Monetary policy

Enrico Minelli, 19 December 2014

Growth and inequality are back at the centre of the economic debate. This column presents a framework for interpreting Thomas Piketty’s data based on Paul Romer’s model of endogenous growth. Two balanced growth regimes are possible in this framework: one (‘merit’) with a low capital–output ratio, a high interest rate, and high growth; and another (‘rent’) with a higher capital–output ratio, a somewhat lower interest rate, and much lower growth. An increase in the returns to physical capital accumulation compared to innovation could explain a shift from ‘merit’ to ‘rent’.

Marcelo Giugale, 18 December 2014

Sub-Saharan Africa has been growing steadily over the past decade. The main question that policymakers should face is how to sustain the region’s progress. This column argues that the positive growth is due both to good policies and higher prices of certain commodities (such as oil, gas, and minerals). To ensure sustainability governments should not rely only on these higher rents but rather implement policies that take advantage of them. 

Brian Pinto, 17 December 2014

Since the Global Crisis, concerns have grown that advanced economies are suffering from secular stagnation. This column discusses the lessons that can be learnt from the economic transition of central and eastern Europe and the emerging-market crises of the late 1990s and early 2000s. Structural reform is particularly costly in the context of a debt overhang and an overvalued exchange rate. However, the crux is not debt restructuring per se, but whether economic governance changes credibly for the better following it.

Stephen Cecchetti, 17 December 2014

Regulators forced up capital requirements after the Global Crisis – triggering fears in the banking industry of dire effects. This column – by former BIS Chief Economist Steve Cecchetti – introduces a new CEPR Policy Insight that argues that the capital increases had little impact on anything but bank profitability. Lending spreads and interest margins are nearly unchanged, while credit growth remains robust everywhere but in Europe. Perhaps the requirements should be raised further. 

Guillaume Bazot, Michael Bordo, Eric Monnet, 16 December 2014

The recent focus on central banks’ balance sheet policies has brought new interest to the question of how they deal with the international finance constraint. This column gives historical perspective to the issue by examining the policies of the Banque de France during the gold standard. The Banque used its domestic portfolio to stabilise interest rates rather than using exchange rate intervention. This sheds new light on the standard view that discount rates and capital controls were the primary monetary policy instruments during the gold standard.

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