The global move into the zero interest rate and high debt trap
The paper identifies based on the monetary overinvestment (malinvestment) theories by Wicksell (1898), Mises (1912) and Hayek (1929) monetary policy mistakes in large industrial countries issuing international currencies. It its argued that a benign neglect towards monetary policy reform in a world dominated by financial markets has led to a erosion of the allocation and signaling function of the interest rate, which has triggered an excessive rise of government debt and structural distortions in the world economy. The backlash of high government debt levels on monetary policy making is argued to lead to the hysteresis of low interest rates and high government debt levels. In this context, monetary reform is discussed with respect to the exit from low interest rates and high debt policies and a reform of the prevalent world monetary system. It is concluded that enhanced competition between dollar and euro as international currencies, which is refereed by East Asia, can be a promising approach towards a more stable world monetary system.
|Date of creation:||2013|
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"A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View,"
18532, University Library of Munich, Germany.
- 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.
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- 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.
- Schnabl, Gunther & Freitag, Stephan, 2010. "Reverse causality in global current accounts," Working Paper Series 1208, European Central Bank.
- 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 473-491, June.
- Axel Löffler & Gunther Schnabl & Franziska Schobert, 2013.
"Limits of Monetary Policy Autonomy and Exchange Rate Flexibility by East Asian Central Banks,"
Global Financial Markets Working Paper Series
48-2013, Friedrich-Schiller-University Jena.
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Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order
79899, Verein für Socialpolitik / German Economic Association.
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- repec:lmu:muenar:19832 is not listed on IDEAS
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