Research Paper 6: Has the Euro-system become a transfer union by stealth?

by Professor Tim Congdon

The European Union’s single currency project is an unique endeavour. The sharing of one currency by countries which retain fiscal sovereignty and a substantial degree of banking-system autonomy has been attempted nowhere else in the era of managed currencies. For it to work, monetary and financial stability are essential.

One reason why this stability has proved elusive is the unique nature of the European Central Bank. The paper focusses on its role form the launch of the single currency through to the years after the Great Recession. Although constructed like a traditional central bank, it interacts with more than one government. It has extended huge amount of credits to some governments and in so doing, has raised the possibility of turning the entire Eurozone into a transfer union.

click here to download the full paper

Research Paper 5: On some principles to fix the quantity of bank money

by Professor Tim Congdon

In a modern economy, the role of the central bank is paramount, as is its relationship with the commercial banking sector. This paper discusses the nature of money in a modern economy and corrects a number of misconceptions on the relationship between loans and deposits, while pointing out many of the flaws in the thinking of other schools of economic thought

click here to download the full paper

Research Paper 4: Milton Friedman on the interaction between fiscal and monetary policy

by John Greenwood

Is monetary policy more powerful than fiscal policy, or vice versa? This question is very relevant in our own time. This paper considers the opinions of Milton Friedman on the subject, especially how his views evolved over a period of time.

The author concludes that Friedman’s shift in position from the Keynesianism of his younger days to his staunch advocacy of monetary policy to control inflation came about after extensive historical research proving that monetary policy was more powerful than fiscal policy.

Click here to download the full paper

Research Paper 3: Have Central Banks forgotten about money?

by Dr Juan Castañeda and Professor Tim Congdon

The relationship between money growth and the change in nominal national income has been thoroughly studied and confirmed in many countries over numerous long runs. A widely-held view is that “excess” money growth – growth in the quantity of money that is well ahead of contemporaneous growth in real output – leads to inflation.

This paper will argue, from the experience of the Eurozone after the introduction of the single currency in 1999, that maintaining steady growth of a broadly-defined measure of money is crucial to the achievement of stability in demand and output. The ECB did not sustain a consistent strategy towards money growth and banking regulation over its first decade and a half.

Click here to download the full paper.

Research Paper 2: The new regulatory wisdom: good or bad?

by Sir Adam Ridley

Output growth in the leading Western economies has been weaker since the Great Recession of 2008 and 2009 than at any time since the 1930s. According to the International Monetary Fund’s database, advanced economies’ gross domestic product was flat in 2008 and dropped by 3.4 per cent in 2009. Although 2010 enjoyed a rebound with 3.1 per cent growth, the next three years saw output advancing typically by a mere 1 ½ per cent a year. This was well beneath the pre-2008 trend.

In the leading Western nations the official response to the Great Recession has had a number of well-known and familiar common features, although policy has been far from stable or easy to predict. The elements of this response constitute what might be termed the “New Regulatory Wisdom” (NRW). How is to be defined? What has been its impact so far? And what will be its effects if it is maintained into the future?

Click here to download the full paper.

Research Paper 1: A critique of two Keynesian Concepts

by Professor Tim Congdon

The purpose of this paper is to discredit Keynesian income-expenditure analysis and the concept of the multiplier embedded within it. These two key concepts of the Keynesian textbook mainstream omit variables critical to the determination of macroeconomic outcomes. The omissions are so serious that the income-expenditure circular flow is incomplete and misleading if it pretends to constitute a policy-making framework.

Critically, when organized in its familiar textbook form, income-expenditure analysis has no room for either the banking system or the quantity of money. But changes in the quantity of money have major impacts on asset portfolios and expenditure decisions. These changes must be integrated in all discussions of the macroeconomic conjuncture, if such discussions are to make any claim to real-world plausibility.

Click here to download the full paper.

Presentation at the launch of the Institute of International Monetary Research

by Professor Tim Congdon

The Quantity Theory of Money – which emphasises an excess of money growth over the growth of output as the dominant cause of rising prices – is one of the most long-standing and well-developed theories in economics. It has an obvious basis in fact, with a clear link in the last 30 years between the rates of increase in money (broadly-defined, to include all or nearly all bank deposits) and in nominal gross domestic product across the G20 leading nations. However, no academic research institute in the UK pays much attention to the Quantity Theory of Money in macroeconomic forecasting or policy advisory work, even though the relationship between money and nominal GDP suggests that stable growth of money ought to be sought, in order to deliver similarly stable growth of nominal GDP.