic school of thought.

Although he rejects Milton Friedman's notion of long and variable delays in the effects of monetary policy, market monetarism is typically associated with Friedman's thinking, particularly when it comes to the history of the Great Depression . Ambrose Evans-Pritchard discovered that Christensen, who coined the name "Market Monetarism", wrote a book about Friedman. Evans-Pritchard described the school as "non- Keynesian ". They are inspired by the interwar economists Ralph Hawtrey and the Swede Gustav Cassel as well as the monetarist guru Milton Friedman. "Evans-Pritchard pursues the idea of ​​nominal income on Irving Fisher's proposal for a" compensated dollar plan ".

Bruce Bartlett, former adviser to US President Ronald Reagan and Treasury Secretary under President George HW Bush , first noticed the emergence of Scott Sumner and the movement of economic debates into the blogosphere in 2010. The Economist wrote an editorial in 2011 about market monetarism and describes that other influential economists, such as Tyler Cowen , Professor of Economics at George Mason University, and Nobel Prize winner Paul Krugman , are also looking at the topic.

In comments, the recommendation of market monetarism to use the nominal income target has also been presented as desirable by larger financial institutions such as Goldman Sachs and Northern Trust . The recovery of economic growth in the United States, which was perceived as rather slow in those years, made a review of the Federal Reserve Board's strategies necessary. Later in 2011, Paul Krugman publicly endorsed market monetarism policy recommendations, proposing "a shift in the Fed regime" to "expectation-based monetary policy" and praising market monetarism for its focus on nominal GDP . Krugman used the term "market monetarism" on his widely used blog. In the fourth quarter of 2011, the Milken Institute published a study by Clark Johnson, which advocates market monetary approaches. End of October 2011 invited the former chairman of the Council of Economic Advisers , Christina D. Romer , in an editorial, the New York Times the chairman of the Federal Reserve, Ben Bernanke , on to use nominal GDP as a target of monetary policy.

In November 2011, Bernanke held a press conference announcing that the Federal Reserve Board of Governors had discussed the idea of ​​a nominal income target and was considering adding nominal GDP to its list of key economic indicators. However, the board decided against changing monetary policy entirely to a nominal income target because, according to The Economist, "moving to a new target concept could risk disappointing longer-term inflation expectations." If the central bank allowed inflation to rise to 5%, for example, workers might adjust their inflation expectations and demand corresponding wage increases, creating a self-fulfilling prophecy . The central bank would then have to curtail growth drastically in order to give credibility to its new monetary policy; however, the cost of such evidence of their credibility could outweigh the benefits of the new monetary policy. "

In December 2012, Mark Carney , Governor of the Bank of Canada and later Governor of the Bank of England , proposed the introduction of a nominal GDP level targeting . The advantage of this is that in bad times you can trust that interest rates will stay low long enough, even though inflation would exceed the old target. As a result, monetary policy would be more effective even at low interest rates.

According to Carney, nominal income levels are in many ways superior to other monetary policy targets such as inflation and the unemployment rate. A corresponding monetary policy strategy would allow central banks to correct earlier monetary policy errors. Monetary policy would also make it more credible and understandable.

In February 2018, former Federal Reserve Board Chair Janet Yellen said that using nominal GDP as a target had "interesting advantages" over the inflation indicator commonly used by central banks.

In the course of the financial and economic crisis, the ideas of the market monetarists also found their way into the European and German economic policy debates. Some economists are calling for the European Central Bank to base its monetary policy on nominal GDP as the target value .

Rules-based guidelines

Market monetarists generally support "rules-based" policies that they believe would increase economic stability. In particular, they criticize some monetary policy instruments, such as B. quantitative easing because it is too discretionary (i.e. not rule-based). Market monetarists advocate the central bank's clear and binding commitment to a nominal income target (e.g. 5-6 percent annual nominal GDP growth in normal times) and that the central bank use its policy instruments to adjust nominal GDP until the NGDP - Forecast markets predict that this goal will be achieved.

Alternatively, the central bank could let the markets do the work. The bank would offer to buy and sell NGDP futures contracts at a price that would change at the same rate as the nominal income target. Investors would have an incentive to trade the NGDP futures contracts as long as they see opportunities for profit from nominal income growth above (or below) the target. The money supply and interest rates would be oriented towards the point at which markets expected the nominal income target to be met. This " open market policy " would automatically tighten or loosen the money supply and raise or lower interest rates accordingly. The role of the central bank would thus be purely passive, buying or selling the contracts. This would partially or completely replace measures such as directly influencing key interest rates, quantitative easing etc. for monetary policy intervention.

Brad DeLong rejects this approach and writes: "The Federal Reserve would then really become not only the last but also the first choice lender ." Bill Woolsey offers several alternatives for the structure of an NGDPT forecasting market. He suggests that the Fed maintain a fixed price for the futures market and hedge any resulting short or long position by performing OMOs to adjust its net position. In addition, other traditional techniques, such as changes to the reserve requirements for banks, are available for hedging.

Nominal income target

Market monetarists claim that a nominal income target enables optimal monetary policy. Market monetarists are skeptical that the interest rates or monetary aggregates commonly used today are good indicators of monetary policy and therefore look to the markets to determine money demand . Similar to Milton Friedman, one of the founders of the monetarist view of the market, low interest rates are seen as indicators of a money supply that was too low in the past, but which, taken by itself, did not contain any information about the current optimal monetary policy. As for monetary aggregates, they believe the rate is too volatile to allow for easy growth in base money to adequately accommodate market demand for money. In contrast, a nominal income target compensates for fluctuations in speed by ensuring that monetary policy is loose or tight enough to meet the target. This approach leaves interest rates to be determined by the market while at the same time taking inflation concerns into account, as nominal GDP cannot grow faster than the stated level.

Market monetarists claim that by ignoring nominal income, the US Federal Reserve has in fact destabilized the US economy in the past; nominal GDP fell 11% below trend during the 2008 recession and has remained there ever since. Market monetarists believe that by explicitly following a nominal income target, monetary policy would be extremely effective in combating aggregate demand shocks. The Economist sums it up as follows: "If people expect the central bank to bring spending back on a 5% growth path, that belief itself will help get them there. Companies will hire with the confidence that their Revenue will rise; people will open their wallets to keep their jobs. Those who hoard cash will spend or invest it knowing that either production or prices will be higher in the future. "

Liquidity trap

Market monetarists reject the traditional wisdom that monetary policy is largely ineffective when an economy is stuck in a liquidity trap (when short-term interest rates are approaching zero), arguing instead that liquidity traps are associated with low nominal income growth rather than low inflation are. Market monetarists claim that monetary policy measures such as quantitative easing, changing policy rates on excess bank reserves in lieu of interest payments, and the central bank's public commitment to nominal income targets can offer a way out of the liquidity trap. Interest rates hit zero in Japan but not in China, although both countries experienced mild deflation. Nominal income growth ( Japan's growth has been close to zero since 1993 , while China's growth did not fall below the 5% to 10% mark even in the East Asian financial crisis at the end of the 1990s) is therefore viewed by market monetarists as the more appropriate benchmark than inflationary or deflation rate.

Market monetarists have argued that unconventional methods of monetary policy can be successful. The Economist describes the monetarist market approach as potentially "heroic" asset purchases , on a larger scale than anything the Fed or Bank of England has attempted to date ". However, it is postulated that "even then, people might refuse to spend the newly minted money, or banks might refuse to borrow" too. " Some market monetarists, such as Bill Woolsey, have suggested that "the Fed could impose a fee on bank reserves so that banks could charge their customers' deposits with a negative interest rate. This could only result in sock drawers filling up with money." for people to take from their accounts . But ultimately, they could spend it and invest it, which would lead to rising prices and, with luck, rising production. "

Web links

Individual evidence

  1. ^ Charles AE Goodhart: Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates . St. Louis Federal Reserve Bank. July – August 2001. Accessed December 31, 2018.
  2. ↑ TheMoneyIllusion "Long and variable LEADS. Accessed December 31, 2018 .
  3. ^ The wisdom of Scott Sumner . In: The Economist . February 12, 2013, ISSN  0013-0613 ( economist.com [accessed December 31, 2018]).
  4. ↑ Squeaky chirping birds. October 6, 2013, accessed on December 31, 2018 (German).
  5. ↑ a b Ambrose Evans-Pritchard: Should the Fed save Europe from disaster? . In: The Telegraph , November 27, 2011. Retrieved December 1, 2011. 
  6. ^ Lars Christensen: Market Monetarism: The Second Monetarist Counterrevolution . September 13, 2011. Accessed December 31, 2018.
  7. ^ A b c Yue Chim Richard Wong: Easy Money, Tight Money, and Market Monetarism . Retrieved December 2, 2011.
  8. ↑ Is 'Fed Sitting on its Hands?' Accessed December 31, 2018 .
  9. ^ A b Marginal revolutionaries . In: The Economist . December 31, 2011, ISSN  0013-0613 ( economist.com [accessed December 31, 2018]).
  10. ^ Goldman Sachs | Archives - Jan Hatzius: The Case for a Nominal GDP Level Target. Retrieved December 31, 2018 (American English).
  11. ↑ Joe Weisenthal: Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP. Accessed December 31, 2018 .
  12. ↑ Getting Nominal. In: Paul Krugman Blog. October 19, 2011, accessed December 31, 2018 (American English).
  13. ↑ Clark Johnson: Reasserting Monetary Policy: Sumner's nominal GDP targeting and Beyond . In: Applied Economics and Finance . tape 4 , no. 2 , December 12, 2016, ISSN  2332-7308 , p. 20–32 , doi : 10.11114 / aef.v4i2.2066 ( redfame.com [accessed December 31, 2018]).
  14. ↑ Christina D. Romer: Ben Bernanke Needs a Volcker Moment . In: The New York Times . October 29, 2011, ISSN  0362-4331 ( nytimes.com [accessed December 31, 2018]).
  15. ^ Federal Reserve Board: Transcript of Chairman Bernanke's Press Conference. In: Federal Reserve Board. November 2, 2011, accessed December 31, 2018 .
  16. ^ Mark Carney: Guidance. In: Bank of Canada. December 11, 2012, accessed December 31, 2018 .
  17. ↑ a b Mark Carney: Does Carney dare the big experiment? Accessed December 31, 2018 .
  18. ↑ a b Nominal GDP control as a miracle weapon? February 12, 2013, accessed December 31, 2018 .
  19. ↑ Mark Carney suggests targeting economic output , BBC News, December 12, 2012.
  20. ^ Charles Goodhart, Melanie Baker, Jonathan Ashworth: Monetary targetry: Might Carney make a difference? In: VoxEU.org. January 22, 2013, accessed December 31, 2018 .
  21. ^ Mark Carney: Guidance , Remarks by Mr Mark Carney, Governor of the Bank of Canada and Chairman of the Financial Stability Board, to the CFA Society Toronto, Toronto, Ontario, December 11, 2012.
  22. ^ Brookings Institution: A Fed duet: Janet Yellen in conversation with Ben Bernanke. Accessed December 31, 2018 .
  23. ↑ 25 years are enough. December 10, 2014, accessed on December 31, 2018 (German).
  24. ↑ Is nominal GDP targeting a suitable tool for ECB monetary policy. Accessed December 31, 2018 .
  25. ^ European Central Bank: The effective lower bound and the desirability of gradual interest rate adjustments. Accessed December 31, 2018 .
  26. ↑ Timothy Lee: The Politics of Market Monetarism . In: Forbes , November 5, 2011. Retrieved November 10, 2011. 
  27. ↑ Gerhard Illing: Unconventional monetary policy - no paradigm shift. In: Perspectives of Economic Policy 2015; 16 (2): 127-150. De Gruyter, June 14, 2015, accessed December 31, 2018 .
  28. ↑ Scott Sumner: misdiagnosing the crisis: The real problem-what not real, it what nominal. In: VoxEU.org. September 10, 2009, accessed December 31, 2018 .
  29. ↑ Timothy B. Lee: Could money printing have stopped the recession? July 8, 2014, accessed December 31, 2018 .
  30. ^ Brad Delong: Scott Sumner Plumps for Nominal GDP Targeting - of a Sort . Grasping Reality with Both Hands. December 14, 2010. Retrieved October 30, 2011.  ( Page no longer available , search in web archives )@1@ 2Template: Dead Link / delong.typepad.com
  31. ^ Bill Woolsey: Sumner and DeLong on Index Futures Convertibility . Monetary Freedom. December 16, 2010. Retrieved October 30, 2011.
  32. ↑ Milton Friedman: Reviving Japan . April 30, 1998. Retrieved January 8, 2017: “After the US experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die. "
  33. ^ A b Marginal revolutionaries . In: The Economist , December 31, 2011. Retrieved December 29, 2011. 
  34. ↑ Sayuri Shirai: Considering new monetary policy frameworks and the case of Japan, Part 2: Nominal GDP targeting and nominal wage targeting. In: VoxEU.org. October 23, 2018, accessed December 31, 2018 .