Especially for those of you interested in Europe, the Euro, and the contemporary crisis. As I was re-reading Bernanke and James last night, I found myself wondering about an analogy between the Great Depression (which obviously is a huge historical memory that hangs over global monetary and fiscal policy) and the Euro crisis.
Take France and the U.S. in the early 1930s gold standard and put them in the position of exporters that don't want to loosen monetary policy, largely because they fear domestic inflation. Take the UK as the country that has an overvalued currency in the system, relative to other countries, and is exhibiting current account deficits (buying more imports and having to deplete its gold reserves).
The idea is that the strong exporter.should allow a bit of inflation to rebalance the system in this fixed exchange rate environment. That's what "playing by the rules" meant.
Now substitute above: "Germany" for "France and the U.S.", "Spain and Portugal" for "UK", and "Euro" for "gold standard"
We can think about how well the analogy works, and limitations on it. Just a thought.
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