A private initiative that has created a virtual currency and a payment system based on cryptography and decentralized management, Bitcoin is considered not only an interesting, but also a disruptive technical innovation by many observers. A number of regulatory and supervisory bodies have issued assessments of the phenomenon, contributing to an emerging international discussion. Does Bitcoin’s claim to provide useful monetary and payment services hold up when checked against principles of monetary theory and the economics of payment systems? We find that while Bitcoin does not rival the established money and payment systems in their traditional domains, a complementary function is conceivable in niches. Using the Bitcoin network poses several risks to customers, however. Since this network and financial services related to bitcoins are not regulated, costumers must take appropriate technical measures to protect their bitcoin holdings. In case of error and fraud, payments are difficult to reverse. Furthermore, the significant exchange rate fluctuations could pose a grave risk to bitcoin owners’ wealth and discourage widespread use for monetary purposes. In a nutshell, at present, bitcoins can be regarded as speculative assets, and the Bitcoin network might inspire further innovation in payment systems and other applications.
This paper discusses the potential and limitations of Bitcoin as a digital currency. Bitcoin as a digital asset has been extensively discussed from the viewpoints of engineering and security design. But there are few economic analyses of Bitcoin as a currency. Bitcoin was designed as a payments vehicle and as a store of value (or speculation). It has no use bar as money or currency. Despite recent enthusiasm for Bitcoin, it seems very unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin (i.e. the exchange rate against the major currencies). We diagnose the instability of market price of Bitcoin as being a symptom of the lack of flexibility in the Bitcoin supply schedule ‐ a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics and suggests a new monetary policy rule (i.e. monetary policy without a central bank) for stabilizing the values of Bitcoin and other cryptocurrencies.
Bitcoin has enabled competition between digital cryptocurrencies and traditional legal tender fiat currencies. Despite rapidly increasing acceptance, so far the affirmation of cryptocurrency as better money has been thwarted by dramatic deflationary price instability. Successful at disposing of any central monetary authority, bitcoin has elected to have a fixed deterministic inelastic monetary policy, establishing itself more as digital gold than as a currency. Price stability could be achieved by dynamically rebasing the outstanding amount of money: the number of cryptocurrency units in every digital wallet is adjusted instead of each single unit changing its value. The apparent awkwardness of this unfamiliar paradigm is discussed at length, proving that its only real novelty is about fairness and effectiveness. Furthermore, suggestions are provided about how to ease the effect of contractionary monetary policy. The proposed monetary base adjustment has neutral impact on the overall wallet wealth, as it does not introduce any arbitrary distortion into the intrinsic value dynamics of the wallet. The adjustment is based on a commodity price index determined with a resilient consensus process that does not rely on central third party authorities. It is posited in this paper that a digital cryptocurrency adopting elastic monetary standard is Hayek Money, so named from the Nobel Prize-winning economist: a good money standard providing stable prices for a new economic era.
At present, bitcoin is held mostly as a speculative vehicle, little used to pay for goods and services. Its value has been unstable, which impedes bitcoin’s wider use as a payment medium. We explain why the value of bitcoin has been so unstable. Then, we discuss entrepreneurial efforts that might enable bitcoin to become a more commonly accepted payment medium.
In einem Umfeld kriseninduzierter Verunsicherung über das Funktionieren des Geld-und Finanzsystems finden Forderungen nach einer grundsätzlichen Reform des Geldwesens verstärkte media-le Beachtung. Das elektronische Währungsprojekt Bitcoin und das Konzept Vollgeld sind zwei Varianten von Ideen zur Geldreform. Im Prinzip können diese Reformideen auf zwei Positionen der ordoliberalen Diskussion zurückgeführt werden. Der Beitrag diskutiert ihre Gemeinsamkeiten und Unterschiede sowie Möglichkeiten und Grenzen ihrer Verwirklichung auf Basis einer Analyse ihres Geldverständnisses. <bold>Summary</bold> The recent economic crisis has shattered widely held beliefs in the functioning of the current monetary and financial system. In this context, calls for a fundamental reform of money have received considerable attention in the media. Bitcoin, a project for a private electronic currency, and the “positive money“ (in German: “Vollgeld“) concept are two variants of ideas for monetary reform. Their roots can be traced back to two views held within ordoliberal economics. The paper discusses their commonalities and differences, as well as their limits based on an analysis of their concepts of money. JEL Classification: E42, E 52, E 58
Digital payment schemes show an ever increasing importance. Out of the countless different schemes available this article focuses on the popular Bitcoin system. The authors provide a description of Bitcoin's unique technological basis and its accompanying ecosystem of users, miners, trading platforms and vendors. Furthermore, this article discusses Bitcoin's currency-like features and the first regulatory actions take in the European Union and in the United States of America.
The virtual currency and payment project Bitcoin intends to challenge the current monetary and payment system that finds itself in a legitimacy crisis in the aftermath of the financial market turmoil of 2008. In examining the governance of the Bitcoin system, I try to assess its potential to create input and output legitimacy as a payment system and as a monetary system in comparison with current practice.
Technological development and the increased use of the internet have led to the proliferation of virtual communities. Some of these communities have created and circulated their own currency for exchanging goods and services. Bitcoin is currently the most popular among these virtual or digital currencies and has been in news recently because of the wild fluctuations in its ‘value’ and also significant venture capital investment in entities associated with it.1 Bitcoin is relevant in several areas of the financial system and is therefore of interest to central banks, consumers and investors. Digital currencies are part of a broader group of virtual currencies that include credit card points, air miles, loyalty points and coupons (Chart 1). With the advent of the Internet, mobile devices and detailed consumer information, companies are increasingly using digital currencies as a marketing tool. As a result, there has been a sharp increase in the use of digital currencies, particularly for app-based coins and tokens, mobile coupons, and personal data exchanged for digital content. As these trends evolve, digital currencies have the potential to become more popular and compete with traditional currencies. This paper aims to provide some clarity in particular on Bitcoin, its role and potential future use in the financial system and the risks associated with this form of digital currency.. It will begin by providing a short introduction to the Bitcoin network as well as describe the benefits of allowing the Bitcoin network to develop and innovate. It will highlight concerns for consumers, policymakers and financial regulators. Next it will analyze the role that Bitcoin could play in the financial system. The paper will conclude by providing recommendations to address policymakers’ concerns while allowing for further innovation within the Bitcoin network. An initial comprehensive overview of this kind is absent from the existing literature. This paper intends to fill that gap in the literature.
With decentralization and urbanization, the debts of state and local governments and of quasi-public agencies have grown in importance. Rapid urbanization in developing countries requires large-scale infrastructure financing to help absorb influxes of rural populations. Borrowing enables state and local governments to capture the benefits of major capital investments immediately and to finance infrastructure more equitably across multiple generations of service users. \n \nWith debt comes the risk of insolvency. Subnational debt crises have reoccurred in both developed and developing countries. Restructuring debt and ensuring its sustainability confront moral hazard and fiscal incentives in a multilevel government system; individual subnational governments might free-ride common resources, and public officials at all levels might shift the cost of excessive borrowing to future generations. \n \nThis book brings together the reform experiences of emerging economies and developed countries. Written by leading practitioners and experts in public finance in the context of multilevel government systems, the book examines the interaction of markets, regulators, subnational borrowers, creditors, national governments, taxpayers, ex-ante rules, and ex-post insolvency systems in the quest for subnational fiscal discipline. \n \nSuch a quest is intertwined with a country’s historical, political, and economic context. The formal legal framework interacts with political reality to influence the dynamics of and incentives for reform. Often, the resolution of a subnational debt crisis unfolds in the context of macroeconomic stabilization and structural reforms. \n \nThe book includes reforms that have not been covered by previous literature, such as those of China, Colombia, France, Hungary, Mexico, and South Africa. The book also presents a comprehensive review of how the United States developed its debt market for state and local local governments through a series of reforms that are path \ndependent, including the reforms and lessons learned following state defaults in the \n1840s and the debates that shaped the enactment of Chapter 9 of the Bankruptcy \nCode in 1937. Looking forward, pressures on subnational finance are likely to continue—from the fragility of global recovery, the potentially higher cost of capital, refinancing risks, \nand sovereign risks. This book is essential reading for anyone wanting to know the \nchallenges and reform options in debt restructuring, insolvency frameworks, and \npublic debt market development.
We maintain that the crypto-currency bitcoin is a practical application of what is termed “memory” in the monetary economics literature. After reviewing the theoretical literature on money and memory, we offer a brief overview of the bitcoin protocol and argue that, like memory, bitcoin functions as a public record-keeping device. Finally, we provide evidence that — in line with the standard theoretical account of memory — bitcoin use has soared as the expected cost of storing traditional monies increased.
A bona fide currency functions as a medium of exchange, a store of value, and a unit of account, but bitcoin largely fails to satisfy these criteria. Bitcoin has achieved only scant consumer transaction volume, with an average well below one daily transaction for the few merchants who accept it. Its volatility is greatly higher than the volatilities of widely used currencies, imposing large short-term risk upon users. Bitcoin’s daily exchange rates exhibit virtually zero correlation with widely used currencies and with gold, making bitcoin useless for risk management and exceedingly difficult for its owners to hedge. Bitcoin prices of consumer goods require many decimal places with leading zeros, which is disconcerting to retail market participants. Bitcoin faces daily hacking and theft risks, lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than a currency.
In the past thirty years, a series of plans have been developed by successive Brazilian governments in a continuing effort to maximize the nation's resources for economic and social growth. This planning history has been quantitatively rich but qualitatively poor. The disjunction has stimulated Professor Mello e Souza to address himself to the problem of national planning and to offer some criticisms of Brazilian planning experience. Though political instability has obviously been a factor promoting discontinuity, his criticisms are aimed at the attitudes and strategic concepts which have sought to link planning to national goals and administration. He criticizes the fascination with techniques and plans to the exclusion of proper diagnosis of the socio-political reality, developing instruments to coordinate and carry out objectives, and creating an administrative structure centralized enough to make national decisions and decentralized enough to perform on the basis of those decisions. Thus, fixed, quantified objectives abound while the problem of functioning mechanisms for the coordinated, rational use of resources has been left unattended. Although his interest and criticism are focused on the process and experience of national planning, he recognized variation in the level and results of Brazilian planning. National plans have failed due to faulty conception of the function of planning. Sectorial plans, save in the sector of the petroleum industry under government responsibility, ha e not succeeded in overcoming the problems of formulation and execution thereby repeating old technical errors. Planning for the private sector has a somewhat brighter history due to the use of Grupos Executivos which has enabled the planning process to transcend the formalism and tradition-bound attitudes of the regular bureaucracy. Regional planning offers two relatively successful experiences, Sudene and the strategy of the regionally oriented autarchy. Thus, planning history in Brazil is not entirely black but a certain shade of grey. The major part of the article, however, is devoted to a descriptive analysis of the national planning experience. The plans included in this analysis are: The Works and Equipment Plan (POE); The Health, Food, Transportation and Energy Plan (Salte); The Program of Goals; The Trienal Plan of Economic and Social Development; and the Plan of Governmental Economic Action (Paeg). Using these five plans for his historical experience the author sets out a series of errors of formulation and execution by which he analyzes that experience. With respect to formulation, he speaks of a lack of elaboration of programs and projects, of coordination among diverse goals, and of provision of qualified staff and techniques. He mentions the absence of the definition of resources necessary to the financing of the plan and the inadequate quantification of sectorial and national goals due to the lack of reliable statistical information. Finally, he notes the failure to coordinate the annual budget with the multi-year plans. He sees the problems of execution as beginning in the absence of coordination between the various sectors of the public administration, the failure to develop an operative system of decentralization, the absence of any system of financial and fiscal control over execution, the difficulties imposed by the system of public accounting, and the absence of an adequate program of allocation for the liberation of resources. He ends by pointing to the failure to develop and use an integrated system of political economic tools in a mode compatible with the objective of the plans. The body of the article analyzes national planning experience in Brazil using these lists of errors as rough model of criticism. Several conclusions emerge from this analysis with regard to planning in Brazil and in developing countries, in general. Plans have generally been of little avail in Brazil because of the lack of a continuous, bureaucratized (in the Weberian sense) planning organization set in an instrumentally suitable administrative structure and based on thorough diagnoses of socio-economic conditions and problems. Plans have become the justification for planning. Planning has come to be conceived as a rational method of orienting the process of decisions through the establishment of a precise and quantified relation between means and ends. But this conception has led to a planning history rimmed with frustration, and failure, because of its rigidity in the face of flexible and changing reality. Rather, he suggests a conception of planning which understands it "as a rational process of formulating decisions about the policy, economy, and society whose only demand is that of managing the instrumentarium in a harmonious and integrated form in order to reach explicit, but not quantified ends". He calls this "planning without plans": the establishment of broad-scale tendencies through diagnosis whose implementation is carried out through an adjustable, coherent instrumentarium of political-economic tools. Administration according to a plan of multiple, integrated goals is a sound procedure if the nation's administrative machinery contains the technical development needed to control the multiple variables linked to any situation of socio-economic change. Brazil does not possess this level of refinement and any strategy of planning relevant to its problems must recognize this. The reforms which have been attempted fail to make this recognition as is true of the conception of planning informing the Brazilian experience. Therefore, unworkable plans, ill-diagnosed with little or no supportive instrumentarium or flexibility have been Brazil's legacy. This legacy seems likely to continue until the conception of planning comes to live in the reality of Brazil.
The Occupy movement has transformed our political culture in profound ways. New forms of struggle seem possible now that thousands have braved winter chill, rubber bullets, and pepper spray to voice their dissent. And the struggle has gained newfound public legitimacy: according to polls, a majority of Americans remain firm in their support for the issues Occupy has brought to the fore.With this widespread support, there is now a rare opportunity to promote fundamental change toward a better economic future. The Occupy movement has managed to highlight the social and environmental effects of corporate rule. It is now time to examine how transnational corporations and banks have become so powerful and how they have been able to capture our governments.For the past thirty-five years, I have worked with economists, environmentalists, and social activists to study the impact of trade agreements around the world. It has become clear to us that “economic globalization”—the deregulation of trade and finance—has led to a rapid and unprecedented expansion in the power and influence of transnational corporations. In the name of freedom and free trade, constraints on global businesses and banks have been removed, creating an interlinked global empire that has turned our elected representatives into corporate servants. From Sweden to Slovenia, from the United States to South Africa, the picture is frighteningly similar. During election campaigns, political representatives from left to right speak our language; once in power, they implement policies that serve the needs of global capital, rather than the needs of the people.Until quite recently, trade deregulation was a subject that lay beneath most of the public’s radar. Today, however, even market fundamentalists have had to concede that the deregulation of trade and finance led to increasingly reckless speculation and ultimately to a near meltdown of the global financial system. I’m very hopeful that people will soon recognize that deregulation—the core of economic and corporate globalization—is also the single biggest contributor to most of the other major crises of our time, from unemployment to climate change, ethnic conflict to the epidemic of depression.For decades, deregulation in the name of globalization was presented as a way of bringing the people of the world together. It was seen as the only way toward progress and as an almost evolutionary process. Bill Clinton, one of the foremost promoters of trade deregulation in the 1990s, said, “Globalization is not something we can hold off or turn off.… It is the economic equivalent of a force of nature.” Yet, over the years, more and more people have realized that this is simply not true. The global economy is structured the way it is because of policy choices. In thrall to outdated economic theory, governments are making massive investments in trade-based infrastructures, signing onto trade treaties that open their economies to outside investment, and scrapping laws and regulations designed to protect national and local businesses, jobs, and resources. In the process, national sovereignty has been relinquished to giant transnational corporations and undemocratic supranational bodies like the World Trade Organization (WTO) and the Bank of International Settlements (BIS).Support for international trade has given global players an unfair advantage over local producers and businesses. Long-distance transport networks, for example, make it possible for huge agribusinesses and corporate marketers to deliver their products worldwide, helping them absorb the markets of businesses selling locally-produced goods. Publicly funded global communications networks are of little use to the local family farmer or the local bank, but they enable transnational corporations to wield centralized control over their widely dispersed activities and to transfer capital around the world at the stroke of a computer key. The result of these policies has been an explosive growth in international trade of both goods and toxic debt. Whole economies are becoming dependent on global trade, and virtually every sphere of life is being affected.The impact on food—one of the only products that people everywhere need on a daily basis—is particularly revealing. As Steven Gorelick and I discuss in our book, Bringing the Food Economy Home (Kumarian Press, 2002), in most of the industrialized world, the average plate of food travels thousands of miles before reaching the dinner table. Today, one can find apples from New Zealand in apple-growing regions of Europe and North America; kiwis from California, in turn, have invaded the shops of New Zealand. In Mongolia, a country with ten times as many milk-producing animals as people, shops carry more European dairy products than local ones. Just as absurd, many countries import and export virtually identical products. According to the last publicly available trade statistics from the Food and Agriculture Association (FAO), the United States imports more than 100,000 tons each of milk, beef, potatoes, and other staple foods each year, then turns around and exports roughly the same amount.It’s not just food, either. Because taxes, subsidies, and regulations are skewed to favor global trade over local trade, corporations take advantage of the situation and routinely transport manufactured goods across the world and back again. In China, for example, production for domestic consumption is subject to sales tax. This has led producers to evade this tax by exporting their goods, then “re-importing” the same products labeled as originating from abroad. In an era of impending climate chaos, wasting fossil fuel in these ways is nothing short of madness.One of the most destructive effects of globalization is that it eliminates diversity. In order to grow and to provide the “economies of scale” that huge transnational corporations require, whole populations are induced to want the same consumer goods. Diets worldwide are homogenized so that a narrowed range of global commodities can be grown on mega-farms. In this way, the global economy systematically replaces cultural, biological, and agricultural diversity with monoculture. Since the very existence and functioning of the biosphere depends upon diversity, it seems clear that continued globalization threatens to undermine the basis for life itself.By providing a focus for people’s frustration, Occupy has put the issue of corporate control at center stage. But only with an understanding of how our governments have been captured by corporations and banks will there be enough pressure to reverse the process. One thing is clear: as individuals, as communities, and even as nation states, we will have very limited power so long as the economy continues to be controlled by transnational corporate interests.Environmentalists have long warned of the dangers of pollution, the extinction crisis, and impending climate disaster. Social justice activists, meanwhile, have focused on inequality and the roots of conflict. Now is the time to bridge divides—to make the essential links between the movements for ecological, economic, and social change—because the shifts that are needed to save the planet are the same as those that will increase employment and shrink the gap between rich and poor. These policy changes would also enable us to better meet our need for community and a sense of belonging, thus lessening the tensions that lead to conflict both at home and abroad.In order to turn things around, we need to force our political representatives back to the negotiating tables, this time to revoke the agreements that slashed the rights of both nature and the 99 percent while handing unprecedented power to a small number of unaccountable institutions. Revised international agreements would no longer provide greater freedom for huge global monopolies but would instead protect the environment and human rights.The goal of these policy shifts would be to set a course for a greater localization or decentralization of the economy— in other words, taxes, subsidies, and regulations would be shifted away from encouraging production for export toward production for local and national needs. Regulations would ensure that businesses were place-based or “localized,” making them more transparent and accountable. Localization doesn’t mean eliminating all trade or adopting an isolationist attitude—it simply means shortening the distances between consumers and producers wherever possible. It would aim to reduce unnecessary transport while encouraging changes to strengthen and diversify economies at the community and national levels. The type of goods produced and the amount of trade would naturally vary from region to region.Economic localization means supporting local economies and communities rather than huge, distant corporations and banks. Instead of a global economy based on sweatshops in the global South, stressed-out two-earner families in the global North, and a handful of billionaire elites worldwide, localization means a smaller gap between rich and poor. It also means closer contact between producers and consumers, which translates into greater social cohesion. A few years ago, a team of sociologists followed shoppers around and found that those at farmers markets had ten times more conversations than those at supermarkets.Economic localization has been described as the economics of happiness. This is because it replaces our dependence on distant bureaucracies and corporations with human-scale interdependence. This is the structural path to rebuilding community, a key ingredient in happiness. Almost universally, research confirms that feeling connected to others is a fundamental human need. Local, community-based economies are particularly crucial for the well-being of our children, providing them with living role models and a healthy sense of identity. Recent childhood development research demonstrates the importance, in the early years of life, of learning about who we are in relation to parents, siblings, and the larger community. These are real role models, unlike the artificial stereotypes found in the media.Changing the trajectory of our economic system can seem exceedingly difficult but—in the context of climate change, extinction of species, and mass social unrest—continuing on our current globalizing path is impossible. Meanwhile, efforts to localize economies are already happening at the grassroots level all over the world. In Detroit, one of America’s most blighted cities, there are now more than 2,000 community gardens, each one bringing with it a sense of connection to others and to the earth. A young man who founded one of these urban gardens told me: “I’ve lived in this community over thirty-five years, and people I’d never met came up and talked to me when we started this project. We found that it reconnects us with the people around us. It makes community a reality.” Another young gardener in Detroit put it this way: “Everything just feels better to people when there is something growing.”In hundreds of communities, grassroots initiatives also aim to save local, independent businesses. The Business Alliance for Local Living Economies (BALLE) is a hub for many of these efforts. Its mission is to catalyze and connect local business networks and to strengthen these networks. BALLE comprises more than eighty community alliances in the United States and Canada and represents more than 22,000 small businesses. Members of the network support economies that are controlled locally to the greatest extent possible while sustaining the communities and ecosystems in which they are embedded.Banking and finance are also the focus of localization efforts. Anger over the bank bailouts has led millions of people to pull their money out of big banks in favor of small, local banks and credit unions. After Bank of America announced a new debit card fee this year, a Move Your Money campaign led more than 650,000 people in a single month to abandon the banking giant and join credit unions.Through small projects worldwide, the localization movement is demonstrating that it is possible to reduce our ecological footprint while at the same time increasing both productivity and employment. It is extremely inspiring—and all the more so when one realizes that these initiatives are taking root without help from government or the media. Imagine how powerful the movement could be with the support of even a fraction of our tax dollars!Despite the fact that most of the North American Occupy camps have now been cleared away, the movement carries on. Community bonds have been forged and commonalities have been found despite our differences. The Occupy movement is a heartening sign that we are ready for a shift toward an economy of renewal, sustainability, and happiness. The choice is now ours. Let us join together—across the social, economic, and environmental divides—and work for localization on a global scale.
This book is based upon research and reflection supported by BALTA during its initial research program from 2006-2012. It explored many of the themes that became central to BALTA’s work in its Scaling Innovation for Sustainability Project. With our communities confronted by major sustainability challenges, many linked to the impact of climate change, it argues for replacing the paradigm of limitless economic growth with a more decentralized, co-operative, steady-state economy. It examines case studies of success in energy sufficiency, local food systems, low-cost community based financing, affordable housing and land reform. Specific chapters and the book as a whole redefine the development paradigm within a sustainability and steady-state economic framework.
In this paper, I consider two heterogeneous economies that engage in a currency union. The small economy adopts the currency of the large and is highly dependent on its wealthier partner for trade. The effects of a currency union, deficit financing and institutional restraints on inflation are analyzed in a dual economy with different wage-setting mechanisms. In the model, Northern Cyprus is the small economy and Turkey, being the only country that acknowledges it as an independent state is its larger partner. Features of the labour markets determine the wages. We make a conjecture that wage determination in Northern Cyprus (NC) is conducted with reference to centralized-bargaining and that decentralized bargaining sets the wages in Turkey (TR). Hence, the differences in wage-setting procedures cause a dual labour market. In order to incorporate monetary dependence into the analysis, we let the Turkish central bank to decide on the economic policy measures, in this case the inflation rate and unemployment. The institutional restraints such as economic sanctions increase the inflexibility in the NC and cause shocks to affect the economy more. In order to compensate for the losses that might be endured by the government in NC, TR finances the budget deficit of NC. Therefore, TR government needs to consider the burden of this financing issue.
Decentralized internal rating based models (self-regulation) which are substituted to public regulation are not able to hold a long-term macroeconomic vision or to take into account interdependencies among private units and markets. Therefore, they seem to be unable to tackle with systemic crises. Moreover, liberal supervision schemes reduce the field of action of monetary authorities and limit the systemic range of their interventions in case of large crisis. Then the absence of macro-regulatory schemes reveals to be one of the causes of the appearance and the persistency of generalized financial crises. A reappraisal of the Minskian financial instability hypothesis and the results of models of conventions, of financing by LBO and of cognitive dissonance points out that the current financial crisis casts doubt on two principles of the way of regulation of modern capitalism: 1) The capacity of market mechanisms for correcting errors of judgment of decentralized actors without structural public interventions; 2) The efficiency of the self-regulation of markets regarding public regulation schemes. These principles turn out to be unable to ensure the continuity in market relations under their present form. So, new research becomes compulsory in order to imagine new macro-prudential mechanisms seeking to strengthen the viability of economic and monetary relations.
The paper presents the main modelling features of the Eurace agent-based macroeconomic simulator. Eurace is a large-scale agent-based model and simulator representing a fully integrated macroeconomy consisting of three economic spheres: the real sphere (consumption goods, investment goods, and labour markets), the financial sphere (credit and financial markets), and the public sector (Government and Central Bank). Following the agent-based approach, Eurace economic agents are characterized by bounded rationality and adaptive behavior as well as pairwise interactions in decentralized markets. The balance-sheet approach and the stock flow consistency checks has been followed as a modeling paradigm, A set of computational results realized by the simulator has been also presented. In particular, results show the real effects on the Eurace economy of the dynamics of monetary aggregates, i.e., endogenous credit money supplied by commercial banks as loans to firms and fiat money created by the central bank by means of quantitative easing. Generally speaking, a quantity easing monetary policy coupled with a loose fiscal policy has been shown to generally provide better macroeconomic performance in terms of real variables, despite higher price and wage inflation rates. Computational results also show the emergence of endogenous business cycles which are mainly due to the interplay between the real economic activity and its financing through the credit market.
First, Veblen's distinction between industrial and pecuniary employments with special regard to speculation is introduced. Second, investment banking as a prime example for pecuniary activities is presented. Third, a dominant fundamentalist, market efficiency and a heterodox speculation paradigm of financial markets are distinguished. Fourth, ten proposals for financial market reform (e.g., decentralization) are proposed. Finally, it is asked why these reforms, which should support a productive-serviceable function of finance, will not be realized. This is due to a capturing of the public sector and the prevailing scientific and ideological habits of thought.
The Political Economy of Reform in Latin AmericaPolitics, Institutions, Ideas, and Context Pamela K. Starr (bio) The Politics of Labor Reform in Latin America: Between Flexibility and Rights. By Maria Lorena Cook. University Park: Pennsylvania State University Press, 2007. Pp. xv + 231. $45.00 cloth. Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico. By Santiago Levy. Washington, D.C.: Brookings Institution Press, 2007. Pp. xiii + 357. $27.95 paper. The State of State Reform in Latin America. Edited by Eduardo Lora. Palo Alto, CA: Stanford University Press; Washington, D.C.: Inter-American Development Bank, 2007. Pp. xxi + 446. $29.95 paper. Democracies in Development: Politics and Reform in Latin America. Revised edition. Edited by J. Mark Payne, Daniel Zovatto G., and Mercedes Mateo Diaz. Washington, D.C.: Inter-American Development Bank; David Rockefeller Center for Latin American Studies, Harvard University, 2007. Pp. xvi + 332. $27.95 paper. Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America. By Kurt Weyland. Princeton, NJ: Princeton University Press, 2007. Pp. xii + 297. $24.95 paper. Research on the political economy of economic reform in Latin America has progressed quite tangibly in the past quarter century. The 1980s emphasized the relative success or failure of macroeconomic stabilization and market liberalization, a rather unsurprising fact given the economic crisis that enveloped the region at the time. These early studies emphasized the broad concepts of timing, sequencing, and political will to explain intraregional differences. Researchers were just beginning to think about the interplay between political and economic reform, and how this might affect policy outcomes, motivated in part by loudly expressed concerns about the compatibility between economic reform and the parallel rise of democratic governance. Analysis of the role played by democratic institutions in molding governance in Latin America’s new democracies [End Page 224] and their consequent capacity to implement needed reforms remained formative. Policy recommendations, meanwhile, were dominated by universal proposals—initially as emergency measures and later as accepted wisdom—for dealing with common challenges, despite obviously diverse policy environments. Yet the clear hypotheses driving many of these studies and the expanding body of evidence they created about Latin America’s varied experiences with reform established the foundation for what quickly became a rich field of study. As understanding of the reform process progressed, research almost naturally incorporated narrower questions about the nature and operation of specific political and/or economic drivers of reform, as well as more complex questions about the interaction among them. Analysis employed deeply detailed single-case studies, well-structured comparative case studies that looked at a small number of regional cases and compared Latin American with non–Latin American cases, and quantitative analyses of a broader universe of Latin American cases. As Latin America gradually surmounted the immediate crisis, reestablished market-based economies, and managed to sustain new democracies, analytic attention shifted away from stabilization, liberalization, and privatization to the longer-term ability of market economies and democratic governments to enhance the well-being of their citizens. Absent the enormous economic distortions created by hyperinflation, excessive protection, and overregulation, other sorts of equally pernicious but previously less obvious market and government failures became more evident, more problematic for growth and development, and more visible in studies on reform. Analysis turned to questions about property rights, information asymmetries, resource mobility, human and capital infrastructure, and the quality and consistency of economic policy, their market impact, and their ability to either promote or retard sustainable and equitable development. Research took on the roles played by social assistance, education, labor systems, regulatory structures, monopolies, and oligopolies, and by energy, finance, transport, and telecommunications infrastructure in building efficient markets. And it began aggressively to consider the factors—such as political decentralization, judicial reform, public administration, civil society, and institutional structures of government—that determine the quality and effectiveness of democratic governance, and Latin America’s consequent ability to implement needed policy reforms. This second wave of research on political economy also evinces a developing consensus about the sets of factors that matter most in explaining reform. Put simply: politics matter, institutions matter, and context matters. Although this may seem exceedingly broad and less than earth shattering now...
In this paper we study the optimal monetary and fiscal policies of a general equilibrium model of unemployment and money with search frictions both in labor and goods markets\nas in Berentsen, Menzio and Wright (2010). We abstract from revenue-raising motives to focus on the welfare-enhancing properties of optimal policies. We show that some of the\ninefficiencies in the Berentsen, Menzio and Wright (2010) framework can be restored with appropriate fiscal policies. In particular, when lump sum monetary transfers are possible,\na production subsidy financed by money printing can increase output in the decentralized market and a vacancy subsidy financed by a dividend tax even when the Hosios’ rule does\nnot hold.