Turkey’s Audacious Experiment In “Post Modern” Monetary Policy

The recent decision of the Turkish Central Bank to lower rather than to raise interest rates in an risky attempt to quench the inflation flames that many feel are threatening to engulf what some call an “overheating” economy (or here) has lead to a good deal of heart-searching and consternation in the economic and financial press of late. After all, at the end of the day aren’t they doing exactly the opposite of what the text book says they should? Well, as is usual in the realm of the dismal science, all is not exactly what it seems to be. Continue reading

Well, that settles it then

Remarks prepared by European Commission President José Manuel  Barroso for his potentially awkward news conference with Hungarian Prime Minister Viktor Orbán —

Earlier this year, I made clear that it is not only the so-called “federalists” who want to see more economic governance and economic co-ordination in Europe; it is the markets. The markets are demanding more coordination at European level. The markets are sending every day a very clear message that Europe has to work in a more coordinated manner when it comes to economic and financial issues, so it is not a question of utopia or idealism to ask for stronger economic governance and coordination. It is a matter of realism, sound, solid common sense.

Does Mr Barroso really mean to argue that European Union citizens should be willing to surrender more economic autonomy to EU institutions because “the markets” demand it?  You could fry that argument in a referendum, if you had a referendum.

Latvia compared to Iceland: A tale of “The Harder They Come, the Harder They Fall*”

Paul Krugman, Nobel Prize winner in economics 2008, when in need of the antithesis of a role model for economic policy often chooses Latvia. He has been very critical of the insistence of the authorities to maintain the fixed exchange rate when the country faces recession and double-digit unemployment and of course he has a point. For me it is still not clear that the strategy of internal devaluation is better than an external one although I (still, especially if the authorities support it with reform-friendly 2011 and 2012 budgets) support the former. His Riga Mortis piece was fun but this post from 17 December 2010 lacks balance, I think, and certainly deserves some comment. Not to defend Latvia – the reckless boom-time ultra-procyclical fiscal policy in particular is very much the culprit of the current woes as I have argued previously (**) and its effects rightly produces comments and interest from Prof. Krugman and many others. Continue reading