Eco+Nomics

So, Mario Draghi said that an inflation much lower than 2% is against his mandate. And it is! If you ask me, early 2015 is the right time, if not too late, to buy sovereign bonds. Let me, please, tell you what I think. First of all, given that Eurozone economy is below its potential, inflation risk will remain low, and the zero lower bound will prevent monetary policy to be "hazardously" inflationary. But, this is an argument why we should not fear of inflation, if the ECB decides to take bold action. True! For now... Moreover, given that we remain below our potential output, member states have begun to deviate from austerity and call for more expansionary budgets. Sooner or later, they will start creating budget deficits as a mean of expansion. And this has two implications. The first one, which relates to my previous argument is that budget deficits will boost expansion, and, hence, the return to the potential output. Therefore, the later the ECB decides to act, the mo...

Asset values have been rising somehow intensively, following amid liquidity injection (QE) by major Central Banks over the last few years. A controversial, yet rather effective, policy choice. And this controversy, currently, derives from the asset bubble argument. In other words, the increase in the value of assets is a bubble, and, inevitably, it will burst. Is this policy controversy well justified? Perhaps, not very well. I will not argue whether asset inflation is a bubble or not. That is not the point I am trying to make.  I will argue, however, that the rising asset values is exactly how the whole policy should work! It is a key mechanism of transmitting monetary policy to the real economy. Not only for banks, but for households, as well. If you own assets, their value rises your net value rises, too, and, hence, you can borrow more or/and at a lower cost. Most importantly, households and businesses can remain solvent while deleveraging stops, and their liabilities rise...

I would like to communicate my thoughts- fruits of my inexperienced existence and humble opinion- as far as "Eurozone cross-fire: the way out of economic recession - Assessment of a realist and a response to idealists and cynics"  by Jörg Asmussen. First of all, no one would be that naive as to accuse the board of the ECB of being the reason of today's debt-crisis. ECB is doing its best while complying with its mandate and a s a matter of fact it can indeed perform much better but it is not allowed to do so.  The fact that our central bank should have played a different, more active, role is a matter of political choice made by the European leaders and hence only the latter can be blamed for the current function of the ECB. So, critics targeting ECB, most probably do not target the governing body of the ECB but these who defined on what they should focus. Below, you may browse the nominal World GDP and beneath that a stacked line chart of the exports of Greece, Portu...

This post is an attempt to use my rather inexperienced and naive instinct in economics in order to respond to the allegations of the necessity of austerity and tight monetary policy. More specifically, I post  my reply to the arguments presented in "The Live arguments of austerity right now: A bestiary" by Mr. DeLong . Please, forgive me if I am wrong. The first group stresses the importance of tight monetary policy. "The Jeremy Stein argument" : Stein ignores the other element of GDP; the consumption. With lower interest rates households can more easily substitute future for current income. Secondly, risk premium is added to the risk-free rate both when the risk-free is 0% and when it is higher, e.g. 10%, and hence risky assets yield by definition higher returns regardless the level of the risk-free rate. Therefore, bank managers will always prefer more risky assets due to the higher returns they offer anyway. Thirdly, there is always the Basel Accord tha...