The state as a creature of money

Recent social theories of money have challenged economic conceptions of it as first and foremost a medium of exchange. Writers such as Geoffrey Ingham and David Graeber have revived the chartalist position that money is essentially a creature of the state, whose primary function is to measure value or debt. In this paper, I argue that this is a wrong turning. I first clarify the conceptual underpinnings of Ingham’s treatment of money as an ‘institutional fact’, a concept drawn from Searle. I clarify the sense in which this argument establishes that the state ‘creates’ money – and show that this sense is quite limited. It is a theory of how something comes to be accepted as money, rather than a theory of why there is money in the first place, and it gives no account of money’s value. Finally, I sketch an alternative way of looking at the relationship between states and money. This recognises that modern states have been shaped in part by strategies with regard to monetary management, with state actors engaging strategically in a system they only partially constitute – so that states are ‘creatures of money’ as much as the reverse.     

The Stagnation Tendencies of Neoliberalism: A Review Essay

In his 2012 book, From Financial Crisis to Stagnation, Thomas Palley argued that the financial crisis of 2008 would be likely to result in a period of long-term stagnation. Both the crisis and the predicted stagnation, Palley argued, were the outcomes of policies pursued since the 1980s; the persistence of those policies explains the stagnation. Underpinning the policies and their consequences are the flaws of the neoliberal macro model and the particular role played by finance in that model. The rejection of Keynesianism meant the abandonment of the commitment to full employment. The neoliberal paradigm rests upon a foundation of ‘bad ideas’ that are located in political philosophy as much as in economic theory. Palley’s argument has a bearing on recent discussions among mainstream macroeconomists, whose interest in secular stagnation has been revived by the ‘ongoing crisis’. These discussions have left mostly unanswered the question of the causes of stagnation. The present essay argues that Palley’s concept of ‘structural Keynesianism’ can benefit from a closer association with the analysis of structural transformation and its effects on policy regimes and stagnation tendencies.     

我国货币政策中介目标研究——一个文献综述

近年来,一些西方发达国家相继放弃了货币供应量目标,转向了利率、通货膨胀等目标,进而在我国也引发了货币供应量能否继续充当货币政策中介目标的争论.本文认为,尽管大多数实证研究均已表明货币供应量作为中介目标的有效性正不断降低,然而从我国当前的经济金融发展情况来看,选择利率或通货膨胀目标还缺乏可行性.因此,我国面临的现实选择只能是继续以货币供应量为目标,同时稳步推进金融体系、金融制度的改革,为中介目标的转变奠定基础.     

Alternative Monetary Targets,Instruments and Future Monetary Policy Frameworks

ABSTRACT

This article expands on the debate of whether merely controlling inflation can be considered a good outcome in terms of monetary policy, discussing proposals for adopting alternative monetary targets (e.g., price level, nominal GDP), alternative instruments (e.g., monetary finance, central bank digital currencies), for enlarging central banks' mandates (e.g., incorporating employment, wages, inequality, environmental objectives) and for the design of future monetary policy frameworks.

We argue that in the coming years, central banks should not simply maintain their pre-2008 standards by de-implementing unconventional monetary policies. Instead, they must take advantage of their past and recent experiences in order to improve, under an evolutionary perspective, future monetary policy and financial stability frameworks. Based on this, measures implemented since the 2008 crisis would have three possible treatments in new frameworks: i) be discarded, due to their predominantly adverse effects; ii) not be regularly implemented, but be used as backstop mechanisms if needed; iii) be incorporated as regular measures of monetary policy/financial stability frameworks. Accordingly, monetary and financial stability authorities will increasingly need to evolve and engage in a continuously adaptive and innovative process in order to face challenges posed by financial markets that are becoming more dynamic, innovative, complex, interconnected and globalised.     

Sovereign Debt Management and the Transformation from Keynesian to Neoliberal Monetary Governance in Britain

ABSTRACT

Private financial markets are central to the implementation of monetary governance. This necessary integration of public and private finance means the way states govern must evolve with developments in financial markets. This article examines how the rise of liability management underpinned a shift to market-based banking and transformed the operation of monetary policy in Britain. It assesses the period of reform between 1967 and 1981 and what this meant for monetary governance. Political economy literature depicts this period as a shift to depoliticised, deregulated governance with public authority giving way to market power. This paper challenges this perspective on the grounds that it misconstrues the problem policymakers faced. The shift from Keynesian to neoliberal monetary governance came in response to the change in banking practice with the rise of liability management and a parallel money market. This underpinned an explosion of credit creation that the old system of monetary policy, organised around the Base Rate and ‘primary’ discount market could not fix. As a result, the monetary authorities had to render this new financial environment governable. The period should therefore be reassessed in terms of the capacities the state attempted to construct to conduct monetary governance.     

Liquidity default,liquidity management and smooth dividends policy

Our article models liquidity financing constraints with the real options framework. By conducting a comprehensive investigation of the effects of shocks to liquidity constraints on the firm’s optimal investment, financing and dividend policies, our model highlights the importance of liquidity management and extends the liquidity management approach to hedge liquidity default risk. We find that being concerned about liquidity default risk will significantly change a firm’s behaviours, including those related to investment and the optimal capital structure. A firm that is concerned about its liquidity default risk will become more cautious: it will choose to delay investment and have higher leverage when internal liquidity is very low, but choose earlier investment and lower leverage when liquidity is high enough. The dividends policy can alleviate risks from both the external market and internal project volatility and provides an alternative explanation for the ‘smooth dividends policy puzzle’ commonly reported in empirical research.     

The effects of monetary policy in a small open economy: the case of Portugal

In this article, I analyse the macroeconomic effects of monetary policy on the Portuguese economy. I show that a positive interest rate shock leads to: (i) a contraction of real GDP and a substantial increase of the unemployment rate; (ii) a quick fall in the commodity price and a gradual decrease of the price level and (iii) a downward correction of the stock price index. It also produces a ‘short-lived liquidity effect’ and helps explain the negative comovement between bonds and stocks. In addition, I find evidence suggesting the existence of a money demand function characterized by small output and interest rate elasticities. By its turn, the central bank’s policy rule follows closely the dynamics of the money markets. Finally, both the real GDP and the price level in Portugal would have been higher during almost the entire sample period if there were no monetary policy surprises.     

2011-2012年中国货币政策分析与展望

本文回顾了2011年中国货币政策操作的主要措施和金融运行情况,分析了2012年货币政策运行环境,提出了货币政策建议。本文认为,2011年,面对不断上升的通货膨胀压力,中国人民银行实行了稳健的货币政策,货币信贷条件向常态水平回归,有效遏制了物价过快上涨的势头。2012年,在经济增长下行压力和物价上涨压力并存的局面下,中国人民银行需要继续实施稳健的货币政策,进一步增强货币政策的针对性、灵活性和前瞻性,根据经济形势的变化,适时适度进行预调微调,保持货币信贷总量和社会融资规模的合理适度增长,更好地服务于实体经济发展。     

Monetary Policy and Market Power in Banking

Applying a spatial competition model to banking, we analyze the effects of the choice of a monetary policy rule by the central bank on banks market power as measured by the Lerner index. We show that a procyclical monetary policy may reinforce the countercyclical movement of the Lerner index. That is, this measure of competitiveness of the banking sector may vary more over the business cycle due to the monetary policy rule.JEL classification: G21, E52, L13.Acknowledgements The author thanks Hans Degryse, Hans van Ees, Marco Haan, Eko Riyanto, Bert Schoonbeek, Elmer Sterken, three anonymous referees, and participants of the EARIE 2001 conference (Dublin), the NAKE Day 2002 (Amsterdam), and a seminar at Ghent University for their constructive comments.revised version received November 11, 2003     

Financing of Firms,Labor Reallocation,and the Distributional Role of Monetary Policy*

We analyze monetary policy in a model with heterogeneous firms, where constrained firms finance operations through external financing and unconstrained firms use internal funds. We show that expansionary monetary policy increases the relative employment of constrained firms, while positive productivity shocks increase that of unconstrained firms. Our results agree with recent empirical findings, emphasizing the role of the monetary authority in reallocating resources across sectors with different financing capabilities. We also show that if the relative productivity of constrained firms is low, then expansionary monetary policy tilts resources towards less productive firms, which decreases the effectiveness of the policy in stimulating aggregate output.     

Industrial Policy and Islamic Finance

Debates on industrial policy have typically focused on interventions in the ‘real’ sector to facilitate the transformation of a resources-based economy to one that is based on manufacturing. Although the financial sector has always figured strongly in these discussions, its development, or rather repression, is almost always considered in the context of serving the ‘real’ sector. In contrast, this paper contributes to the emerging literature on government policies to develop financial sectors into independent and internationally competitive sources of economic growth on their own right through an analysis of the development of Islamic finance in Malaysia. The paper argues that the emergence of Islamic finance in Malaysia, and the country's evolution into a key player of the sector in the global market, can be attributed to developmental efforts or industrial policies adopted by the government. The case of Islamic finance in Malaysia suggests the continuing relevance of industrial policy for developmental purposes. More importantly, it demonstrates that developing countries can chart a path towards services-led growth, the next frontier in economic development.     

Institutionalism and Fiscal Policy at Midcentury

This article analyzes the career and contributions of Roy Blough (1901–2000) as a case study of Wisconsin institutionalism in government policy-making at midcentury. As a faculty member at Cincinnati, Chicago and Columbia, editor of the National Tax Journal, director of the research division of the U.S. Treasury and member of the Council of Economic Advisors, Blough played a significant role in the development of fiscal policy. The article also considers Blough’s contributions to tax policy and his views on Keynesian public finance. It further identifies the contributions of Wisconsin institutionalism to modern fiscal policy.     

Endogenous Money,Fiscal Policy,Interest Rates and the Exchange Rate Regime: A Comment on Palley,Tymoigne and Wray

One of the main collective contributions of the various heterodox schools of monetary thought, such as circuit theory, Post Keynesian theory, modern money theory (MMT) and others, has been to stress the importance of the endogeneity of money via bank credit creation. It is necessary to stress the notion of a collective contribution because of the various claims and counter-claims to academic priority made in the literature. The recent exchange between T.I. Palley and E. Tymoigne and L.R. Wray in this journal provides a clear example of this. This response examines the differences between these writers in some detail.     

Post-2008 British Industrial Policy and Constructivist Political Economy: New Directions and New Tensions

The article serves to introduce a number of recent changes in the practices and rationale of British industrial policy since 2008. I observe a shift towards a stronger role for the government and for agencies of industrial policy in the provision of industrial finance, and towards an increasingly discretionary and strategic approach to industrial policy intervention, both of which stand in tension with the neoliberal ‘coordinative discourse’ that continues to structure macroeconomic policy in the post-2008 context. I suggest that this tension is indicative of the emergence of two competing ‘crisis diagnoses’ in government after 2008; one reflecting the neoliberal coordinative discourse that structured economic policymaking prior to 2008, the other at odds with this neoliberal crisis diagnosis. I argue that constructivist analytical frameworks on crisis and political–economic change are insufficiently developed to accommodate these findings. I therefore reflect upon some conceptual and empirical implications that the findings raise for a constructivist analysis of economic policy in the post-2008 context in Britain, before concluding that a more contingent, contested and, crucially, incomplete process of re-alignment in the ideas that structure economic policymaking is underway in Britain than is generally acknowledged.     

充分发挥中国现代化支付系统在货币政策实施中的作用

本文通过分析支付系统在实施货币政策中的作用，中国现代化支付系统（CNAPS）支持货币政策实施的具体实现，以及1993～2006年我国货币流通速度变化情况，为CNAPS更好地支持货币政策的实施提出了一些建议。     

Inflation volatility,economic growth and monetary policy in Bangladesh

This article provides an overview of the trends and movements of CPI-inflation in Bangladesh since the early 1950s and examines the key issues in rule-based monetary policy for price stability, implying low and stable inflation, in this country. Under a fixed exchange rate system, inflation in Bangladesh was moderately high and volatile during the 1950s and 1960s. Since the country’s independence from Pakistan in 1971, inflation in Bangladesh has remained moderately high on average and highly volatile and persistent under a fixed-pegged exchange rate system or under a managed floating system since 2003. Using data from the early 1970s or earlier depending on data availability, the article undertakes both Granger-causality and the structural vector autoregression (SVAR) analysis with two models. The first model is comprised of such variables as inflation, the real interest rate, the real exchange rate and output growth, and the second model is comprised of the volatilities of money growth, real output growth and inflation. Then, based on the empirical findings, the article concludes that a rule-based monetary policy, namely monetary targeting or inflation targeting, remains appropriate for Bangladesh provided that it adopts a more flexible, if not freely floating, exchange rate system. The article suggests that the use of monetary policy to achieve multiple objectives under a fixed-pegged exchange rate system creates a time-inconsistency problem, reduces monetary policy credibility and makes it (monetary policy) ineffective in lowering inflation and its volatility. Low credibility of monetary policy in particular raises inflation persistence. Within the present monetary-policy framework in Bangladesh, the article illustrates how the fixed-pegged exchange rate system has generated money growth volatility in the presence of large-scale inflows of overseas workers’ remittances and readymade garments export earnings. This does not seem to be a concern of the central bank of Bangladesh (Bangladesh Bank); rather, it (Bangladesh Bank) pursues monetary-base targeting to keep inflation low and stable after considering economic growth. The consequent diminishing credibility of monetary policy has kept inflation volatile and persistent, which has adversely affected economic growth.     

我国货币政策对稳定物价有效性的实证分析

2009年以来,面对持续走高的物价,央行采取了连续上调准备金率的政策,以求减少货币供给量,稳定物价。通过建立CPI、广义货币供给量M2和GDP之间的回归模型,对1994～2010年的数据进行回归分析,得出了我国货币政策对稳定物价有效的结论。认为治理通货膨胀要采取多样化的宏观经济政策,注意货币政策、财政政策的搭配使用。同时要加快人民币汇率体制改革,促进产业结构调整和经济发展方式的转变。     

US monetary policy shocks and the Chinese economy: a GVAR approach

Using a global vector auto regressive (GVAR) methodology, this article examines the impact of US monetary policy shocks on China’s major macroeconomic indicators. Our analysis reveals that a positive shock to the US money supply growth rate initially increases China’s inflation rate but after some time this effect completely disappears. This shock also raises China’s short-term interest rate and the Chinese currency appreciates against the US dollar. A positive shock to the US short-term interest rate increases China’s short-term interest rate but the real output growth and inflation rates decline and the Chinese currency appreciates.     

农业政策性金融支持中小型农业基础设施建设问题研究

中小型农业基础设施准公共产品的属性,使市场机制与政府机制无法单方面满足其融资需求,这就决定了政府机制与市场机制相结合的农业政策性金融才是解决中小型农业基础设施融资困境的有效途径.要做好农业政策性金融体系支持中小型农业基础设施建设的工作,我们可以借鉴国际上的成功经验,在强化农业政策性金融的服务导向,重构农业政策性金融组织体系,拓展农业政策性金融机构的筹资渠道、增强其融资能力,完善融资利益补偿机制等方面多做工作.     

The Politics of Canadian Monetary Policy: Reassessing Canadian Inflation,Part II

This is the second installment of a two-part article on Canadian inflation. This article builds on the traditional conflict theory of inflation by applying insights from the post-Keynesian and micro-politics theories of money and central bank policy. It argues that the Bank of Canada’s inflation targets — not just inflation itself — have to be understood in terms of social conflict and power. This analysis extends the evidence on the distributive implications of Canadian inflation offered in Part I.