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Begin New Search Topic Monetary Policy Political Geography United States of America Publication Year within 10 Years

1. Federal Reserve Anti-Inflation Policy: Wealth Protection for the 1%?

Author:
Aaron Medlin and Gerald Epstein
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
The Federal Reserve has a dual mandate from Congress that directs it to conduct monetary policy as such to achieve “maximum employment” and “stable prices.” Yet the U.S. central bank typically chooses to address inflation as a top priority and focuses on employment only secondarily, if at all. Why? In this paper we argue that an important reason is that the Federal Reserve conducts policy so as protect the real wealth of the top 1% of the wealth distribution. We focus on the Fed’s fight against inflation in 2021-2022, when it rapidly raised its policy interest rates by almost 4 percentage points in the face of more than 6 percent inflation. Using a novel econometric analysis, we provide evidence that shows that this policy serves as a real net wealth protection policy for the 1% by restoring some of the lost wealth that they would otherwise lose due to unexpected inflation. The results of this policy for the top 10% of the wealth distribution are econometrically ambiguous. But to the extent that the Fed’s high interest rates generate higher unemployment or even a recession, this wealth protection for the 1% could have serious income costs for workers who find themselves or another member of their household out of a job.
Topic:
Political Economy, Monetary Policy, Inflation, Elites, and Wealth
Political Geography:
North America and United States of America

2. The Great Supply Chain Shift from China to South Asia?

Author:
Ganeshan Wignaraja
Publication Date:
07-2023
Content Type:
Research Paper
Institution:
Gateway House: Indian Council on Global Relations
Abstract:
Global supply chains connect world industry and international trade in manufactures. East Asia’s dominance with China as the preferred assembly hub in global supply chains has brought unprecedented regional prosperity, but South Asia remains a latecomer. However, pandemic-related and post-pandemic continuing disruptions to supply chains and slowing growth are being keenly felt, dampening China’s attractiveness. In an uncertain global economy, increasingly footloose foreign investors are looking for alternative production locations. Is it South Asia’s turn to prosper through supply chains in this uncertain world? This is the topical public policy question facing India and the others in South Asia. This paper discusses the concept of global supply chains, the industrial rise of East Asia, drivers of supply chain relocation from China, South Asia’s prospects, India as a complementary hub and policy lessons from East Asia’s industrial success. For the purposes of this paper, South Asia is broadly defined as the India and its contiguous countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
Topic:
Industrial Policy, Monetary Policy, Foreign Direct Investment, Industrialization, COVID-19, Supply Chains, and Geoeconomics
Political Geography:
China, South Asia, Asia, Southeast Asia, and United States of America

3. Radical Steps Are Essential to Jump-Starting the Replacement of the Flawed US Money Regime

Author:
Brendan Brown
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
A previous policy memo argued that flaws in the actual US money regime are responsible for the Great Pandemic Inflation.1 Now that reported inflation has been falling, some of us might imagine that addressing these flaws has become a non-urgent matter. After all, great supply shocks tend to come rarely. But such complacence does not fit the facts. The case for getting rid of the present rotten monetary regime is not simply based on the argument that it has malfunctioned so severely during the pandemic and war supply shock. That malfunctioning continues into the present, where there is now positive supply side news (the pandemic dislocation is fading, and a natural gas glut has emerged despite the continuing Russia-Ukraine War). The Federal Reserve and other central banks, still trying to navigate policy in an anchorless monetary system by choosing a path for short-term interest rates, are stumbling from one huge blunder to another, even if they have a rare lucky stretch in between. Beyond the woes of how the 2 percent inflation standard performed during the supply shock and subsequent supply restoration, this regime should be held responsible for a range of economic and social consequences that predate the pandemic and war. These include malinvestment (poor allocation of capital due to corrupted signaling in markets), advancement of monopoly capitalism, bloated government outlays, and punitive monetary taxation (in the form of inflation tax or monetary repression tax), all of which take their toll. Instead of enjoying a top-quality money with all its benefits, individuals have had to put up with a poor money and all its related costs, particularly the ongoing danger of serious loss of purchasing power.
Topic:
Economics, Monetary Policy, Inflation, and COVID-19
Political Geography:
North America and United States of America

4. Monetary Policy and Racial Inequality

Author:
Alina Bartscher, Moritz Kuhn, Moritz Schularick, and Paul Wachtel
Publication Date:
01-2022
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The racial tensions that spread across the United States in 2020 have caught the attention of monetary policymakers and focused concern on the size and persistence of the gap between both the income and wealth of black and white households. There is widespread recognition that despite some decline in overt labor market discrimination, gains in educational opportunities, and income growth of black households since the onset of the civil rights movement, the gaps persist and have even grown larger by some measures. According to the 2019 Survey of Consumer Finances (SCF), the median wealth of a white household was $184,390, compared with only $20,730 for the median black household. The typical black household owns only about 11 percent of the wealth of the typical white household. The income gap is smaller but still large; the median income of black households ($38,688) is 58 percent of the median income of white households ($67,196).
Topic:
Race, Monetary Policy, Inequality, and Economic Policy
Political Geography:
North America and United States of America

5. World Economy Winter 2022: Strong headwinds for global economic activity

Author:
Klaus-Jurgen Gern, Stefan Kooths, Ulrich Stolzenburg, Jan Reents, and Nils Sonnenberg
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Global growth has decelerated over the course of the year under the impact of high energy prices and great uncertainty. Monetary policy, which is being tightened very quickly in view of high inflationary pressure across the board, is now also putting a drag on economic activity. Overall, production remained on an upward trend into the fall, with impetus coming from easing supply bottlenecks and the continuing normalization of activity in those sectors of the economy particularly affected by the Covid-19 pandemic. Towards the end of the year, however, economic momentum weakened noticeably further. The major advanced economies in particular are currently facing a period of weak economic activity despite considerable fiscal support measures. At the same time, the problems for the Chinese economy remain significant. While global output (measured on a purchasing power parity basis) at 3.2 percent is expected to grow by 0.3 percentage points more this year than expected in September, we continue to forecast an increase of only 2.2 percent next year. For 2024, our expectation has even been reduced slightly to 3.2 percent, mainly because we do expect the US economy to recover slowly. Inflation is likely to have peaked and is expected to slow significantly over the forecast horizon thanks to lower commodity prices and easing economic tensions. However, underlying inflation is not likely to return to target levels until the end of the forecast period.
Topic:
Monetary Policy, Economy, Business, COVID-19, and Emerging Economies
Political Geography:
China, Europe, Asia, North America, and United States of America

6. World Economy Autumn 2022: Global growth falters

Author:
Klaus-Jurgen Gern, Stefan Kooths, Ulrich Stolzenburg, Jan Reents, and Nils Sonnenberg
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In spring 2022, world economic growth came to a standstill amid high inflation, persistent supply bottlenecks and elevated uncertainty. In many countries real wages are declining significantly dampening private consumption even though extra savings accumulated during the pandemic are still available to mitigate the adverse impact to some extent. At the same time financial conditions have also deteriorated as central banks tightened their policies. In China, the strict zero-covid policy and problems in the real estate sector are slowing economic activity. Against this backdrop, the outlook for the global economy has deteriorated further. We have, again, lowered our forecast and are now expecting global output to increase by only 2.9 percent this year and 2.2 percent next year (calculated on a purchasing power parity basis). The forecast assumes that commodity prices will gradually decline in line with forward prices, which will over time reduce the upward pressure on prices and provides the foundations for an economic upturn in 2024. However, the pass-through of higher commodity prices into consumer prices is probably not yet complete and wage increases are likely to intensify in many countries. Consequently, underlying inflation is likely to remain higher than in the years before the Covid crisis and remain above central bank targets over the forecast horizon.
Topic:
Monetary Policy, Business, COVID-19, Zero-COVID, Emerging Economies, and Advanced Economies
Political Geography:
China, Europe, Asia, North America, and United States of America

7. U.S. Monetary Policy and the Decline in the Interest Rates (1990-2007)

Author:
Santiago Capraro, Carlo Panico, and Luis Daniel Torres-Gonzalez
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
Interest rates in the U.S. and in other countries have experienced persistent and generalised declines since the 1980s. The main interpretations of this phenomenon ignore the role of monetary factors, such as financial and monetary policy. The essay proposes an alternative interpretation based on the choice of the Federal Reserve (FED) to conduct monetary policy by attributing high priority to financial stability. The interaction between changes in financial regulation, the transformation of "specialized" into "universal” banking, and the concern with financial instability have led the central bank to add to the role of "lender of last resort" that of "lender of first resort," which systematically provides liquidity at a low cost to financial firms. This new conduct of monetary policy has produced the downward trend in interest rates.
Topic:
Monetary Policy, Federal Reserve, Economy, and Interest Rates
Political Geography:
United States of America

8. Low interest rates in Europe and the US: one trend, two stories

Author:
Maria Demertzis and Nicola Viegi
Publication Date:
03-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
In both Europe and the United States, interest rates have been declining for more than fifteen years. For much of this period, real interest rates have been negative and they are expected to remain negative for at least another decade. The literature associates this decline in interest rates with a similarly protracted decline in productivity. But the decline in productivity appears paradoxical given major technological advances. The decline in the price of capital is underpinned by the factors that have caused a decline in demand for capital, as well as a relative increase in its supply. On the supply side, aging and an increase in overall macroeconomic risk since the financial crisis have both led to increased savings. On the demand side, the increase in the importance of intangible capital in production has reduced the demand for physical capital. Nevertheless, for the US, the literature has identified the increase in market concentration as the biggest factor responsible for the reduction in the overall demand for capital. Digital innovation has led to the creation of champion firms that have captured big market shares and have been able to prevent others from entering not only the US market, but markets globally. This has dampened investment. Europe is affected by US digital dominance, but other factors, including aging and increased risk, are more prominent in sustaining the downward pressure on interest rates. In particular, the lack of risk capital, in the context of capital markets, contributes to this downward pressure in the EU. As the knowledge economy relies increasingly on intangible capital, a bank-based system that requires collateral is not well suited to finance investments. A lack of suitable finance will remain an important factor in the downward pressure on interest rates. The structural factors behind the downward pressure on interest rates imply that macroeconomic policy will have a reduced role in managing aggregate demand. Monetary policy in the euro area will be more about preventing financial fragmentation and less about stimulating demand. Equally, fiscal policy will have more of a supporting rather than stimulating role. Tackling the structural decline in market dynamism and therefore in real rates will require structural policies to reduce market power globally and ensure the creation of capital markets in the EU.
Topic:
Monetary Policy, Governance, European Union, Finance, and Macroeconomics
Political Geography:
Europe, North America, and United States of America

9. Lessons for the Fed from the Pandemic

Author:
John A. Allison
Publication Date:
06-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Covid‐​19 pandemic greatly increased the scope and power of the Federal Reserve. The Fed created a number of new emergency lending facilities, which allowed it to make off‐​balance sheet loans and buy the debt of corporations and municipalities through special purpose vehicles backstopped by the Treasury under the CARES Act. Meanwhile, the Fed’s large‐​scale asset purchase program, known as quantitative easing (QE), was put on steroids after the pandemic struck in March 2020. The Fed has been purchasing longer‐​term Treasuries and mortgage‐​backed securities amounting to $120 billion per month, pushing the size of its balance sheet to an astonishing $7 trillion.
Topic:
Economics, Monetary Policy, Federal Reserve, Pandemic, and COVID-19
Political Geography:
North America and United States of America

10. Ten Stablecoin Predictions and Their Monetary Policy Implications

Author:
Caitlin Long
Publication Date:
06-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Stablecoins are financial obligations issued on a blockchain. They are generally fully collateralized with either fiat currency deposits at a bank, or with short‐​term government bonds held at a custodian. They’re issued only by nonbanks, although FINMA in Switzerland does allow Swiss banks to issue Swiss franc–denominated stablecoins. Usually stablecoins do not pay interest, and they are designed to trade at par with the fiat currency. Because they are issued on a blockchain, they usually settle in minutes, with irreversibility, and — critically — they are “programmable,” which means users can build their own software applications to interact with them.
Topic:
Monetary Policy, Banks, and Digital Currency
Political Geography:
Global Focus and United States of America