Rainer Maurer

The Eurozone Debt Crisis - A Simple Theory, Some Not So Pleasant Empirical Calculations and an Unconventional Proposal

This paper explains the eurozone debt crisis as the result of self-reinforcing debt-spirals, which were caused by different inflation rates across the EMU member states. According to this view, the current crisis is not the result of a speculative attack but of a design faulty of the EMU. The data presented support this view. Time series of government budget and current account surpluses are calculated, which are compatible with constant debt-to-GDP ratios. The results show that the situation has become critical for countries like Greece, Portugal, Spain and Ireland significantly before capital markets started to demand higher interest rate spreads. The results indicate furthermore that capital markets react more sensitive towards high international net debt-to-GDP ratios than towards high government debt-to-GDP ratios. Given this empirical background, a discussion of various short-run policy options does not lead to very encouraging results. It is argued, that any future EMU needs to provide its central bank instruments to deal with country-specific business-cycle shocks.

The Increasing Leverage of Central Bank Cash in Transition to a Cashless Economy – A DSGEM Analysis

In this paper, the consequences of a transition to a cashless economy are analyzed within the framework of a DSGE model with demand deposit money creating business banks. The analysis shows that such a transition lowers the costs of using money as a means of payment and increases therefore steady state GDP. The out-of-steady state simulation shows that the transition significantly reduces the negative impact of monetary policy shocks and the standard deviations of all macroeconomic variables with exception of the nominal interest rate. Furthermore the analysis displays that the central bank will not lose the instruments to implement its policy goals. However, the transition to a cashless economy leaves the operation mode of monetary policy not unaffected. In such a transition, the central bank must steadily decrease its supply of cash to the economy, since the potential for business banks to create demand deposit money steadily grows. If the cash ratio should approach values close to zero, the central bank still has the possibility to increase the required reserve ratio. However, since a low value of the sum of cash ratio plus reserve ratio reduces the costs of using money as a means of payment and hence increases steady state GDP, this instrument should be carefully employed.

The Invalidity of Walras' Law in Monetary Economies and the Resulting Money Price Determinacy

In this paper I analyze the historical treatment of the problem of money price determinacy starting with Walras (1874) and Patinkin (1948) up to the latest results by Weil (1991) and Benassy (2007). I show then based on an extremely simple model that Walras’ Law does hold in a pure barter economy but not in a monetary economy, if money supply is modeled in a realistic way. As a consequence, in a monetary economy with N goods there are N independent market equilibrium conditions available to determine the N money prices of all goods. For many classes of models this equality of equations and unknown variables is sufficient to determine the money prices of goods unambiguously – even in the case of Ricardian economies, where money holdings are no net wealth.

A Simple Economic Theory of Money Supply and Some Comments on Monetarist Double Count

In this paper I analyze the effect of money supply on total credit supply. The analysis shows that money supply of the central bank plus money supply of commercial banks increase total credit supply by the amount of central bank money minus the amount of central bank money reserves of commercial banks plus the amount of giro deposits of non-banks, i.e. money supply increases total credit supply by the monetary aggregate commonly called M1. Financial intermediation of commercial banks does not increase but decrease total money respectively credit supply, due to the fact that time deposits necessitate the holding of higher central bank money reserves by commercial banks. Consequently, it is only M1 that has the potential to cause inflation but not any other aggregate of M3.

Auf Dem Weg Zur Weltanschaulichen Bekenntnisschule: Das Wirtschaftspolitische Leitbild Der Hochschule Pforzheim (Beyond Ideological Neutrality: The Political Mission Statement of Pforzheim University)

German Abstract: Dieses Diskussionspapier beleuchtet die PRME-Verpflichtung der Hochschule Pforzheim und die daraus resultierenden Probleme (Abschnitt 2) aus vier Perspektiven: der erkenntnistheoretischen (Abschnitt 3), der erfahrungswissenschaftlichen (Abschnitt 4), der juristischen (Abschnitt 5) und einer sozial-psychologischen (Abschnitt 6). Es kommt dabei zu dem Ergebnis (Abschnitt 7), dass die von der Hochschulleitung zur Durchsetzung der PRME-Verpflichtung angekundigte Aufgabe des Prinzips der weltanschaulichen Neutralitat den Erfordernissen einer modernen Forschung und Lehre widerspricht. English Abstract: In this paper I analyze the PRME-commitment of Pforzheim University and the resulting problems (Section 2) from four different point of views: From the epistemological point of view (Section 3), from the point of view of empirical sciences (Section 4), from the juridical point of view (Section 4) and from an socio-psychological point of view (Section 6). The result is: The PRME-commitment and the declared abandonment of the principle of ideological neutrality of the Pforzheim University contradict the requirements of modern research and teaching.

Die Krise der Europäischen Währungsunion

Der Beitrag analysiert die Ursachen, die zur aktuellen Krise in der Europäischen Währungsunion geführt haben. Dabei wird zunächst anhand empirischer Daten gezeigt, dass es sich bei dieser Krise nicht primär um eine Verschuldungskrise von Regierungen, sondern von Volkswirtschaften handelt. Dann wird mit einem einfachen theoretischen Modell erläutert, wie es unter realistischen Annahmen in Währungsunionen sehr leicht zu Verschuldungsspiralen kommen kann, in deren Verlauf sich Hochinflationsländer immer stärker bei Niedriginflationsländern verschulden. Im Anschluss werden Reformmaßnahmen diskutiert, die das Auftreten von Verschuldungsspiralen in der EWU in Zukunft verhindern können.

Die Deutsche Investitionsschwäche und die Europäische Währungsunion - Fakt oder Fiktion? (The German Investment Decline and the European Monetary Union - Fact or Fiction?)

This paper shows that, starting with the European Monetary Union, German net capital formation - also with regard to equipment investment - had significantly declined, triggered by a mechanism that has also caused the current European debt crisis. It is argued based on empirical data that inflation differences between the member states of the Monetary Union have caused this development. A theoretical explanation for this relationship is presented. The policy conclusion from this analysis is that the European Central Bank must employ country-specific instruments, like differentiated minimum reserve requirements, to reduce inflation differences between the member states of the European Monetary Union.

One Interest Rate for All - Has the European Central Bank Enough Instruments?

This paper explains the European debt crisis not as a result of insufficient fiscal discipline but as the result of a constructional flaw of the EMU. The reason for this flaw are the diverging real interest rates in EMU countries, which trigger self-reinforcing debt-spirals in the presence of non-tradable goods and immobile production factors. The data presented support this view. It is argued that the ECB must employ country specific monetary instruments to cope with this problem.

Price Determinacy in Ricardian Worlds

In this paper I analyze the problem of price determinacy in Ricardian economies. Contrary to Benassy (2005) I show that price determinacy in Ricardian economies is possible, even though no Pigou-effect exists. Under the assumptions of the endowment model of Benassy (2005), the central bank is able to set the sequence of money supplies such that desired inflation targets, simple interest rate targets and also more complex interest rate rules are realized and at the same time a well determined price level results. As the analysis shows, it is not a Pigou-effect that is working in a Ricardian economy but a transaction volume effect. This mechanisms works independent from the way how money is injected into the economy: either via buying goods on the goods market or as a credit supplied to the capital market.

Der Einfluss der Lohnpolitik auf den Außenbeitrag

Die längerfristige Entwicklung der deutschen Volkswirtschaft ist von vier charakteristischen Trends gekennzeichnet: Starkes Exportwachstum, hohe Arbeitslosigkeit, niedriges Wirtschaftswachstum und starker Rückgang der Investitionsquote. Die wirtschaftspolitische Diskussion dieser Trends dreht sich insbesondere um die Frage, wie das starke Exportwachstum vor dem Hintergrund der übrigen Trends interpretiert werden muss. In diesem Beitrag wird gezeigt, dass alle genannten Symptome vom neoklassischen Standardmodell einer offenen Volkswirtschaft mit einem zu starken Reallohnanstieg erklärt werden können.