Monetary Policy and Macroeconomic Stabilization: The Roles of Optimum Currency Areas, Sacrifice Ratios, and Labor Market Adjustment

by Roste,Ole

• ISBN13: 9781412807487
• ISBN10: 1412807484
• Format: Hardcover
• Copyright: 2008-08-15
• Publisher: Routledge

Summary

As a fundamental review and critique of activist economic policies, this book is a unique contribution to classical political economy. Monetary Policy and Macroeconomic Stabilization is about macroeconomic stabilization policy, with emphasis on the value of a distinct national monetary policy to growth. Ole Bjørn Røste’s argument is for public officials to restrain themselves in the pursuit of policy. As the author notes: when you know less, you should do less.The history of modern macroeconomics started in 1936 with the publication of Keynes’ General Theory of Employment, Interest, and Money. The problems of the Great Depression of the 1930s paved the way for a change of focus, from the long run to economic fluctuations in the short run, and from nominal to real variables, such as unemployment and aggregate output. Keynes offered clear policy implications in tune with the times. Because economic adjustment was slow, waiting for the economy to recover by itself was irresponsible. Particluarly fiscal policy was essential to return to high employment. Monetary policy could affect aggregate demand through interest rates, but was less important. Røste discusses the role of monetary policy, starting out with the implications of the theory of optimum currency areas (OCAs). This is followed by estimates of the output loss associated with disinflation policy (the sacrifice ratio) for six OECD economies. Further, Røste models the dynamic adjustment to negative, local market shocks, with particular relevance to Scandinavia, in a final section.

Table of Contents

Preface	p. ix
Introduction	p. 1
Optimum Currency Areas: Currency Area Composition and Exchange-Rate Regimes-Theory and Evidence Reconciled	p. 25
Measuring the Sacrifice Ratio: Some International Evidence (with Kai Leitemo)	p. 117
Regional Labor Market Adjustment in Norway	p. 157
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