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Monetary policy and overinvestment in East Asia and Europe

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  • Gunther Schnabl

    () (Universität Leipzig)

Abstract

Abstract The paper analyzes the role of monetary policy for cyclical movements of investment and asset markets in East Asia and Europe based on a Mises-Hayek overinvestment framework. It is shown how the gradual global decline of interest rates has triggered wandering overinvestment cycles in Japan, Southeast Asia, and China. Similarly, it is shown how a one-size monetary policy within the European Monetary Union has not preserved the European Monetary Union from idiosyncratic economic development and crisis because of uncoordinated fiscal policies. With monetary policy crisis management being argued to impede financial and economic restructuring, a timely exit from ultra-expansionary monetary policies is recommended for both East Asia and Europe to reconstitute economic stability and growth.

Suggested Citation

  • Gunther Schnabl, 2017. "Monetary policy and overinvestment in East Asia and Europe," Asia Europe Journal, Springer, vol. 15(4), pages 445-462, December.
  • Handle: RePEc:kap:asiaeu:v:15:y:2017:i:4:d:10.1007_s10308-017-0490-5
    DOI: 10.1007/s10308-017-0490-5
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    References listed on IDEAS

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    5. Ronald McKinnon & Gunther Schnabl, 2012. "China and Its Dollar Exchange Rate: A Worldwide Stabilising Influence?," The World Economy, Wiley Blackwell, vol. 35(6), pages 667-693, June.
    6. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo Group Munich.
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    8. De Grauwe, Paul, 2016. "Economics of Monetary Union," OUP Catalogue, Oxford University Press, edition 11, number 9780198739876.
    9. 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, March.
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    12. Gertler, Pavel & Hofmann, Boris, 2018. "Monetary facts revisited," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 154-170.
    13. Gunther Schnabl & Timo Wollmershäuser, 2013. "Fiscal Divergence and Current Account Imbalances in Europe," CESifo Working Paper Series 4108, CESifo Group Munich.
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    More about this item

    Keywords

    E52; E58; F42; E63;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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