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What is Modern Monetary Theory? (I): Some Ideas

What is Modern Monetary Theory? (I): Some Ideas

In an interview last January, Democratic Party’s rising star Alexandria Ocasio-Cortez brought attention to so-called Modern Monetary Theory (MMT), a theory that challenges the foundations of mainstream economics regarding fiscal and monetary policy. Whereas its supporters see in MMT a solid theoretical framework with which to justify the expansion of public spending, its detractors argue…

What's behind skyrocketing rental prices in Spain?

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What's behind skyrocketing rental prices in Spain?

Last month, Spain’s prime minister Pedro Sánchez was forced to call a snap election after Congress rejected his budget proposal. The call for elections and subsequent dissolution of parliament has not, however, prevented Sánchez’s caretaker government from continuing legislating via executive orders. Even though these executive orders need to be approved by the…

Book Review: The Clash of Economic Ideas

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Book Review: The Clash of Economic Ideas

The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years By Lawrence H. White Cambridge University Press; 1st edition (April 9, 2012) 438 pages, $39.77   “I’m rather good at it”, said a young John Maynard Keynes to a friend shortly after starting the only economics course he would take in his life; a course that would turn a…

The Bank of Spain warns about the harmful effects of raising the minimum wage

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The Bank of Spain warns about the harmful effects of raising the minimum wage

On December 21 last year, the Spanish government issued an executive order whereby it increased the national minimum wage by an astonishing 22.3 percent for fiscal year 2019. Despite the potentially harmful effects that such a drastic measure could have on Spain’s ailing labor market (the unemployment rate is still over 14 percent), Sánchez’s government didn’t hesitate to…

A European Central Bank Primer (V): What does the ECB’s balance sheet look like?

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A European Central Bank Primer (V): What does the ECB’s balance sheet look like?

As the entity responsible for the conduct of monetary policy in the Eurozone, the ECB has a prerogative that no other financial institution possesses: it has an exclusive monopoly over the issuance of euros. As a result, the ECB’s financial position differs radically from that of any other bank in the Euro area. Today, we will take a closer look at the balance sheet of the Eurozone’s…

A European Central Bank Primer (IV): Transmission Mechanisms of Monetary Policy

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A European Central Bank Primer (IV): Transmission Mechanisms of Monetary Policy

In a previous article, I introduced the concept of long-term neutrality of money, which the ECB defines as a general principle according to which “a change in the quantity of money in the economy will be reflected in a change in the general level of prices. But it will not induce permanent changes in real variables such as real output or unemployment.” Put differently, monetary…

A European Central Bank Primer (III): Unconventional Monetary Policy Tools

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A European Central Bank Primer (III): Unconventional Monetary Policy Tools

In the second part of this primer, I discussed how the ECB conducts monetary policy with the aim of achieving price stability in the Eurozone. As shown, the ECB has historically employed three different policy tools to control the price level: open market operations (and more specifically, main refinancing operations), reserve requirements and the so-called standing facilities. Yet the 2010…

A European Central Bank Primer (II): How does the ECB conduct monetary policy?

A European Central Bank Primer (II):  How does the ECB conduct monetary policy?

In a previous article, I talked about the objective, organizational structure and responsibilities of the European Central Bank. Today, I aim to discuss how the ECB conducts monetary policy in the Eurozone. But let me start by discussing more in detail the price-stability objective and why it matters. For the ECB, price stability means “a year-on-year increase in the Harmonized Index of…

A European Central Bank Primer (I): Objective, Organization and Responsibilities

A European Central Bank Primer (I): Objective, Organization and Responsibilities

Next year marks the 20th anniversary of the Euro, the most important step in the European integration process since the Treaty of Rome. Six months prior to the official launch, the European Central Bank (ECB) was established to administer the new common currency in the eleven countries that originally designed the monetary union. Since then, eight more countries have joined the Eurozone, which is…

Why I don't vote

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Why I don't vote

The Stanford Encyclopedia of Philosophy defines democracy as “a method of group decision making characterized by a kind of equality among the participants.” In effect, democracy can be a useful mechanism for making collective decisions. For instance, an association representing the homeowners of a residential community can make the decision of renovating the pavement of a street after…

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