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Monetary Policy Reform in a World of Central Banks

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Author Info

  • Gunther Schnabl

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

Abstract

The paper identifies based on the monetary overinvestment theories by Wicksell (1898), Mises (1912) and Hayek (1929) monetary policy mistakes in large industrial countries issuing international currencies. It its argued that a neglect towards monetary policy reform in a world dominated by financial markets has led to the erosion of the allocation and signaling function of the interest rate, which has triggered an excessive rise of the government debt and structural distortions in the world economy. The backlash of high government debt levels on monetary policy making is argued to have led to a hysteresis of the liquidity trap. In this context, monetary reform is discussed with respect to the exit from low interest rate and high debt policies, an adaption of monetary policy rules to financial market dominated economic development, and the displacement of the prevalent world monetary system. Enhanced competition between dollar and euro as international currencies moderated by East Asia is proposed to constitute a more stable international monetary system.

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File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_hlj26-2012.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 26-2012.

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Date of creation: 28 May 2012
Date of revision:
Handle: RePEc:hlj:hljwrp:26-2012

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

Related research

Keywords: Economic Instability; Credit Cycles; Monetary Policy; Hayek; Mises; Monetary Policy Rules; Monetary Policy Reform; Currency Competition;

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References

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  1. Andreas Hoffmann & Gunther Schnabl, 2011. "National Monetary Policy, Internatinal Economic Instability and Feeback Effects - An Overinvestment View," Global Financial Markets Working Paper Series 19-2011, Friedrich-Schiller-University Jena.
  2. Schnabl, Gunther & Hoffmann, Andreas, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View," MPRA Paper 5201, University Library of Munich, Germany.
  3. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, 07.
  4. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
  5. Schnabl, Gunther & Zemanek, Holger, 2011. "Inter-Temporal Savings, Current Account Dynamics and Asymmetric Shocks in a Heterogeneous European Monetary Union," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48685, Verein für Socialpolitik / German Economic Association.
  6. George Selgin & Lawrence White, 2005. "Credible Currency: A Constitutional Perspective," Constitutional Political Economy, Springer, vol. 16(1), pages 71-83, 01.
  7. Axel Löffler & Gunther Schnabl & Franziska Schobert, 2010. "Inflation Targeting by Debtor Central Banks in Emerging Market Economies," CESifo Working Paper Series 3138, CESifo Group Munich.
  8. 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.
  9. Ronald Ian McKinnon & Gunther Schnabl, 2011. "China and its Dollar Exchange Rate: A Worldwide Stabilizing Influence?," CESifo Working Paper Series 3449, CESifo Group Munich.
  10. Gunther Schnabl & Stephan Freitag, 2012. "Determinants of Global and Intra-European Imbalances," Global Financial Markets Working Paper Series 25-2011, Friedrich-Schiller-University Jena.
  11. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
  12. Ronald McKinnon & Gunther Schnabl, 2009. "The Case for Stabilizing China's Exchange Rate: Setting the Stage for Fiscal Expansion," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(1), pages 1-32.
  13. Gunther Schnabl, 2011. "Triebkräfte und Lösungsansätze globaler und europäischer Leistungsbilanzungleichgewichte," Global Financial Markets Working Paper Series 2011-23, Friedrich-Schiller-University Jena.
  14. Ansgar Belke & Gunther Schnabl, 2010. "Europäischer geldpolitischer Exit im Zeichen von QE2 und Staatsanleihekäufen der EZB," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 79(4), pages 147-161.
  15. Lawrence H. White, 2010. "The Rule of Law or the Rule of Central Bankers?," Cato Journal, Cato Journal, Cato Institute, vol. 30(3), pages 451-463, Fall.
  16. Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.
  17. Ronald McKinnon, 2012. "The Fed as the Engine of Worldwide Inflation," Open Economies Review, Springer, vol. 23(1), pages 109-112, February.
  18. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Citations

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Cited by:
  1. Michael Schubert & Sebastian Watzka & Jörg Hinze & Leon Leschus & Gunther Schnabl, 2012. "Leitzinssenkung auf historischem Allzeittief: Welche Folgen hat die Niedrigzinspolitik der EZB?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 65(16), pages 3-19, 08.
  2. Kristina Spantig, 2012. "International monetary policy spillovers in an asymmetric world monetary system - The United States and China," Global Financial Markets Working Paper Series 2012-33, Friedrich-Schiller-University Jena.
  3. Gunther Schnabl, 2014. "Der Weg in die Nullzins- und Hochverschuldungsfalle," Global Financial Markets Working Paper Series 2013-50, Friedrich-Schiller-University Jena.

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