Levy Economics Institute Newsletter
Levy Economics Institute of Bard College
April 27, 2016
YouTube
Levy on YouTube
Minsky Conference Video Now Online

Video proceedings of the 25th Annual Hyman P. Minsky Conference are now available on YouTube: see presentations by Vítor Constâncio, Barney Frank, Jan Kregel, Henry Kaufman, Stephanie Kelton, more. Click here for the complete playlist.
New Research Associate Appointment
Yana van der Meulen Rodgers
Yana van der Meulen Rodgers

Yana van der Meulen Rodgers, professor in the Women’s and Gender Studies department at Rutgers University, has been appointed a research associate at the Levy Economics Institute. Rodgers’s areas of specialization include economics of gender, nutrition and food policy, and development economics, with a focus on East and South Asian economies. She has published numerous articles in refereed economics journals and consults regularly for the World Bank, the United Nations, and the Asian Development Bank. Rodgers is a past president of the International Association for Feminist Economics and has served as an associate editor of the journal Feminist Economics since 2005. She received her MA and Ph.D. in economics from Harvard University.
New Publications
Fernando J. Cardim de Carvalho
Policy Note 2016/2, April 2016
The Narrow Path for Brazil

Brazil remains mired in economic contraction, rising inflation, and political uncertainty. Senior Scholar Fernando J. Cardim de Carvalho offers an analysis of both recent history and current developments in Brazil. He reviews the antecedents of the Brazilian economic crisis, discusses the political challenges the country faces going forward, and suggests policy options to support economic recovery. He suggests that within the limited policy space available, Brazil must maintain the devaluation of the real and rely on a strategy of increasing public investment in public works and infrastructure, offset with careful cuts in public expenditures and increases in revenues so as to minimize the impact on aggregate demand. Yet even such a modest proposal requires a degree of political cohesion that has yet to emerge.

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Working Paper No. 864, April 2016
Working Paper No. 864, April 2016
Maximizing Price Stability in a Monetary Economy
Warren Mosler and Damiano B. Silipo

Warren Mosler, Valance Co., Inc., and Damiano B. Silipo, Università della Calabria, examine alternative policy strategies for the European Central Bank (ECB) to fulfill its price stability mandate. The bank’s current policy relies on managing inflation and inflation expectations using the term structure of interest rates. The authors note that this approach to price stability also implies ensuring a minimum level of unemployment. The most recent crisis calls into question inflation targeting and the means used to achieve it. The lack of a correlation between inflation and output and employment levels has led some to suggest that central banks should target economic activity more directly. Mosler and Silipo argue that fiat currencies (such as the euro) rely on buffer stock policies to achieve price stability, including the current policy of using unemployment and excess capacity as buffer stocks. The authors present a vector autoregression analysis to examine the efficacy of several buffer stock policies. They conclude that a fixed-wage employed-labor buffer stock policy outperforms all other policies with regard to achieving price stability, and recommend that the ECB adopt this approach to fulfill its mandate.

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Working Paper No. 863, March 2016
Working Paper No. 863, March 2016
The Empirics of Long-Term US Interest Rates
Tanweer Akram and Huiqing Li

Tanweer Akram, Thrivent Financial, and Huiqing Li, Central University of Finance and Economics, investigate the persistence of low long-term interest rates and US Treasury yields in the presence of rising US debt. Building on John Maynard Keynes’s argument that central bank actions are an important driver of long-term rates, the authors present a model to evaluate the impact of short-term rates and other monetary policy actions on long-term rates. Their findings suggest that short-term rates, after controlling for other variables, are the most important determinants of long-term rates, whereas public finance variables (e.g., fiscal balances, government indebtedness) as a share of nominal GDP have little discernible impact on long-term rates, contrary to popular wisdom.

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Summary Spring 2016
Vol. 25, No. 2, March 2016
Summary Spring 2016

This issue includes two strategic analyses of economic performance: one for the United States and one for Greece. A policy note investigates Switzerland’s successful use of a complementary currency, emphasizing its countercyclical role in stabilizing the economy and supporting demand. The Summary also includes new research on trends associated with economic stagnation and economic inequality in the United States, the current upheaval in the Brazilian economy, and the impacts of austerity on the redistribution of income in Europe. Other publications address the factors driving low central bank interest rates globally, the emergence of financial Dutch disease in Colombia, and arguments supporting functional finance as a pragmatic alternative to mainstream policy prescriptions. Gender equality issues are explored in an analysis of the conditions in Central Asia, the South Caucasus, and the Western CIS, and in a second paper examining methods used to measure gender inequality. Prospective changes to the US Census’s collection of information on race, ancestry, and ethnicity are discussed in a policy note. The issue closes with a new paper on the application of graph theory to stock-flow consistent modeling.

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Media and Web Coverage

The 25th Annual Minsky Conference, Dodd-Frank, and Minsky’s work on financial instability are featured in this article by the Times’ Peter Eavis. Minsky observed that bankers eventually find ways around the financial regulations designed to limit banks’ excessive behavior during periods of economic growth. But Dodd-Frank, the sweeping overhaul of the financial system that Congress passed in 2010, “might have built-in self-protections,” writes Eavis. “It seems to take into account Minsky’s warnings, with provisions that allow the law to be refreshed and changed as the financial system evolves. Regulators have already used those features”—including so-called living wills and annual stress tests—“to seize the initiative over bankers.”

In a speech at the Institute’s Minsky Conference earlier this month, European Central Bank VP Vítor Constâncio said that there “are clear limits to the use of negative deposit-facility rates as a policy instrument. ” Even as it cut its deposit rate to minus 0.4 percent, the ECB expanded bond purchases and credit-easing measures in March in its bid to revive inflation in the eurozone. Constâncio defended the central bank’s strategy. “From a global perspective, monetary policy measures that strengthen the resilience of the domestic recovery do not amount to a zero-sum game,” he said. “Monetary policy accommodation, by improving domestic credit conditions and stimulating nominal spending, creates additional global demand, rather than just leading to demand switching from one economy to the other.” (Video of his remarks is available here.)

Speaking at the Minsky Conference, Constâncio said that negative deposit rates are not required as a monetary fix for the United States at the moment. The adoption of negative interest rates by the ECB and the Bank of Japan has stoked speculation about whether the Federal Reserve might choose a similar path. The US economy, while far from robust, has been growing steadily, and has seen some improvement in price growth since hitting a postcrisis low earlier this year. The eurozone, however, continues to struggle with deflation risk. “We are in a totally different universe,” Constâncio said.

Donald Trump may claim that the American Dream is dead, but the majority of middle-class Americans seems to disagree: 63 percent of those polled in a January survey believe they’re living it. That finding suggests American optimism hasn’t been a casualty of the recession, despite a recent report by the Levy Economics Institute that says 90 percent of Americans are worse off today than they were in the 1970s. While the income of the top 10 percent has skyrocketed, those in the bottom 90 percent earn the same or even less than they did 40 years ago, according to the report—a widening income gap that has serious consequences for overall demand and growth.
         
In This Issue
Minsky Conference on YouTube
New Research Associate Appointment
The Narrow Path for Brazil
Maximizing Price Stability in a Monetary Economy
The Empirics of Long-Term US Interest Rates
Summary Spring 2016
Media and Web Coverage
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Multiplier Effect
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