Domenica Tropeano

The Current Financial Crisis, Monetary Policy, and Minsky's Structural Instability Hypothesis

The object of this work is to evaluate the monetary policy issues that arose during the financial crisis of 2007-8 according to Minskys thought. It is argued that Minskys idea of structural instability may fit the policy problems linked to the crisis. In particular, Minskys contribution to the theory of central banking is used to evaluate the conduct of the Federal Reserve during the crisis. Minskys reading of the roles of the central bank in the presence of sophisticated markets and securitization is helpful in understanding both the failure of the Federal Reserve in preventing the crisis and the relative success in mitigating the effects. This apparent success notwithstanding, the paper warns that economic policy, to promote stability, must enlarge the stability field of the system by changing the type of institutions operating there and their business habits.

The monetary policy response to the financial crisis in the Euro area and in the United States: a comparison

The paper aims at drawing a comparison between the reactions to the recent financial crisis by the European Central Bank and by the Federal Reserve. Though the tools used have been largely the same, the quality and quantity of the interventions has been very different depending on the different structure of financial markets in the two areas. In particular, the ECB has not replaced private markets that did not work any more as the Federal Reserve did. The policy design behind those interventions is di®erent too. The Federal Reserve through the quantitative easing policy aims at lowering both short term and long term interest rates and has recently stated that this policy may continue in the future. The European Central Bank does not justify in this way its own interventions in the market and apparently seems not have given up its traditional goal, fighting inflation. The evolution of financial markets both in the U.S and in Europe after the crisis reflect different initial conditions and expectations for the future. Thus many differences in the structure of markets and in policy design exist. This, however, will not save Europe from the consequences of future disorders in the Us markets. The crisis spread to Europe largely because of the global dimension of the inter-bank market. Given that the interconnections between European and US banks have survived the financial crisis, nothing ensures that the same thing will not happen again.

Hedging, arbitrage and the financialization of commodities markets

Abstract: The article provides an overview of the unfolding of the financialization of commodities in the 2000–2014 time frame. Different phases are described according to the positioning of the group of traders, their motivations, and the type of financial assets used to take a position in commodities. The main theme is the failure of arbitrage to level prices of similar financial assets traded in different markets. However, this failure does not depend on financing constraints suffered by arbitrageurs. Following Mirowski (2010) it is shown that arbitrage becomes a form of financial innovation rather than an equilibrating mechanism in contemporary financial markets. Historical accidents and changes in policy affect the positions of groups in the financial market game. The various strategies used are explained by creating a set of T-accounts for the various groups that highlight the winners and the losers in the various phases.

Financial Fragility in the Current European Crisis

The paper argues that the European financial system in the years following the great financial crisis started in 2007 has become increasingly fragile. Minsky’s notion of fragility, on which it is based, is related to history, policy and institutions. In the current European environment, fragility depends on the rise of shadow banks’ assets, the expansion of derivatives and the changes in financial regulation. All these elements have jointly triggered several feedback loops. In Minsky’s opinion, policies should have the scope of thwarting self-enforcing feedback loops. Yet the policies that have been implemented so far seem to have produced the opposite effects. They have created new feedback loops that nurture fragility again. This outcome, however, is not surprising for policies may change initial conditions and have unintended consequences, as Minsky has taught us since a long time.

Introduction: Post-Keynesian Economic Policy – a Post-crisis View

Whether the worldwide crisis is over is a question that is not easy to answer. After all, economic performances have diff ered considerably from one country to another, and while banks, where the crisis originated, are now doing much better, the lingering macroeconomic eff ects are still being felt. Nowhere is this more evident than in the USA, where there is increasing talk of a second recession, and within Europe, where some countries, such as Greece, Ireland, Portugal and Italy, are approaching a catastrophic end, exacerbated no doubt by the strict austerity measures now being contemplated by the European Parliament. And while it has already been almost four years since the crisis began, the prospects for sustained growth seem far away, leading some now to be openly discussing the industrialized world’s own ‘lost decade’. Indeed, it is surely legitimate to ask: where will growth come from? On the consumption side, consumers do not seem to be in any hurry to spend; rather, they seem unable to spend. With historic levels of debt, consumers will more probably be busy reducing those debt levels than consuming. Indeed, in most countries, growth in nominal wages has been fl at, resulting in decreasing wage shares. In addition, income distribution has become even more skewed, with the top 1 per cent of income earners increasing dramatically their share of total income and total wealth. In the end, consumers are being squeezed and are unlikely able to contribute much to the growth process. Investment is stagnant in many countries, and governments generally are now adopting austerity measures in an eff ort to eliminate defi cits and reduce debt/GDP ratios. In other words, with (C 1 I 1 G) growth probably minimal, the prospects for growth will rely on exports. This means an increasing number of industrialized countries vying for markets abroad, such as developing countries like China, India and Brazil. But will this be suffi cient to sustain worldwide growth? On the fi nancial side, banks everywhere seem to be doing better (passing