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National Monetary Policy, Internatinal Economic Instability and Feeback Effects - An Overinvestment View

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Author Info

  • Andreas Hoffmann
  • Gunther Schnabl

    ()
    (Institute for Economic Policy, University of Leipzig)

Abstract

The paper explains internationally transmitted boom-and-bust cycles as the outcome of excessive liquidity supply based on the credit boom theories of Hayek (1929; 937), Mises (1912) and Minsky (1986). We show how too expansionary monetary policies cause distortions in the economic structure and boom-and-bust cycles on both a national and an international level. Feedback effects of crises in periphery countries on center countries are shown to trigger a new round of monetary expansion in large countries, which provide international currencies to an asymmetric world monetary system. Crisis and contagion in globalized goods and financial markets indicate the limits of purely national monetary policies, which solely focus on domestic consumer prices and output. This makes the case for monetary policies in large countries, which take responsibility for the long-term effects of monetary policy on goods and financial markets in both home and foreign as put forward by Hayek (1937).

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File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_hlj19-2011.pdf
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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena in its series Global Financial Markets Working Paper Series with number 19-2011.

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Date of creation: 24 Aug 2011
Date of revision:
Handle: RePEc:hlj:hljwrp:19-2011

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Web page: http://www.gfinm.de

Related research

Keywords: Feeback Effects; Economic Instability;

References

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  1. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper tigers? A model of the Asian crisis," Research Paper 9822, Federal Reserve Bank of New York.
  2. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
  3. Schnabl, Gunther & Freitag, Stephan, 2010. "Reverse causality in global current accounts," Working Paper Series 1208, European Central Bank.
  4. Andreas Hoffmann & Gunther Schnabl, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets – An Overinvestment View," CESifo Working Paper Series 2100, CESifo Group Munich.
  5. Barry Eichengreen & Kris Mitchener, 2003. "The Great Depression as a credit boom gone wrong," BIS Working Papers 137, Bank for International Settlements.
  6. Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, 03.
  7. Roger W. Garrison, 2004. "Overconsumption and Forced Saving in the Mises-Hayek Theory of the Business Cycle," History of Political Economy, Duke University Press, vol. 36(2), pages 323-349, Summer.
  8. Andreas Hoffmann, 2010. "An Overinvestment Cycle In Central And Eastern Europe?," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 711-734, November.
  9. Ronald McKinnon, 2010. "Rehabilitating the unloved dollar standard," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 1-18, November.
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Citations

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Cited by:
  1. Schnabl, Gunther & Wollmershäuser, Timo, 2013. "Fiscal Divergence and Current Account Imbalances in Europe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79899, Verein für Socialpolitik / German Economic Association.
  2. Schnabl, Gunther, 2013. "The global move into the zero interest rate and high debt trap," Working Papers 121, University of Leipzig, Faculty of Economics and Management Science.
  3. Gunther Schnabl, 2012. "Die japanischen Lehren für die europäische Krise," Global Financial Markets Working Paper Series 2012-36, Friedrich-Schiller-University Jena.
  4. Gunther Schnabl, 2012. "Monetary Policy Reform in a World of Central Banks," Global Financial Markets Working Paper Series 26-2012, Friedrich-Schiller-University Jena.

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