Andrea Terzi

Keynes's uncertainty is not about white or black swans

How does Nassim Talebs notion of uncertainty compare with Keyness? In describing black swan events as rare, consequential, unforecastable events, Taleb has stressed how statistical risk differs from intractable uncertainty. This difference had been similarly underscored by Keynes in his theory of behavior in a monetary economy. Yet beyond this apparent similarity, Talebs and Keyness views of uncertainty are opposite with respect to both method and consequences. This paper claims that even Talebs black swan argument may face its own black swan when it is found that his conclusions do not hold under the more extreme assumption of ontological uncertainty.

International payments imbalances and the prospective role of the euro

The term ‘global imbalances’ has recently come to describe the latest formation of increasingly large disparities in the balance of the international current accounts of the main world regions, notably the United States and Asia. Considered a warning signal of international financial instability, it is also being seen as a symptom of current world asymmetries in policy regimes and growth rates. Addressing the problem should thus aim at setting world growth on more solid ground, and begin to tackle the true global imbalances of today’s world.1 In this global scenario, the single currency area in Europe (or Euroland) is a new player. How does the euro economy navigate in the midst of international payments imbalances? And what can Euroland do to contribute to correct global payments imbalances in such a way as to play a role within the broader scope to rebalance the course of world economic development?

A T-Shirt Model of Savings, Debt, and Private Spending: Lessons for the Euro Area

Notwithstanding the modified ECB practice that saved the day, the euro area is failing to restore economic prosperity. The problem is visibly political, yet an effective solution must be economically viable. This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple (“T-shirt�?) model where private spending depends on desired savings and sustainable indebtedness. This savings-debt constraint means that any policy that inhibits debt also inhibits financial savings, spending, and jobs. After providing a solution to the conundrum of the consequence of savings in a monetary economy, this essay makes a case for reclaiming the fiscal instrument. The EU Commission’s belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings-debt constraint to spending can be ignored. As long as policy-makers defy the savings-debt constraint the euro area will continue to live dangerously.

In the absence of fiscal union, the Eurozone needs a more flexible monetary policy: A comment

The article is a comment on Alessandrini and Fratianni (2015) (AF a coordinated pro-quota fiscal expansion would provide such stable solution.xa0 JEL: E42, E52, E58

The ‘Keynesian Moment’ in Policymaking, the Perils Ahead, and a Flow-of-Funds Interpretation of Fiscal Policy

With the global crisis, the policy stance around the world has been shaken by massive government and central bank efforts to prevent the meltdown of markets, banks, and the economy. Fiscal packages, in varied sizes, have been adopted throughout the world after years of proclaimed fiscal containment. This change in policy regime, though dubbed the Keynesian moment, is a short-run fix that reflects temporary acceptance of fiscal deficits at a time of political emergency, and contrasts with John Maynard Keynes’s long-run policy propositions. More important, it is doomed to be ineffective if the degree of tolerance of fiscal deficits is too low for full employment. Keynes’s view that outside the gold standard fiscal policies face real, not financial, constraints is illustrated by means of a simple flow-of-funds model. This shows that government deficits do not take financial resources from the private sector, and that demand for net financial savings by the private sector can be met by a rising trade surplus at the cost of reduced consumption, or by a rising government deficit financed by the monopoly supply of central bank credit. Fiscal deficits can thus be considered functional to the objective of supplying the private sector with a provision of financial wealth sufficient to restore demand. By contrast, tax hikes and/or spending cuts aimed at reducing the public deficit lower the available savings of the private sector, and, if adopted too soon, will force the adjustment by way of a reduction of demand and standard of living. This notion, however, is not applicable to the euro area, where constraints have been deliberately created that limit public deficits and the supply of central bank credit, thus introducing national solvency risks. This is a crucial flaw in the institutional structure of Euroland, where monetary sovereignty has been removed from all existing fiscal authorities. Absent a reassessment of its design, the euro area is facing a deflationary tendency that may further erode the economic welfare of the region.

Introduction: Euroland and the World Economy — Global Player or Global Drag?

Introduction J.Bibow & A.Terzi PART I: EUROLAND ON A COLLISION COURSE Global imbalances, Bretton Woods II, and Eurolands Role in All This J.Bibow Wage Divergences in Euroland: Explosive in the Making H.Flassbeck Can the Euro Area Play a Stabilizing Role in Balancing Global Imbalances? P.Arestis & M.Sawyer PART II: POLICY COORDINATION AND INCREASED INTEGRATION AS MEANS TO PROPERLY STEER EUROLAND Whatever Happened to Policy Coordination? J.Forder The Economic Rationale of the EMU and the Euro C.Sardoni Righting Global Imbalances: Recession, Protection or Reflation? A.Izurieta & G.Irvin PART III: REFORMING EUROLANDS INSTITUTIONAL FRAMEWORK AND MACROECONOMIC POLICY GOVERNANCE Replacing the Stability and Growth Pact? C.Goodhart Fiscal Policy and Macroeconomic Performance in the Euro Area: Lessons for the Future E.Hein & A.Truger Germanys Choice and Lessons from Japan: Supply vs. Demand Policy, Fiscal vs. Monetary Policy R.Werner You Cant Always Get What you Want: Why Europe is not Keynesian-able while the US New Economy is Driven by Financial Keynesianism R.Bellofiore & J.Halevi PART IV: PROSPECTS AND LIMITS OF THE EURO AS A GLOBAL CURRENCY Not My Fault or Would Spreading the Maastricht Wisdom beyond Europe Really Do Much Good At All? J.Creel & F.Capoen The Role of the Euro in the International Monetary Arena: Present and Prospects S.Rossi International Payments Imbalances and the Prospective Role of the Euro A.Terzi