Persistent unemployment and co-ordination issues: an evolutionary perspective

Abstract. In this paper we look at unemployment as a phenomenon which reflects the co-ordination problems that characterize out-of-equilibrium processes of adjustment. The analysis carried out shifts the focus from structural factors to the economic process. It shows that unemployment cannot be satisfactorily explained – and policy interventions devised – by focusing only on specific characters of the technology or confining the analysis to structural factors concerning the labour market. The co-ordination mechanisms of adjustment processes rather than the fundamentals of the economy appear, in this light, as the main determinants of differences in unemployment trends in different economies; and monetary policy comes back to the center of the stage as an essential element of the working of these mechanisms. RID="*" ID="*" We thank anonymous referees for their very useful comments, and Elena Lega for the helpful support to the simulation analysis carried out. Correspondence to: J.-L. Gaffard     

Capitalism and democracy at a crossroads: the civilizational dimension

This paper evaluates Schumpeter's grand vision as reflected in his Capitalism, Socialism and Democracy, and elaborates it in conjunction with the so-called “globalization” trends characteristic of the wake of the twenty-first century. In addition to the evolutionary nature of his methodology, the institutionalist dimension of Schumpeter's definitions are brought to light. A case is made for a fundamental process of “uncreative destruction” as far as the institutional setup of the economy is concerned. The contention of this paper is that there is ample support in Schumpeterian analysis for a counterpoint to the liberal thesis that envisages the worldwide spread of individualism, market economies, and democratic forms of government.     

Fundamentals versus external shocks: Brazil's growing exposure to currency crises

While financial globalization does not lack theoretical economic merit, the more far-reaching practical consequences of this phenomenon are often not fully appreciated from the vantage point of North America or the European Union. In particular, globalization can make it more difficult for emerging economies to achieve macroeconomic stabilization. This is especially true if the countries in question have chosen the vehicle of pegged exchange rates as an important element of domestic anti-inflation policy. The chief macroeconomic difficulties for emerging economies in a world of volatile capital flows can include a loss of monetary control, a real appreciation of the domestic currency, and a worsening of economic fundamentals leading to damaging currency crises. This paper concentrates on the recent experience of Brazil as illustrative of the abject plight faced by many developing countries attempting to secure economic stabilization against the background of the present globalized international economy.This paper has benefitted from discussion with participants of the Forty-Sixth International Atlantic Economic Conference, Boston, MA, October 8–11, 1998.     

Macroprudential policy and the inward transmission of monetary policy: The case of Chile,Mexico, and Russia

This paper studies whether domestic macroprudential policy may attenuate the inward transmission of monetary policy shocks from the United States to domestic bank lending growth in three emerging market economies—Chile, Mexico, and Russia. Identification relies on banks’ heterogeneous exposure to prudential policies and the fact that foreign monetary policy shocks are exogenous from the perspective of these economies. After analyzing the effects of the aggregate domestic prudential policy stance, we focus on specific prudential policies targeting mortgage and consumer loans, as well as foreign‐currency deposits. Although our overall results are mixed, we find evidence that the strength of international monetary policy spillovers varies depending on the stance of domestic macroprudential policy. In particular, a tighter reserve requirement stance over foreign‐currency deposits in Chile dampens the effect of an international monetary policy shock on domestic local‐currency lending, but reinforces that on foreign‐currency lending, whereas in Russia, it dampens the effect on both local‐currency and foreign‐currency lending, although to different degrees. Prudential policies targeting the asset side of banks’ balance sheets, such as mortgage loans or consumer credit, are found to amplify international monetary policy spillovers in some cases and attenuate it in others, depending on the country context.     

MONETARY POLICY IN ECONOMIES WITH LITTLE OR NO MONEY

Abstract. (1) Medium-of-exchange money will not entirely disappear in the foreseeable future. (2) In economies with no currency but settlement balances at the central bank, policy can be conducted much as at present by activist adjustment of overnight interest rates. (3) In economies without any money there can be no monetary policy. Liabilities of some official entity might serve as the medium of account, but there could be rivals. (4) A broad commodity-bundle monetary standard could be viable, even with a redemption medium, and there is scope for quantitative analysis of such systems. (5) The number of distinct national currencies may decline sharply.     

What is the systems perspective to Innovation and Technology Policy(ITP) and how can we apply it to developing and newly industrialized economies?

Despite recent advances in the Evolutionary and Systems Perspectives to Economic Change (SI), confusion still exists about how to apply it to the design and implementation of Innovation & Technology Policy (ITP) in concrete settings. Since the ‘Normative’ aspects of SI are framed in terms so general to make them insufficient or inadequate as guides and tools for actual policymaking, a presumption exists that additional theoretical and conceptual knowledge is required. Thus a major objective of this paper is to contribute to the development of a realistic and ‘grounded’ theoretical framework for Technology and Innovation Policy which is particularly relevant both for the promotion of Business Sector R&D and of hi tech (especially IT) industries in Top Tier and other Industrializing Economies. A second objective is to contribute directly to the capability of successfully applying this conceptual framework in concrete policy settings. Rather than justifying ITP the paper focuses on characterising and applying “Salient Normative Principles or Themes” of the SI perspective to ITP. Several concrete examples are given and the notions of Policy Process, (Country) Program Portfolio Profile and Policy Environment are introduced.     

Economic policy making in evolutionary perspective

Economic policy making is discussed from three different angles: the political economy of actual policy making (“what policy does do”), the analysis of policy instruments for given ends (“what policy could do”), and the debate on policy goals and their legitimization (“what policy ought to do”). Center stage in the evolutionary perspective is new, positive and normative knowledge which is unfolding during the policy making process and in its aftermath. It is argued that this implies regularities and constraints which extend and modify the comparative-static interpretations of public choice theory, economic policy making theory, and social philosophy. RID="*" ID="*" The author should like to thank three anonymous referees of this journal and the editor for helpful comments on an earlier version of the paper.     

Schumpeter and the revival of evolutionary economics: an appraisal of the literature

During the last two decades we have seen a revival of interest in the works of Joseph Schumpeter and “evolutionary” ideas in economics more generally. A professional society honouring Schumpeter's name has been founded, and linked to it we have had for more than fifteen years now a professional journal devoted to this stream of thought. However, it has been argued that, despite these developments, the link between Schumpeter's own work and the more recent contributions to evolutionary economics is in fact rather weak. This paper considers this claim. Based on an analysis of Schumpeter's contribution to economics the paper presents an overview and assessment of the more recent literature in this area. It is argued that although there are important differences between Schumpeter's work and some of the more recent contributions, there nevertheless remains a strong common core that clearly distinguishes the evolutionary stream from other approaches (such as, for instance, so-called “new growth theory”). RID="*" ID="*" Many people have contributed to this paper in various ways. Jon Hekland at the Norwegian Research Council started it all by asking me to make an overview of the contribution from “evolutionary economics” to our understanding of contemporary economies. Several people helped me on the way by supplying written material, comments and suggestions, and I am indebted to all of them. Brian Arthur, Stan Metcalfe, Keith Pavitt, Erik Reinert, Paolo Saviotti and Bart Verspagen may be particularly mentioned. A preliminary version was presented at the conference “Industrial R&D and Innovation Policy Learning – Evolutionary Perspectives and New Methods for Impact Assessment” organised by the Norwegian Research Council (“SAKI”) at Leangkollen, Asker, April 18–19.2002. I wish to thank the discussant, Tor Jakob Klette, and the participants at the conference for useful feedback. Moreover I have benefited from comments and suggestions from the editors and referees of this journal. The final responsibility is mine, however. Economic support from the Norwegian Research Council (“SAKI”) is gratefully acknowledged.     

The nature and role of monetary policy when money is endogenous

This paper considers the nature and role of monetary policywhen money is modelled as credit money endogenously createdwithin the private sector. There are currently two schools ofthought that view money as endogenous: one has been labelledthe ‘new consensus’ in macroeconomics, and the otheris the Keynesian endogenous (bank) money approach. The paperfirst explores the analysis of monetary policy in the ‘newconsensus’ macroeconomic model, followed by an examinationof the effectiveness of monetary policy in that analysis. TheKeynesian view of endogenous money is discussed, and the rolefor monetary policy in a Keynesian endogenous monetary policyanalysis is considered, including discussion of the objectivesand instruments of monetary policy.     

International spillovers from US forward guidance to equity markets

We quantify the international spillovers of explicit Federal Open Market Committee (FOMC) policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets, considering equity indices of both advanced and emerging economies. We find that stimulatory explicit FOMC policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies. Moreover, we find that equity indices of economies with lower sovereign ratings rose by more, consistent with the risk-taking channel of monetary policy.     

试析人民币对外升值与对内贬值并存

Since 2002, RMB has shown a phenomenon which is the co-existence of the external appreciation and the domestic inflation. This new monetary phenomenon has been strengthened in the context that US dollar depreciates internationally and that domestic economy is overwhelmed with excessive liquidities. The new monetary phenomenon is the reflection of the real economy that continuing trade surplus, triggered robustly by the export-driven economy, which brings a huge amount of foreign exchange reserve and accelerates sequentially the expansion of domestic money supply. Furthermore, a refrained appreciation of RMB tends to deteriorate the domestic inflation, which is not simply a traditional concept of CPI but a broad inflation parameter including a variety of asset prices. It is sure that the new phenomenon is becoming a new challenge to the macroeconomic equilibrium as well as the decision maker of monetary policy. __________ Translated from Jingji yanjiu 经济研究 (Economic Research Journal), 2007, (9): 32–48     

The new exchange rate policy in the Asian emerging economies – goodbye trouble,hello comfort?

In this paper, we discuss new aspects of exchange rate policy that can be observed in the Asian emerging economies. In the first place, we show the alternative regimes they may choose and their respective pros and cons. Secondly, we concentrate on the recent strategy of systematic undervaluation of one's currency – figuring prominently among ‘big’ Asian players such as China and India – and the most likely implications of such a strategy for domestic allocation, distribution and stabilization goals. With the background of Germany's experiences in 1969, almost on the eve of the Bretton Woods' system collapse, we model a speculative attack on an undervalued currency in the vein of the Flood–Garber seminal paper from 1984. Now, however, the country in concern (just like India and China) possesses strong rather than weak fundamentals. The continuous accumulation of international reserves, in addition, leads to the question of an ‘optimal management’ of foreign exchange reserves in Asian emerging economies with regard to size and composition. We finally propose a sequence of reforms/policies that should be implemented in those Asian emerging economies on their still long journey to a regime featured by autonomous monetary policy, flexible exchange rate and capital mobility. A brief summary and an outlook for future research close the paper.     

Routines and incentives in group tasks*

The artificial context “Target the Two” has been used in experiments to explore some of the features of routinization and learning. Two agents must learn to coordinate their actions to achieve a common goal, without being allowed to use verbal communication. This article reports an experiment, in which we compare the degree of routinization and the performance of players in two treatments. Each treatment submits players to the same sequence of starting configurations, but differs in terms of the payoff function. In the first treatment (A), the payoff is based on the number of moves required to achieve the goal, whereas in the second treatment (B) the payoff depends on the time required for completion. We observe that (1) in treatment B subjects tend to play in a more “routinized” way and (2) treatment B reduces the time spent on play, but does not decrease the resources (the number of moves) used, relative to treatment A.     

Monetary policy and exchange market pressure–evidence from sub-Saharan Africa

The purpose of this study was to assess the impact of monetary policy on foreign exchange market pressure (EMP) in developing country contexts for some selected countries in sub-Saharan Africa (SSA) and to measure the ability of monetary policy to significantly address currency pressures that arise from trading on the global market. This study was motivated by the fact that most of the SSA countries are developing economies that have negative net export positions and stand to lose significantly from consistently deteriorating foreign exchange position. The study, therefore, employs a dynamic panel model to test the hypothesis that a tighter monetary policy stance lends strength to a currency and vice versa, using 20 SSA economies for the period from 1991 to 2010. This study finds a negative and significant relationship between monetary policy and EMP, implying an easing of EMP in the face of contractionary monetary policy. The findings also point to significant relations between aggregate output, levels of public debt, the current account balance, terms of trade and EMP. Findings of this study have important implications as regards the policy direction on exchange rate and currency management.     

Darwinism in economics: from analogy to ontology

Several social scientists, including ‘evolutionary economists’, have expressed scepticism of ‘biological analogies’ and rejected the application of ‘Darwinism’ to socio-economic evolution. Among this group, some have argued that self-organisation is an alternative to biological analogies or Darwinism. Others have seen ‘artificial selection’ as an alternative to natural selection in the socio-economic sphere. Another objection is that Darwinism excludes human intentionality. It is shown that all these objections to ‘biological analogies’ and ‘Darwinism’ are ungrounded. Furthermore, Darwinism includes a broad theoretical framework for the analysis of the evolution of all open, complex systems, including socio-economic systems. Finally and crucially, Darwinism also involves a basic philosophical commitment to detailed, cumulative, causal explanations. For these reasons, Darwinism is fully relevant for economics and an adequate evolutionary economics must be Darwinian, at least in these fundamental senses. However, this does not undermine the need for auxiliary theories and explanations in the economic domain.     

A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?

The strong economic ties between the Gulf Cooperation Council (GCC) economies and the USA are manifested in three ways: currency peg, coupling of monetary policy, and the adoption of the US dollar as the trading currency for oil. This paper examines how these dynamics result in a misalignment of the US monetary policy with the business cycles of the GCC economies. The study shows how the staggering amount of remittances outflow of the GCC economies plays a stabilizing role as a tacit monetary policy tool. Incorporating remittances in the money‐demand equation results in a more robust model than otherwise. We further find that the effect of the Federal Funds rate on money demand in these countries diminishes in significance during the period of oil boom between 2002 and 2009. However, the transmission effect of the recession periods in the USA into the demand for money in the GCC countries is not statistically significant.     

The old and the new: the evolution of polymer and biomedical clusters in Ohio and Sweden

This paper examines the rapid growth of the polymer-based and biomedical clusters in Ohio and Sweden – two regions of similar size and with similar traditions undergoing similar industrial restructuring. Two issues are addressed: First, why has growth been so strong in these particular clusters, i.e., can we identify the sources of the growth and dynamics in these sectors? Second, why do these two clusters differ in Ohio and Sweden in terms of size, level and type of activity, number and composition of actors, size structure of firms and growth patterns over the last couple of decades? In particular, what is the role of public policies as well as cultural, historical, and geographic factors? Our main conclusions are (1) that there is strong path dependence in both clusters in both countries, and (2) that the key to rapid development is a high absorptive capacity combined with rapid diffusion to new potential users. Our policy discussion addresses these issues.     

The effect of monetary policy on output in EMU3: A sign restriction approach

This paper examines the effects of monetary policy shocks on output in the three largest euro area economies – Germany, France and Italy (EMU3) – by applying a new VAR identification procedure. The results show that monetary policy innovations are at their most potent in Germany. However, apart from Germany, it remains ambiguous as to whether a rise in interest rates concludes with a fall in output, showing a lack of homogeneity in the responses. Homogeneity in response to a monetary shock is crucial in a one-size-fits-all framework. Nonetheless, the lack of similarity between the responses, which is hypothesised to cause de-synchronised business cycles in optimal currency area literature, is often based on the premise that monetary policy itself is a major source of business cycle fluctuations. This paper concludes that monetary policy innovations play, at most, a modest role in generating fluctuations in output for the EMU3. Consequently, it is less important whether the effects of monetary policy are homogenous.     

Virtual Currencies,the Money Market,and Monetary Policy

Virtual currencies are in vogue mainly due to two factors. First, as a protest against authority-driven monetary policy decisions and second, as alternatives to deficits in some monetary systems arising out of political instability or other causes. Assuming that virtual currencies indeed (partially) replace national currencies as payment vehicles, we attempt, in this article, to integrate the virtual currency supply and demand into the Keynesian money market framework. This article presents a few results for the central banks and outlines problems that may result for monetary policy formulation. Since this is the first such attempt to model a national money market as a combination of nationally-issued currency and globally-issued virtual currency, certain simplistic assumptions have been made. Nevertheless, the model offers directions on the impact of virtual currencies on the monetary system and the national money market. Additionally, the paper integrates the official standpoints of the European Central Bank and the Bank of England on this topic.     

How should emerging economies float their currencies?

Floating exchange rates seem to be gaining ground in Latin America, East Asia and the transition economies. The recent crises left many economies with no alternative but to float. Others have moved toward floating, searching for greater flexibility and insulation from external shocks. The question for most emerging market economies, then, is no longer to float or not to float, but how to float. Four issues arise in this regard. The first is how to float and have low inflation. The second is whether floating provides as much insulation as conventional theory predicts, especially in the presence of dollarized liabilities. Which leads to the third point: the relationship between the stability of the exchange rate and that of the financial system. The fourth is how to conduct monetary policy under a float, and the role of inflation targeting. We consider each of these points in turn, and conclude that a workable model of how to float seems to be emerging from the so‐far successful experience of countries like Chile and Brazil. It involves the adoption of an inflation target as the main anchor for monetary policy, coupled with a monetary policy reaction function that — aside from reacting to the output gap and other determinants of the inflation rate — reacts also partially to movements in the nominal exchange rate. JEL classification: F3, F4, E4, E5