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## Über dieses Buch

In this edited collection, Joseph Stiglitz and Martin Guzman present a series of studies on contemporary macroeconomic issues. The book discusses a set of key lessons for macroeconomic theory following the recent global financial crisis and explores unconventional monetary policy in a post-crisis world.

This volume is divided into five parts. The introduction includes keynote speeches by the Governors of the Bank of Japan and Central Bank of Jordan. Part one focuses on macroeconomic theory for understanding macroeconomic fluctuations and crises. Part two addresses the issue of the measurement of wealth. Part three discusses macroeconomic policies in times of crises. Finally, part four focuses on central banking and monetary policy.

## Inhaltsverzeichnis

### Introduction

Abstract
This volume presents a collection of essays presented at the 17th World Congress of the International Economic Association held in Jordan, June 6–10, 2014, which deal with contemporary macroeconomic issues and contain a set of key lessons for macroeconomic theory and policies from the recent global financial crisis.
Martin Guzman, Joseph E. Stiglitz

### 1. The Practice and Theory of Unconventional Monetary Policy

Abstract
It is my great honor to have the opportunity to deliver a speech at the 17th World Congress of the International Economic Association. The topic of this session, “Monetary Policy in A Post-Crisis World,” is currently one of the most critical topics for central banks around the world. Following the global financial crisis triggered by the collapse of Lehman Brothers, the Federal Reserve (Fed) and the Bank of England (BOE) introduced unconventional monetary policy measures such as quantitative easingand forward guidance, which in turn has given rise to a growing body of theoretical research on these measures.
Haruhiko Kuroda

### 2. Monetary Policy in a Constrained Environment

Abstract
It gives me great pleasure to address this distinguished audience at the 17th World Congress of the International Economic Association (IEA). It is a great honor for Jordan, its government, and its people to host such an important meeting, and it is my privilege to share with you some of the experiences that we, at the Central Bank of Jordan (CBJ), have gained in addressing the increasing challenges in recent years. I also wish to extend my gratitude to the Columbia Global Centers/Middle East (Amman) and the IEA for their great efforts in holding this Congress in Jordan on the shores of the Dead Sea, the lowest inhabited point on Earth. I wish to take this opportunity to welcome the distinguished speakers, market participants, and regulators as well as other participants from different parts of the world.

### 3. A Theory of Pseudo-Wealth

Abstract
Recent events in the US and Europe have witnessed the limitations of conventional macroeconomic models to predict and explain large economic recessions and crises, and to provide guidance for policies that attempt to resolve them.
Martin Guzman, Joseph E. Stiglitz

### 4. Great Recession and Beyond: Revisiting the Pillars of Economic Thought

Abstract
The global capitalist economy is experiencing its hardest and longest crisis since the 1929 Great Depression. Initially dismissed, in the summer months of 2007, as mostly a routine financial turbulence, the crisis conditions accelerated slowly, to turn into a prolonged “great recession”. What is more revealing in this conjuncture is that the current crisis had not been initiated in the so-called emerging markets of the global periphery, but erupted directly in the hegemonic centers of the capitalist world. What lies at the root of the crisis is not the usual common accusations of “corrupt” governments of crony capitalism, with their over-interference to the market rationality, but the upfront irrational exuberance of the “free” markets, with their unfettered workings guided by the private profit motive.
A. Erinc Yeldan

### 5. Is Financial Stability Possible in the Current International System?

Abstract
If the world economy is going to serve global welfare, then the international financial system has to become more stable. The globalization of capital flows that has been a hallmark of the last quarter-century has the potential to promote trade and economic growth, but it has not yet done so in a sustained and beneficial way. A wave of financial crises has undone much of the benefit, with increasingly broad and deep effects. The question that this chapter addresses is whether the system can be strengthened so as to retain the advantage of openness while mitigating the instability that undermines it.
James M. Boughton

### 6. Learning, Expectations, and the Financial Instability Hypothesis

Abstract
Expectations matter. Many economic and financial decisions depend on the perception of future incomes and prices. The evolution of expectations, and how correct they are over time, determines the stability of the system.
Martin Guzman, Peter Howitt

### 7. The Measurement of Wealth: Recessions, Sustainability and Inequality

Abstract
This chapter considers two central problems in the measurement of wealth, within the existing statistical frameworks, which impair both the ability to assess economic sustainability and the impacts of an economic downturn. These measurement problems have, in turn, led to confusion concerning the interpretation to be given to the dramatic increase in the wealth-output ratio in recent decades.
Joseph E. Stiglitz

### 8. The Short- and Long-Run Damages of Fiscal Austerity: Keynes beyond Schumpeter

Abstract
In this work, we employ the Keynes+Schumpeter (K+S) agent-based model (Dosi et al., 2010, 2013, 2015) to compare short- and long-run effects of Keynesian fiscal policies vis-à-vis austerity rules.
Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Tania Treibich

### 9. Structural Divergence and Crisis in the Eurozone: The Role of NAIRU Economics

Abstract
The Eurozone sovereign debt crisis, triggered by the 2008–09 US financial crash, brought to light major macroeconomic imbalances in member countries that had been accumulating following the introduction of the common currency in 1999, but were masked by relatively good growth performance thereafter. The main symptoms of these intra-Eurozone imbalances are the high current account deficits and growing external debts in the Eurozone periphery, matched by high surpluses (and growing claims held by commercial banks) in its core. Stabilization of the Eurozone economy requires that these imbalances are reduced and, in order to do so, in 2012 the European Commission introduced a new macro-prudential surveillance framework—the Macroeconomic Imbalance Procedure (MIP)—to monitor these imbalances and help correct them. The main indicators in the MIP’s “imbalance scorecard” are the real effective exchange rate and nominal unit labour costs. Both are measures of price/cost competitiveness, and they make sense as warning signals only if the external imbalances have been caused by a loss of price (cost) competitiveness in the EU periphery relative to the core. This is indeed the communis opinioin policy circles in Brussels, Frankfurt and Washington, which holds that the periphery lost competitiveness because their wage growth exceeded productivity growth and hence their unit labor cost rose too much (OECD 2011; De Grauwe 2012; Ma and McCauley 2013), while at the same time domestic reforms improved German cost competitiveness (IMF 2011).
Servaas Storm, C. W. M. Naastepad

### 10. Managing the Exchange Rate in the Face of Volatile Capital Flows

Abstract
Emerging market economies (EMEs) face continuing challenges in managing boom-bust capital flow cycles. Flows have become increasingly volatile, putting upward pressures on currencies during the boom, and creating dislocations during the bust. During 2008, flows to EMEs, which had peaked at $665 billion the previous year, plummeted to less than$170 billion, only to surge again in 2010 as the global recovery got underway. Following the US sovereign downgrade, capital flows to EMEs again dried up, then resumed, and they have been bouncing around quite a bit ever since. This volatility, moreover, is unlikely to be the exclusive result of country-specific factors in the recipient countries (pull factors), but likely reflects global forces to a significant degree, including the changing monetary policy in major source countries and risk-on-risk-off considerations. Debates have ensued about how emerging market countries should manage this capital flow volatility.
Jonathan D. Ostry

### 11. Achieving Coherence Between Macroeconomic and Development Objectives

Abstract
In the aftermath of the Great Financial Crisis of 2007–2008, the United States and Europe are stuck in a state of political paralysis that is leading to a new norm of fiscal austerity, high unemployment, and, in the case of Europe, economic stagnation. With fiscal policy orientated around austerity it is the central banks—the Federal Reserve (the Fed), the Bank of England (BOE) and the European Central Bank (ECB)—that remain the only macroeconomic authorities with the authority and political power to try to revive these struggling economies.
Gerald Epstein

### 12. Re-imagining Central Banking

Abstract
The urgency of the task obviously arises from the experience of the global financial crisis, during which central banks intervened in dramatically new ways and to a dramatically greater degree than ever before, at least in peacetime. Central banks invented new tools on the fly, because the familiar old tools were not working. Now the crisis is over comes the important intellectual task of understanding how these new things fit within the standard pre-crisis toolkit. Just so, Borio and Disyatat (2009) distinguish between the old “interest rate policy” and the new “balance sheet policy”, urging us to understand the latter as, on the one hand, nothing more than an extension of traditional techniques of FX intervention to a broader asset class and, on the other hand, nothing less than use of the central bank balance sheet to implement debt management policy that is more traditionally undertaken by the Treasury. The present paper can in part be understood as a critical but sympathetic reconsideration of this early appraisal.
Perry Mehrling

### 13. Taking Banks to Solow

Abstract
The integration of financial intermediaries with own balance sheets into macroeconomic models is an important scientific endeavor. It promises not only new insights into the role of banks for economic activity, but it might also help identifying suitable regulation of the banking system and policies to deal with fluctuations or default in this system that could spill over to the other parts of the economy. Since the first attempts,1 the literature has advanced significantly and is briefly discussed below. In this paper we pursue a complementary route. We examine whether and how banks make a difference in standard macroeconomic models. In particular, the Solow and Ramsey (or Ramsey-Cass-Koopmans) models are starting points for the study of accumulation and growth processes in economics and have inspired a large branch of dynamic macroeconomic models. In the sequel, we study how these models can be combined with banks and their role in the intermediation of funds.
Hans Gersbach, Jean-Charles Rochet, Martin Scheffel

### Backmatter

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