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Monetary Policy in the United States, the Eurozone, and China

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PST)

Manchester Grand Hyatt, Coronado E
Hosted By: Union for Radical Political Economics
  • Chair: Esther Jeffers, University of Picardie

The Transformation of the Central Banking Policy Template in the Neoliberal Era: The United States-EU Financial Paradox and Global Financial Crises

Maria Gavris
,
University of Leeds

Abstract

This paper describes the transformation of central banking and of monetary policy during the neoliberal (post-1980) era. The shift from autonomous national banks to global lending flows and then the megabank-shadow banking system, with its globally interconnected balance sheets and risks, has led to monetary policy being absorbed into a larger central-banking policy template, whose components include traditional monetary policy (business-cycle smoothing), lender-of-last-resort interventions in national economies, the setting and enforcement of global risk standards for global banks, prudential management of banks, the provision of reliably ‘safe assets’ to support market-based lending, and the triggering of global financial backstops when necessary. This expanded policy template is distributed asymmetrically, according to the state of the global currency hierarchy and of cross-border current/capital-account imbalances. The unstable global competition between US and European megabanks has already created one US-EU financial paradox: while American US-EU pioneered the new financial practices whose collapse triggered the 2008 crisis, European banks were most badly scarred by it. The integrated post-crisis system of central-banking/megabanking-centred US-EU global finance will lead to a further stage of this paradox: the demonstrated capacity of the US central bank to backstop the global system in the last crisis will, by reinforcing (rather than reining in) unsustainable financial dynamics, overwhelm that backstop capacity in the next crisis.

Special Drawing Rights, Target2 Balances, and European Monetary Policy, before and after the Eurozone Crisis

Nina Eichacker
,
University of Rhode Island

Abstract

This paper examines the evolution of European countries’ balance sheets before and after the Eurozone Crisis, specifically in relation to reserve accumulation, both Special Drawing Rights and Gold Reserves. After presenting some historical context regarding the creation of the European Central Bank and its interactions with the Eurosystem, the paper explores, in particular, how fears of contagion in the aftermath of the Eurozone Crisis may have affected European Union members’ financial systems propensity to acquire foreign reserves. It uses time series analysis to analyze determinants and consequences of these potential trends. Finally, it considers the transfers of wealth inherent in the accumulation of foreign reserves, the broader economic implications of those decisions at the national and European levels, and potential changes that might favor labor rather than capital for Europe as a whole.

Financing the "Green New Deal": The Role of the Federal Reserve and the Limits of the Global Dollar

Gerald Epstein
,
University of Massachusetts-Amherst

Abstract

Confronting climate change has finally been put on the US policy agenda, “thanks” to recent devastating impacts in the United States from droughts, fires and storms, and to the long term political mobilization from activists like Bill McKibben and from more recent politicians, such as Congresswoman Alexandria Ocasio-Cortez who has proposed a “Green New Deal”. This political mobilization is crucial because moving forward in the US will require “regime change” at the top echelons of the US government. At the level of economics, a great deal of important work from Robert Pollin and others has demonstrated that making the transition to a green economy is both economically feasible and employment enhancing. For creating incentives to capitalists and consumers, James Boyce and others have shown how raising the price of carbon and rebating the proceeds to households can be both effective and equitable. But there has been insufficient attention to how to finance the “Green New Deal”. This paper discusses the role of the Federal Reserve in helping to finance the transition and the constraints that might inhibit that role, including instability in the global role of the dollar and the rise of the Renminbi as the world moves to a multi-currency reserve currency system.
Key words: Green New Deal, Federal Reserve, Reserve Currency, Renminbi.

Monetary Policy in the Eurozone: Limits of ECB Policy on the Financial Crisis and Climate Change

Esther Jeffers
,
University of Picardie
Dominique Plihon
,
University Paris 13

Abstract

Starting in 2015, the ECB implemented an expanded asset purchase program (APP) in order to address an extended period of low inflation and the risk of deflation. The program involved a total amount of €2.6 trillion between 2015 and 2018 and aimed to provide monetary stimulus for the economy in a context where key ECB interest rates were at their lower bound. A balance sheet of the result of the ECB’s action is needed: public debt has gone up in all countries except Germany, the growth outlook in the March 2019 ECB projections has been revised downwards, and the outlook for inflation even more so. Unemployment remains high. Moreover, this asset purchase program has benefited companies that pollute. Why wasn’t the ECB action successful? How does it compare to the policies implemented in the US? What would a European “Green New Deal” involve? How can central banks help finance the transition?

China, United States and the EU: Varying Capacities to Meet the Challenges

Jacques Mazier
,
University Paris 13

Abstract

The economic and institutional environment differs widely according to the various regions. Each zone appears to have varying capacities to meet the challenges. China has some assets. Rather efficient forms of planning have been preserved. Financial liberalisation is still incomplete and the negative effects of its huge debt seem under control. A pragmatic exchange rate regime may continue with the possibility of a yuan block in East Asia in the future. Uncertainty is high concerning how structural US trade imbalances can be overcome. The US will either experience a soft landing or a sharp recession. The FED has some room for manoeuvre and is backed by a strong federal government, which is an advantage compared with the EU. The dollar will remain the key currency. The EU is the weakest zone after Brexit and the impossibility of reforming the euro zone. The status quo will prevail with rising imbalances and the euro will continue to operate as a tool to progressively erode national social models. A risk of break-up exists due to the fragility of the Italian economy. Financing a big investment plan for ecological transition could improve the situation. However, financing such a plan is less of a problem than is concrete implementation and monitoring. Two points can be added on the world level. First, the global financial cycle is largely disconnected from national economic characteristics and mainly driven by US monetary policy. This imposes strong constraints on national monetary policies and demands forms of capital controls. Second, in the case of a hard landing, the emission of SDRs could be used to give national governments more room for manoeuvre.
Discussant(s)
Jacques Mazier
,
University Paris 13
Pascal Petit
,
University Paris 13
Dominique Plihon
,
University Paris 13
JEL Classifications
  • G0 - General