Monetary Policy

The chapter explores two significant challenges faced by central banks in LFDCs: fiscal dominance and external shocks. Monetary policy can be dominated by governments that rely on seigniorage generated by the central bank or impose other constraints to facilitate the financing of persistent deficits. The chapter discusses and illustrates for several countries the concept of seigniorage, examines the mechanisms of fiscal dominance, and assesses its consequences. External oil and food price shocks also raise several monetary policy challenges. Using a theoretical approach, the chapter explores the trade-off between price and output stabilization that the central bank faces after a commodity price hike. The analysis takes into account whether the country is a net exporter or a net importer and whether it is on fixed or on flexible exchange rates. It also discusses coordination issues between monetary and fiscal policies, in particular when windfall gains accrue to the government.

EN DEFENSA DEL EURO: UN ENFOQUE AUSTRIACO (Con una crítica a los errores del B.C.E. y al intervencionismo de Bruselas)

This paper defends the Euro from the point of view of Austrian Economics. Folloming Mises and Hayek it demonstrates the Euro is acting as a proxy of the gold standard disciplining polititians and putting a limit to the growth of the welfare state. Key words: Gold standard, fixed and flexible exchange rates, welfare state crisis, competition among monetary areas, keynesianism, monetarism, Austrian School. JEL Classification: N15, N45, O53, P11, X10. Resumen: En este artículo se efectúa una defensa del euro desde el punto de vista de la Escuela Austriaca. Partiendo de Mises y Hayek, se demuestra que el euro, para sorpresa de sus fundadores, está actuando como un proxy del patrón oro, capaz de disciplinar a los políticos y de limitar el estado de bienestar. Palabras clave: Patrón oro, tipos de cambio fijos y flexibles, crisis del estado del bienestar, competencia entre áreas monetarias, Escuela Austriaca, keynesianismo, monetarismo. Clasificación JEL: N15, N45, O53, P11, X10.

El impacto de la dolarización en América Latina

This article discusses the impact of dollarization in Ecuador, Panama and El Salvador as well as the Argentine convertibility system. We found that the adoption of a more stable currency has had positive results in those countries. Key words: Dollarization, Inflation, Central Bank, Balance of Trade, Gold Standard, Cash Ratio, Exports, Flexible Exchange Rates. JEL Classification: E42, E44, E58. Resumen: En este artículo se analizan los efectos de la dolarización en Ecua - dor, Panamá y El Salvador, y se contrasta con el sistema de convertibilidad argentino. Observamos que la adopción de una moneda estable ha tenido resultados positivos para estos países. Palabras clave: Dolarización, Inflación, Banco Central, Balanza Comercial, Patrón Oro, Coeficiente de Caja, Exportaciones, Tipos de Cambio Flexibles. Clasificación JEL: E42, E44, E58.

Understanding the Macro-financial Effects of Household Debt

Higher household debt has been associated with lower future GDP growth across a broad set of 80 countries over the period from 1950 to 2016. Several institutional factors, such as flexible exchange rates, capital account openness, and higher financial development and inclusion, appear to mitigate this negative relationship between an increase in household debt and lower future GDP growth. Three mutually reinforcing mechanisms help explain this relationship. First, increases in household debt amplify the probability of future banking crises which significantly disrupt financial intermediation. Second, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. Third, debt overhang impairs household consumption when negative shocks hit.