Central Banking, Climate Change and Environmental Sustainability

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The Council on Economic Policies and the Bank of England are organising a workshop on this topic to be held at the Bank on November 14-15 2016. A call for papers has just been put out, with a deadline of June 30th.


Climate change and other environmental challenges are moving up policy agendas worldwide. Nonetheless, the potential implications of environmental risks and scarcities for central banking as well as the linkages between financial regulation, monetary policy and environmental sustainability remain largely unexplored.

Get ready for an Australian recession by 2017

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For the last 25 years, Australian politicians of both Liberal and Labor hue have been able to brag that, under their stewardship, Australia has avoided a recession. Those bragging rights are about to come to an end. During the life of the next Parliament — and probably by 2017 — Australia will fall into a prolonged recession.

Click here to read the rest of this post, and here to download the Excel file showing the link between a slowdown in the rate of growth of debt and a recession.

Macroeconomics of Loanable Funds & Endogenous Money compared using Minsky

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The mainstream economic idea that banks are just intermediaries between savers and investors is a fantasy, but given that fantasy, their argument that the level and rate of change of private debt are not macroeconomically significant (except at the “Zero Lower Bound”) is correct. But in the real world, the role of the level and rate of change of private debt is crucial. I illustrate this by building a Minsky model of Loanable Funds and converting it to the real world of Endogenous Money. Then I explain how credit growth plays an essential role in aggregate demand and income, and how this is consistent with the truism that Expenditure equals Income.

Laughter–the Worst Medicine

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Like many commentators, I regard August 9 2007 as the start of the “Global Financial Crisis“. On that day, BNP Paribas declared that several of its funds were being closed because liquidity in those markets had completely evaporated:


So I was particularly amused–in a sick sort of way–to see this brilliant info-graphic on The Fed on Twitter today: it plots the amount of laughter in FOMC meetings between 2000 and 2012. “Peak Laughter” occurred literally days before the crisis began:


Kingston Uni releases monetarily sound forecast model of US Economy

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PERG economists are developing a macroeconometric model to track the evolution of the US economy over the medium term, which is 3-5 years:

The model belongs to the family of “financial balances models”, an approach pioneered by Wynne Godley and collaborators at Cambridge University (UK) and then successfully developed by the macroeconomics team of the Levy Institute – led by Godley himself.


At its heart, the KFBM (Kingston Financial Balances Model) is characterised by a set of thorough accounting matrices that gather the major stocks and flows of the US economy as well as their links across institutional sectors. This results in three key strengths of the KFBM:

Tilting At Windmills: The Faustian Folly Of Quantitative Easing

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As I explained in my last post, banks can’t “lend out reserves” under any circumstances, which undermines a major rationale that Central Bank economists gave for undertaking Quantitative Easing in the first place. Consequently, the hope that Bernanke expressed in 2009 is “To Dream The Impossible Dream”:

To dream the impossible dream
To fight the unbeatable foe
To bear with unbearable sorrow
To run where the brave dare not go

Former Chair of the Federal Reserve Ben Bernanke listens while US Secretary of the Treasury Jacob Lew speaks at the Brookings Institution July 8, 2015 in Washington, DC. AFP PHOTO/BRENDAN SMIALOWSKI (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)

Hey Joe, Banks Can’t Lend Out Reserves

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I began another post critical of Joe Stiglitz’s analysis with the caveat that I like Joe. I’ll add to that that I respect his intellect too, both because he’s very bright—you don’t win a Nobel Prize (even in Economics!) without being very bright—and because compared to some other winners, he is very capable of thinking beyond the limitations of the mainstream.

But there are some mainstream concepts that are so deeply embedded in even highly intelligent, flexible thinkers like Joe, that they continue thinking in terms of them, when a bit of really serious thought would show that the concepts are in fact nonsense.

For Kingston “Becoming An Economist” students

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I’m posting videos of lectures given by my Kingston colleagues to the introductory “Becoming an Economist” course, since the StudySpace software Kingston uses doesn’t support MP4 files. The first is Devrim Yilmaz’s lecture last week on “Data Collection and Presentation”.