Tag: Wolfgang Munchau

Must-read: Wolfgang Munchau: “European Central Bank Must Be Much Bolder”

Posted on by Brad DeLong

Must-Read: Wolfgang Munchau: European Central Bank Must Be Much Bolder: “The European Central Bank’s monetary policy has been off-track for a very long time…

…And lately, the [core inflation] rate has fallen again. Is there something the ECB can do?… The ECB should hold an open debate about policy alternatives, starting with a realisation that quantitative easing has failed. The ECB acted late, and did not do enough…. The programmes in the US and the UK started when market interest rates were higher than today. The European programme came when rates were already low…. The policy alternatives… [are] a ‘helicopter drop’…. The ECB would print and distribute money to citizens directly. If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely. It would provide an immediate demand boost, and drive up investment as suppliers expanded their capacity to meet this extra demand. The policy would bypass governments and the financial sector. The financial markets would hate it. There is nothing in it for them. But who cares?…

Must-read: Wolfgang Munchau: “Free Capital Flows Can Put Economies in a Bind”

Posted on by Brad DeLong

Must-Read: Wolfgang Münchau: Free Capital Flows Can Put Economies in a Bind: “We might now ask whether the removal of the policy instrument of capital controls may have contributed to a succession of financial crises…

…In the good times, Prof Rey finds, credit flows into emerging markets where it fuels local asset price bubbles. When, years later, liquidity dries up and the hot money returns to safe havens in North America and Europe, the country is left in a mess. There is very little the central bank can do to moderate inflows and outflows of foreign money. Unless you accept financial instability as inevitable, then, you may soon be thinking about imposing capital controls of a particularly stubborn variety–the kind that involves telling foreign investors you do not want their cash. The point is to prevent hot money flowing in during the good times, and to stop it from draining out in the bad times. This is not yet a subject of polite conversation among policymakers. Central bankers have instead been peddling a concept known as macroprudential regulation, a cuddly version of capital controls…