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This chapter presents an overview of the development of inflation and monetary policy in Israel since the early 2000s. Unlike the discussion in the previous book, which centered on the disinflation process and the transformation of the economic and institutional environment as a result of the Stabilization Program in the mid-1980s (Ben-Bassat, 2001, Section II), the setting of the current chapter is of a large external shock: the 2008 global financial crisis against the background of a relatively stable domestic environment of economic policy — monetary and fiscal — and of inflation. The chapter describes inflation and its characteristics, monetary policy, and the mechanisms of transmission from policy to inflation. It focuses on recent years, those following the financial crisis, which have been typified, in Israel and abroad, by a low-inflation environment in view of very accommodative monetary policies. The last section concludes the chapter and offers some thoughts going forward.
This article describes the Brazilian civil–military dictatorship's anti-inflation advertising campaigns in 1973 and 1977. It shows how Finance Ministers Antônio Delfim Netto and Mário Henrique Simonsen used advertising as a substitute for economic policy. It argues that they turned to advertising to divert attention from their own policy failures by blaming urban women, small shopkeepers and consumers for the growing inflation problem. This article details the background of the campaigns and examines the advertisements, especially their use of normative gender ideologies. By reference to newspapers and political speeches, it also documents the social and political reaction to the campaigns.
This chapter is devoted to the initial conditions. Here we explain how the unavoidable quantum fluctuations are amplified during an inflationary phase and lead to a nearly scale-invariant spectrum of scalar and tensor perturbations. We also calculate the small non-Gaussianities generated during single field in ation and discuss the initial conditions for mixed adiabatic and iso-curvature perturbations.
The first chapter contains a räsumä of the cosmology treating the homogeneous and isotropic universe. The Friedmann equations are derived and the thermal history of the Universe is discussed in some detail. Special emphasis is laid on the process of recombination and the decoupling of photons from the cosmic uid. Nucleosynthesis and cosmic in ation are also discussed.
In Memorandum on the Debts of State (1715) Montesquieu explains how to curb France’s debt crisis stemming principally from Louis XIV’s war-mongering. Rather than recommending declaration of bankruptcy, he proposes a gradual reduction of the debt by means of a partial repudiation. The greater the proportion of an individual’s overall wealth invested in the crown’s debt, the less the reduction would be, since such individuals would have fewer other investments. Montesquieu was confident his debt reduction plan would succeed and predicted the king would be able to reduce taxes. In his Considerations on the Wealth of Spain (1727–1728) he explains that the main reason for the collapse of Spain as a powerhouse in modern Europe was that the Spanish became the victims of inflation. The more bullion brought to Spain’s shores, the less valuable it became since more and more specie chased roughly the same amount of goods.
Chapter 2 derives the comprehensive balances sheet (or intertemporal budget constraint of the central bank and the Treasury (or general government) and of the consolidated State and contrasts these with the conventional balance sheets. We then consider, theoretically and quantitatively, the arithmetic of fiscal sustainability by focusing on the net non-monetary debt of the consolidated general government and central bank and the seigniorage-augmented primary surplus of the State. The fact that Japan’s general government gross debt was 237.6 percent of GDP at the end of 2017 while the net nonmonetary debt of the consolidated State was only 67.4 percent of GDP underlines the importance of our approach. Japan does not yet have a serious debt stock problem. It has a bit of a flow deficit problem: its general government cyclically adjusted primary budget deficit was 3.8 percent of GDP in 2017. But because it is at the ELB and has been for years, it can extract massive seigniorage – more than 10 percent of GDP each year in the five years leading up to 2017. That suggests that, if Japan ever were to escape the ELB, it could have both a stock and a flow monetary overhang problem.
The Brazilian developmental state changed significantly after 1985, with new rhetoric about equality, a commitment to fighting inflation, and a three-pronged policy set combining fiscal responsibility, a floating exchange rate, and inflation targeting. Yet many elements of the “old” developmental state remained intact, including a large state role, a complex monetary regime, muscular industrial policies, low economic integration, and a segmented labor market. The fight against inflation generated incentives for politicians to employ “fiscally opaque” policy instruments drawn from the tool kit of the developmental state. The fiscal imperative combined with fiscally opaque instruments contributed to the high cost of credit and low investment, driving firms to demand state succor. The fiscal imperative and the power of interest groups meant that the burden of balancing the fiscal accounts fell disproportionately on the less well-off. The ensuing demand for social spending meant that economic growth, by default, became a residual.
Chapter 1 starts with a brief overview of the facts about the advanced economy central bank balance sheet explosion since the Great Financial Crisis. The increase in profit remittances by the Fed to the US Treasury during the post-GFC years of extraordinarily low policy rates stands out. The Chapter then delves into the analytics of seigniorage arithmetic and how seigniorage revenues can boost fiscal space. Away from the ELB, the real value of the seigniorage (as a share of GDP) that can be extracted at a target rate of inflation of, say, 2 percent is rather small – typically well under 0.5% of GDP for most advanced economies. At the ELB, however, seigniorage can be truly massive.
A central bank is expected to produce results that are generally beneficial to the people to whom (through parliament) it is accountable. In the late twentieth century, the belief that monetary policy was a tool in fighting short-run economic problems gave way to thinking about monetary stability as providing a framework within which better informed judgements about long-run decisions could be made. The period is punctuated by two traumatic recessions. The early 1980s collapse in large part was the intentional result of a radical change in macro-economic strategy; the second was a product of the aftermath of a loose money period with excessive credit growth and then a collapse of a housing bubble. Both occurred in a wider international economic setting: in the early 1980s in the wake of the second oil price shock and of the 1979 anti-inflationary turn in US monetary policy; in the early 1990s the responses to the fiscal and monetary shock of German unification, a US slowdown and a new oil price spike after the first Gulf War. In both cases, the UK output performance was significantly poorer than that of other major industrial countries.
In practice, the early 1980s UK policy involved sporadically – but surprisingly often – responding to exchange rate movements, even when the exchange rate was specifically not designated as either a policy goal or an instrument, as well as raising interest rates as a way to cool down inflation but also economic growth. The 1981 budget, the most controversial of the Thatcher years, was accompanied by the attempt to take the pressure off manufacturing industry by lowering interest rates. The Bank responded to a surge in broad monetary aggregates by overfunding, that is, selling more than the amount of long-term debt (mainly gilts and National Savings instruments) required to finance the government. In 1983, a new Governor, Robin Leigh-Pemberton, who seemed more aligned with Thatcher’s view, came to the Bank of England, replacing Gordon Richardson, whose relationship with the Prime Minister had been strained. In the same year, a new Chancellor the Exchequer, Nigel Lawson, began a slow move away from monetarism and the application of monetary targets. The exchange rate came to play an increasing role in policy.
We develop a dynamic general equilibrium growth model, where households purchase final goods on cash or credit and have different capital and money endowments, to investigate whether inflation affects trends in income and consumption inequality. We show that, under a strong substitutability between cash and credit goods, inflation has a negative relationship with income inequality, but a U-shaped relationship with consumption inequality. The divergence between income and consumption inequality explains several recent empirical observations. This result has important policy implications, as consumption inequality better reflects the welfare distribution whereas income inequality fails to capture consumption disparities resulting from different consumption and asset distributions across households. In the growth model with heterogeneous households, there is a mixed relationship between growth and income inequality, confirming the existence of the Kuznets curve. The inflation-driven asset reallocation might also produce a Mundell–Tobin effect, enhancing growth.
Recent contributions on ‘financial repression’ and ‘money illusion’ have referred to Maynard Keynes's How to Pay for the War as a supporting document. This article discusses whether Keynes prescribed policies of ‘financial repression’ that were implemented in the United Kingdom, and other countries, following World War II. It seems reasonable that Keynes's writings were instrumental in translating British monetary experiences of the 1920s and 1930s into expectations of policymakers during and after World War II, including a belief in ‘money illusion’ that suggested the use of inflation for driving down real interest rates of public bonds. If this was the case, How to Pay for the War could indeed provide an important explanation for the why and when of ‘financial repression’. This article argues that How to Pay for the War only partly provided support for a policy of ‘financial repression’, and none for using inflation as a ‘tax gatherer’ to the detriment of domestic savers in general. Crediting Keynes as a source for widespread ‘money illusion’ is also out of line with the historical record.
This chapter highlights the impact of the war on women’s private everyday lives and explores how the wartime state increasingly reached into the home. It demonstrates how previously personal issues became political as women were urged to express their patriotism through their careful household management and by maintaining model homes and families for their absent husbands. The chapter also assesses the impact of the war on the standard of living of women in Ireland, interrogating previous interpretations of wartime prosperity and contrasting the urban and rural experiences. It explores the impact of the war on maternal and infant health, and the consequences of the 1918–19 influenza pandemic for women in Ireland. The chapter argues that the war resulted in much greater intervention of the state in women’s everyday and personal lives and brought significant hardship to many women. Far more women became reliant on governmental welfare through separation allowances, pensions and initiatives under the Prince of Wales National Relief Fund. Memoirs, diaries and letters are used to explore the experience of separated couples during the war and how women coped with the emotional hardship of the soldiers’ war service.
Chapter 11 unveils Burke’s understanding of the French Revolution through the lens of his principles of political economy. In Reflections on the Revolution in France, Burke attacked the Revolution for violating prescriptive property rights and subverting the market principles of supply and demand that he later defended in Thoughts and Details. In addition, I provide a thorough treatment of Burke’s criticism of the monied interest and the revolutionaries’ frenzied issuance of paper money called assignats. In his judgment, these two aspects of the Revolution shook the foundations of France’s system of revenue and discouraged commercial activity. The monied interest in particular exploited their position as state creditors to drive their pursuit of avaricious self-interest and wield a nefarious influence in the conduct of government affairs, which helped provoke the expansion of the French state. Such financiers, as well as the new middle class, were driven by ambition and speculation, supplanting the landed nobility and unsettling the social order of France. In Burke’s view, the landed interest was necessary to tame and channel such influences because their family pedigrees, ancestral estates, modern disposition, and commitment to the common good provided a stable foundation for market exchange and foreign investment to flourish.
The inflationary scenario is not the only paradigm of early universe cosmology that is consistent with current observations. General criteria are presented that any successful early universe model must satisfy. Various ways, including inflation, are presented that satisfy these conditions. It will then be argued that if nature is described at a fundamental level by superstring theory, a cosmology without an initial spacetime singularity will emerge, and a structure formation scenario that does not include inflation may be realized.
This chapter’s premise is to take synchrony seriously, to think that comovements in apparently separated places and social domains may reveal unexpected unities. The focus is 1866, the year of the “Summer War” that began the overthrow of the Tokugawa shogunate. The chapter’s first theme is the revolution in prices. The great inflation of the 1860s is the most striking event in Japan’s nineteenth-century price history. Its extreme point came in 1866. Inflation connects to a second theme, the international boom and bust of the 1860s. Japan joined the world trading system at a time of surging commodity prices. When prices collapsed internationally in 1865–66, it set off credit panics from Bombay to London to Shanghai. Food prices soared, connecting to a third theme, of harvest crises and popular uprisings. Weather anomalies across Eurasia included droughts associated with a strong El Niño, and cold wet weather that ruined harvests in Europe. Japan’s 1866 rice harvest was the worst since the famines of the 1830s; 1866 also set an Edo period record for popular uprisings. From international finance to food provision to the remaking of political regimes, it was a watershed time; a story that is both Japanese and international.
Based on a thorough analysis of the BIS Annual Reports from the early 1970s to the late 2010s, this chapter traces the evolution of the BIS’s thinking on the international monetary and financial system. It demonstrates how – as a result of the growth of the Eurocurrency markets in the 1970s and of the sovereign debt crisis of the 1980s – the BIS’s traditional focus on exchange rates and their potential impact on monetary stability gradually shifted to global capital flows and to the risks posed by an increasingly complex and interconnected banking system. The 1995 Mexico crisis and 1997–8 Asian crisis reinforced this shift and led to an overriding concern with the procyclicality of the financial system as a potential threat to financial stability. While recognising that the focus of the BIS on a macro-financial stability framework has contributed a lot to advancing the work of the Basel-based committees and standard-setting bodies, the chapter also concludes that not much progress has been made in coordinating monetary policies or in addressing the fundamental problem of excessive elasticity of the financial system.
While unionization is usually evaluated as an aspect of freedom of association—the idea being that workers have the right to associate and form unions if they want and have an equal right not to do so if they don’t, I argue that this is a mistake. Instead of merely allowing unions to form or not depending on the preferences of workers, I argue that unions are a basic and therefore necessary institution of a just society. After analyzing and criticizing the schema developed by John Rawls for evaluating what constitutes a basic institution, I introduce a new principle that allows us to determine what should be considered a basic institution in the context of our existing social institutions and practices. I then apply this principle to unionization, and argue that while unions are subject to post-institutional regulation, just like firms are, their existence is demanded by pre-institutional principles of equality and liberty and therefore not optional. Not only are union shops consistent with our deepest moral principles, including our commitment to liberty, that commitment, when properly understood, actually requires that unionization be universal.
Chapter 6 deals with the crisis year of 1923 and examines the German Right’s response to the hyperinflation of 1922–23, the Franco-Belgian occupation of the Ruhr, the increasingly palpable fear of Bolshevism, and threat of Bavaria’s secession from the Reich. After a discussion of the DNVP’s relationship to the Cuno government that assumed office in November 1922, the chapter takes a particularly close look at its opposition to the Stresemann cabinet that assumed power at the height of the crisis in August 1923. Following the termination of passive resistance in the Ruhr, many DNVP leaders began to embrace the idea of a “national dictatorship” under the tutelage of the army commander-in-chief Hans von Seeckt as the only way out of the crisis in which Germany found itself. But movement in this direction was cut short not only by Seeckt’s ambivalence but more importantly by Hitler’s abortive “Beer Hall Putsch” in Munich. As the Stresemann government moved to consolidate its position in the aftermath of the putsch, any chance of replacing the Weimar Republic with a more authoritarian system of government had vanished.
Structure formation in the early universe is a key problem in modern cosmology. In this chapter we discuss stochastic gravity as an alternative framework for studying the generation of primordial inhomogeneities in inflationary models, which can easily incorporate effects that go beyond the linear perturbations of the inflaton field. We show that the correlation functions that follow from the Einstein–Langevin equation, which emerge in the framework of stochastic gravity, coincide with that obtained with the usual quantization procedures when both the metric perturbations and the inflaton fluctuations are linear. Stochastic gravity, however, can also deal very naturally with the fluctuations of the inflaton field beyond the linear approximation. Here, we illustrate the stochastic approach with one of the simplest chaotic inflationary models in which the background spacetime is a quasi de Sitter universe, and prove the equivalence of the stochastic and quantum correlations to the linear order.