Deflation will be the overriding topic when America's Federal Reserve Board meets on June 24th. Michael Woodford, one of the world's leading authorities on central banking, offers a strategy to break the grip of falling prices.
Alan Greenspan's recent speech to a conference of bankers in Berlin--admitting the desirability of "insurance" against the risk of deflation in the US, even if it has not yet appeared--focused attention on a crucial issue. What can be done to stabilize an economy when nominal interest rates cannot be lowered any further, but prices still fall and the output gap--the difference between what it can produce and what it actually does produce--remains wide? What was a theoretical curiosity raised by John Maynard Keynes in the 1930's has become the fundamental issue confronting policymakers in the world's largest economies.
Japan poses the clearest example of this problem. Growth there remains anemic, and deflation lingers, suggesting a need for monetary stimulus. But the benchmark interest rate in Japan has been essentially zero for the past four years, so the standard form of monetary stimulus--reducing short_term nominal interest rates--is unavailable.
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With elevated global inflation likely to persist for some time, the prospect of competitive exchange-rate appreciations is looming larger. Instead of a race to the bottom in the currency market, there may be a scramble to the top – and poorer countries will likely suffer the most.
warns that a series of competitive exchange-rate appreciations would hurt poorer economies the most.
Neither the invasion of Ukraine nor the deepening cold war between the West and China came out of the blue. The world has been increasingly engaged over the past half-decade, or longer, in a struggle between two diametrically opposed systems of governance: open society and closed society.
frames the war in Ukraine as the latest battle for open-society ideals – one that implicates China as well.
Shlomo Ben-Ami
highlights the lessons countries like China and Iran are drawing from Vladimir Putin’s aggression, offers advice to Ukrainian peace negotiators, and considers the wisdom of Finland and Sweden's NATO membership.
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Deflation will be the overriding topic when America's Federal Reserve Board meets on June 24th. Michael Woodford, one of the world's leading authorities on central banking, offers a strategy to break the grip of falling prices.
Alan Greenspan's recent speech to a conference of bankers in Berlin--admitting the desirability of "insurance" against the risk of deflation in the US, even if it has not yet appeared--focused attention on a crucial issue. What can be done to stabilize an economy when nominal interest rates cannot be lowered any further, but prices still fall and the output gap--the difference between what it can produce and what it actually does produce--remains wide? What was a theoretical curiosity raised by John Maynard Keynes in the 1930's has become the fundamental issue confronting policymakers in the world's largest economies.
Japan poses the clearest example of this problem. Growth there remains anemic, and deflation lingers, suggesting a need for monetary stimulus. But the benchmark interest rate in Japan has been essentially zero for the past four years, so the standard form of monetary stimulus--reducing short_term nominal interest rates--is unavailable.
To continue reading, register now.
As a registered user, you can enjoy more PS content every month – for free.
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