Central bank independence and the commitment to monetary stability: The case of the German Bundesbank

It is generally accepted that a legally mandated independent central bank will pursue an anti‐inflationary monetary policy, even in the face of pressure from those politicians who appointed the central bank's decision makers. But are politically minded appointees to a central bank really transformed into die‐hard defenders of monetary stability? And, if so, why? This article seeks to answer these questions by exploring the case of the German Bundesbank. Hypotheses for explaining the anti‐inflation orientation of the central bank are explored and supporting evidence for each of the hypotheses is sought, using interviews with Bundesbank council members.     

Effect of Wage,Inflation and Exchange Rate on the Investment Policy in Sidoarjo District,Indonesia

The purpose of this study is to know and analyze the effect of wage variables on regional investment policy, the influence of inflation variables on regional investment policy, and the influence of exchange rate variables on investment policy of the Region on Labor. In this study, the population taken is the entire workforce whose data comes from the Central Bureau of Statistics in Sidoarjo which amounted to 64,792 workers. Data analysis using multiple linear regressions with the help of SPSS program version 20 showed that there is an influence of wages, inflation, and exchange rate on local investment policy. Based on the results of calculations and test results conducted, it can be explained that there is an effect of wages on regional investment of labor followed by the characteristics of inflation on labor that affects the exchange rate of investment. This illustrates for policymakers which empirical evidence exists in a series of time to test the theoretical basis while establishing fiscal, monetary, or exchange rate policies to stabilize output and employment by using interest rates, money supply, and exchange rates as instruments for achieving goals.     

The Bank of Japan’s Monetary Policy Lacks a Strong Driving Force for Building Inflation Expectations

The Bank of Japan has been failing to create the 2% inflation expectations. This article presents the author’s views about why the Bank of Japan’s monetary easing measures have not led to achievement of the inflation target of 2%, as well as on measures required to achieve the 2% inflation (and base wage increases of over 3% which is the flip side of a 2% inflation). The major points of this article are outlined below.

First, while many Japanese economists pay little attention to importance of mild inflation, the achievement of mild inflation of 2% is vital in ensuring a stable macroeconomic environment. Its achievement would enable lowering of real interest rates (i.e., reducing the real interest rate to minus 2% as against the 0% nominal interest rate) in the situation where the nominal interest rates are drifting at the lower limit against a backdrop of various economic shocks. It would also facilitate reduction in real wages against the downwardly rigid nominal wages, thereby helping companies revive their businesses, and also facilitating adjustments in the overall economy.

Second, the reasons why the current Bank of Japan’s monetary easing measures have been unsuccessful in attaining the inflation target of 2% are as follows: 1) most of the Japanese do not understand the importance of mild inflation and so the specific content of the inflation target (achieving 2% inflation and base wage increases of over 3%) is not clearly shared; 2) on top of the fact that deflation/zero inflation has become rooted in Japan’s economy over the past two decades, Japan has never adopted a monetary policy that would anchor a mild inflation expectation of 2% (until 1990, the Bank of Japan’s primary task was to be mindful of curbing the accelerating cost-push inflation associated with wage growth); and 3) the current Bank of Japan’s monetary policy lacks a strong driving force for building inflation expectations to induce a change in people’s behavior.

Third, in order to build mild inflation expectations of 2% under such circumstances, it is important that the parties concerned with employer’s associations and labor unions become fully aware of this target so that the 2% inflation and base wage increases of over 3% becomes a code of conduct. On that basis, the government and Bank of Japan need to clearly demand substantial base wage increases with concrete numerical targets combined with the achievement of mild inflation towards the goal of building inflation expectations.

Fourth, I propose as the first step that, along with the economic measures recently taken, the government and the central bank either mediate or participate in a specific attempt to build a consensus between the employer’s associations and labor unions on achieving, in a neutral manner, inflation of 2% and base wage increases of (at least) 2%. The aim is to establish an inflation of 2% and base wage increases of over 3% as a new code of conduct shared by employer’s associations and labor unions through continued labor-management agreement.

It is desirable that mild inflation is attained gradually by stimulating aggregate demand continuously, if time and cost permit and if the international environment tolerates weak yen. However, the current economic environment would not allow it and the leeway to ease monetary policy has also been limited. It is also difficult to continue to boost aggregate demand through fiscal policy in a sustained manner against a backdrop of a low birthrate and aging population. Although successful achievement of mild inflation is not a panacea for all economic problems, unless we first achieve mild inflation and restore the function of monetary policy, we will not be able to implement the subsequent structural reforms of the labor markets, etc. or fiscal consolidation, which are both painful. And thus, the long-term economic outlook of Japan is dismal. The author strongly hopes that the Abe Cabinet and Bank of Japan under the leadership of Governor Kuroda implements a drastic regime change similar to the one launched by the Roosevelt administration, overcome deflation and achieve mild inflation, restore the function of monetary policy at the earliest possible time, and get on the path to a true revitalization of the Japanese economy.     

日本量化质化宽松货币政策效果及原因分析

面对日本长期通货紧缩与经济增长乏力,日本央行开启量化质化宽松货币政策:日本央行持续大肆增加基础货币的投放,大胆采取负利率政策,实施收益率曲线控制,引导社会公众预期。政策实施以来,通胀目标时限一再推迟,政策虽在短期内改善了经济形势,但又受到全球金融市场及外国政策的干扰。究其原因,货币政策传导机制不畅、企业部门缺乏稳定预期、少子老龄化及财政货币政策相互掣肘等因素均影响了货币政策的经济效果。     

The Problem of Macroeconomic Policy Crossroads:Explaining the Economic Policy Paradox of Switzerland and Japan in the 1990s

The 1990s, which can be characterized as a decade of disinflationary growth and austerity policies for most developed market democracies, was the decade of stagnant growth and policy complacency for Switzerland and Japan. Based on a framework that emphasizes the structure of policy choices available to governments at economic crossroads (or crisis), I show Switzerland and Japan are unique in that (a) disinflationary fundamentals spared the countries from speculative or inflationary pressure that required drastic responses and (b) the governments paradoxically maintained conservative economic policies despite room for expansion in order to continue policies based on the compromise between export and domestic sectors. The policy crossroads perspective stresses the importance of endogenous coalitions even in a world of economic globalization to explain concerted politics and conservative policies, and to assess the true impact of international finance on domestic changes.     

Ideology and the Economy: Capital Issues Controls,Inflation and the Menzies Government, 1950–51

The Defence Preparations Act 1951 was conceived as a solution to an ideological as much as the constitutional dilemma the Menzies government faced as a result of the inflationary crisis of 1950–51. Drawing on Cabinet Notebooks, we argue that the government used the Act to facilitate peacetime access to capital issues controls under the defence powers, but also to reassure its supporters and the public that turning to direct economic controls was not a vindication of the “socialism” it promised on election to stand against. While the Act enabled the government to convince the High Court that imposing anti‐inflationary controls was linked to defence preparations, it was also a way for it to maintain ideological coherence as it sought to breach a principal tenet of its political philosophy.     

Historical Institutionalism and Economic Policymaking – Determinants of the Pattern of Economic Policy in Brazil, 1930–1960

From 1930 to 1960, Brazil adopted a pattern of economic policy marked by strong state intervention, high levels of protectionism, disregard of exports and a permissive treatment of inflation. These policies distorted the model of industrialisation and had a negative impact on the prospects for economic development. This article employs a historical institutionalist approach to investigate how the international context, the ideology of the policymakers, the role of the technocrats and the pressures of various social groups, especially the industrialists, influenced decisions on economic policy, contributing to the consolidation of the pattern described above.     

Japan's quest for a permanent seat on the Security Council

In an age of declining American power, more Japanese are now understanding the need for multilateral diplomacy, according to Professor Reinhard Drifte, Chair of Japanese Studies in the Department of Politics at the University of Newcastle upon Tyne, UK. In this analysis of Japan's quest for a permanent Security Council seat, Drifte argues that Japan has to move beyond making simply monetary and procedural contributions to the United Nations, to a position of being ready to offer substantive policy input. For this to happen, he says the whole Japanese policy culture has to change.     

The CFA Franc Zone: a political re-evaluation twenty years after the advent of the Euro

ABSTRACT

Although the CFA monetary union is not an ‘optimal’ currency area as such, it has allowed member countries to benefit from the convertibility guaranteed by the French Treasury and from enhanced policy credibility in achieving low inflation rates.

Both benefits may be under threat. The convertibility is under threat due to the harder budgetary commitments imposed on France by its membership of the Eurozone and the dwindling political interest in the CFA Franc Zone shown in France.

The policy credibility is becoming costlier as evidenced by output-inflation trade-offs, which, although still more favourable than in comparable sub-Saharan African countries, have been declining since the 1994 devaluation period.     

Why the CCM won't lose: the roots of single-party dominance in Tanzania

This paper provides an empirical investigation of the factors contributing to single-party dominance in Tanzania. Despite the fact that Tanzania has had a multi-party democracy since 1995, the party which governed during single-party rule, the Chama Cha Mapinduzi (CCM), has won the vast majority of seats in the National Assembly in the first four multi-party elections. In order to understand the CCM's grip on power, this article analyses the results of a survey conducted amongst subsistence farmers in Tanzania, which provides information on farmers’ livelihood conditions, access to media and political views, and hence provides insight into the preferences underlying voting behaviour. It discusses the dominant reasons for CCM support, as well as the characteristics of farmers who are more likely to support an opposition party. It concludes by discussing possible policy options for enhancing political competition in Tanzania.     

SADC and the GCC: Shared regional challenges and potential links

This article assesses the prospects for a clearly articulated economic diplomacy approach in South Africa's foreign policy. It argues that while South Africa's foreign policy has been to a considerable extent normatively grounded, it has failed to develop a coherent economic diplomacy that is based on focused and distinctly expressed priorities. This is a crucial gap that limits the country's ability to respond to regional and global changes, in particular those posed by emerging powers. The article identifies a number of gaps in South Africa's foreign policy approach and highlights its oblivion to global developments and geopolitical dynamics in the African continent. It sets out possible policy outlines for developing a clearer and stronger economic diplomacy. The building blocks for such an approach include the identification of strategic foreign policy priorities; greater institutional co-operation among agencies dealing with economic and foreign policy development; synergies between corporate strategies and government's foreign policy objectives; and the need for South Africa to develop a stronger leadership ambition in the African continent, both to contribute to Africa's development and to pursue its own economic interests. This ambition will require awareness of South Africa's own limitations, thus focusing the better part of its foreign policy on a limited set of countries that match strategic priorities.     

Russia’s economic policy in 2015–2016: the imperative of structural reform

In the aftermath of the global economic crisis, we have seen uneven development in the leading advanced and emerging economies, new models of economic growth that vary from country to country, uncertain prospects for globalization and challenges of “regional globalization,” looming currency re-configurations, as well as shifting energy price dynamics and their influence on political and economic prospects of particular states. This paper discusses current challenges for social and economic policy in the context of the history of the past 30 years. With reference to Russia, it focuses on a new growth model, structural transformation (including import-substitution issues), economic dynamics, fiscal and monetary concerns, and social issues. It concludes by addressing the priorities of economic policy.     

Elections and Economic Turbulence in Brazil: Candidates, Voters, and Investors

The relation between elections and the economy in Latin America might be understood by considering the agency of candidates and the issue of policy preference congruence between investors and voters. The preference congruence model proposed in this article highlights political risk in emerging markets. Certain risk features increase the role of candidate campaign rhetoric and investor preferences in elections. When politicians propose policies that can appease voters and investors, elections may have a limited effect on economic indicators, such as inflation. But when voter and investor priorities differ significantly, deterioration of economic indicators is more likely. Moreover, voter and investor congruence is more likely before stabilization, when an inverted Philips curve exists, as opposed to following stabilization, when a more traditional Philips curve emerges.     

Brexit,Development Aid,and the Commonwealth

Abstract

Development cooperation between the European Union (EU) and the African, Caribbean and Pacific (ACP) group of states has provided a vehicle for the UK’s ongoing relationship with the majority of the Commonwealth, although this was widely overlooked in the run-up to the UK referendum and its aftermath. Membership of the EU has provided the UK with the opportunity to collectivise its obligations to ACP Commonwealth states and a framework for its development cooperation relations across the Global South. This has augmented British leadership in global development and the alignment of development policy and practice at the global, regional and national levels. This paper argues that withdrawal from the EU would be a lengthy and costly process that threatens to undermine the UK’s position in global development, current levels and sources of development funding and existing and nascent trade relations. While this will present particular challenges for ACP Commonwealth states, there may also be opportunities to propose and advocate for alternative frameworks. However, recent changes to the UK’s post-referendum political leadership does not augur well for those hoping for a roll back of pressures for liberalisation and associated reforms.     

Financialization,distribution, and macroeconomic regimes before and after the crisis: a post-Keynesian view on Denmark,Estonia, and Latvia

ABSTRACT

Since the early 1980s, financialization has become an increasingly important trend in developed capitalist countries, with different timing, speed, and intensities in different countries. Rising inequality has been a major feature of this trend. Shares of wages in national income have declined and personal income inequality has increased. Against this background unsustainable demand and growth regimes have developed that dominated the major economies before the crisis: the ‘debt-led private demand boom’ and the ‘export-led mercantilist’ regime. The article applies this post-Keynesian approach to the macroeconomics of finance-dominated capitalism of three Baltic Sea countries, Denmark, Estonia, and Latvia, both for the pre-crisis and the post-crisis period. First, the macroeconomics of finance-dominated capitalism are briefly reiterated. Second, the financialization-distribution nexus is examined for the three countries. Third, macroeconomic demand and growth regimes are analyzed, both before and after the crisis.     

Lessons by a Syrian Islamist from the life of the Prophet Muhammad

This article circulates between three levels of inquiry and their interweaving – the personal, the local and the national. It draws on several historical dimensions – military, legal, political, sociological, architectural and cultural. In different ways, all these interlinked fields of human action are reflected in the private history of one particular house, built in the 1930s by Khalil Sakakini in Qatamon, Jerusalem. By examining both discursive and material aspects of the house and neighbourhood, the various mechanisms through which Arab property was brought, in the aftermath of the 1948 war, under Israeli control are revealed, some state-orchestrated and preconceived, others more spontaneous and based on individual and collective tendencies and preferences.     

Regulating for media pluralism and the pitfalls of standortpolitik: the reregulation of German broadcasting ownership rules

Germany has witnessed a veritable television boom over the last ten years. However, the plethora of new private channels masks an underlying duopoly, a concentration of media power that has not been prevented by an elaborate system of regulation. This article maps these developments, particularly the Lander competition for investment, the structural power of the media industry, and the emergence of a media policy ‘Grand Coalition’ between SPD North Rhine‐Westphalia and CSU Bavaria. It assesses the Federal Constitutional Court's role and highlights the public broadcasters’ crucial function to act as a pluralistic counterbalance in the dual public/private broadcasting system.     

Sergey Glazyev and the revival of Soviet economics

A veteran Western observer and authority on Russia's political economy examines the recent debate on economic growth in Russia. Focusing on Sergey Glazyev, a prominent statist and nationalist favored by President Vladimir Putin, who reemerged at the top of the public debate, the author discusses the essence of his ideas (state capitalism, Eurasian integration, and expansionary fiscal and monetary policy). He proceeds to analyze the critical response of liberals, citing inter alia objections to loose fiscal and monetary policies. Russia's liberal economists favor broader international integration, whereas Putin is clearly in favor of state capitalism and Eurasian integration. This study ends with an up-to-date politico-economic assessment titled “Where is Putin going?”     

金融危机后日本银行货币政策框架演变与启示

为了应对全球性金融危机对金融系统的冲击,日本银行采用了极为宽松的货币政策,在灵活调整货币政策框架的同时运用了大量传统和非传统的政策工具。文章主要从货币政策目标、货币政策工具以及货币政策传导机制三个方面考察了金融危机后日本银行从传统货币政策体系框架向量化货币政策体系框架的演变过程。日本银行的政策实践对我国进一步完善货币政策框架有一定的借鉴和启示。     

Macro-determinants of the Lithuanian housing market: a test for Granger causality

This research examines the macro-determinants of the Lithuanian housing market. The study employs the Granger causality test to assess the interdependence of a number of macro-variables and the national housing price index. Regardless of the limitations involved with this methodology, the empirical findings suggest that the Lithuanian housing market relates to growth in building activity, interest rates, inflation, and employment. Considering all of these results, the research highlights useful policy implications for property market participants. Investors and developers can employ this information to guide their investment decisions. Likewise, the government and central bank could use this updated knowledge to drive a successful macroeconomic program.