Wednesday, August 31, 2016


AM | @agumack

"This is a new method" — Richard Lester

Que Federico Sturzenegger sea asesorado por Stefan Ingves, gobernador del Riksbank, es para mí la mejor noticia en Argentina desde la llegada del Sr. Macri a la presidencia. Por eso me refiero ahora al BCRA 'wickselliano', no-monetarista (1, 2, 3). Como las recientes entradas sobre el tema han generado cierto interés (a juzgar por las visitas al blog), continúo publicando material del excelente libro de Manuel Johnson y Robert Keleher, Monetary Policy: A Market Price Approach (Newport, Connecticut: Quorum Books, 1996 [ver]; capítulo 13: "The Market Price Approach to 1930s Monetary Policy in Sweden"). Muy pronto retomaré el análisis 'neo-wickselliano' de la Reserva Federal, en base a la 'yield curve', el precio de los commodities y la cotización del dólar.

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Pero sigamos por ahora con Johnson y Keleher: note las similitudes entre Suecia y Argentina, con su volátil historia monetaria plagada de episodios de inflación y deflación (la nuestra de 1998-2001). Otros puntos: (1) habrá que acostumbrarse a frecuentes cambios en la tasa de corto plazo; (2) la UIA debería agradecer, no criticar, a este BCRA wickselliano; (3) seguiré publicando material.

Wicksell used commodity prices as guides to provide signals of the natural rate relative to the bank rate. Increasing commodity prices, for example, signaled that the natural rate exceeded the bank rate, suggesting that the central bank needed to increase the bank rate to promote price stability. Wicksell advocated adjusting the policy instrument (bank rate) on the basis of information from commodity markets. He emphasized that price stability could be achieved by continously regulating the bank rate to ensure its equivalence to the natural rate. Thus, Wicksell proposed the use of market prices guides as, in effect, intermediate indicators for monetary policy.

However, he did not prescribe the use of monetary or reserve aggregates as tools or guides to achieve this goal. Wicksell was influential among Swedish economists, especially monetary economists, and his approach to monetary policy had many supporters. He actively participated in public debates on policy issues, lecturing as well as publishing books, academic journal articles, newsaper commentaries, and contributing to government reports. Indeed, Wicksell's approach became second nature to Swedish economists of this era. Although he died in 1926, his legacy remained very influential into the 1930s.

World War I brought the collapse of the gold standard, rapid increases in inconvertible world money supplies, and consequent world inflation. Despite its neutrality during the war, Sweden established a de facto paper standard at the war's outbreak. Rapid monetary expansion occurred in Sweden between 1914 and 1920. By the summer of 1920, Swedish wholesale prices had increased by more than 300 percent. Following this inflation, the Swedish parliament, the government, and the Riksbank (the Swedish central bank) decided that Sweden should return to the gold standard at the prewar parity, and Sweden was the first country in Europe to do so.

Restrictive policies consistent with this objective were pursued and they were inevitably followed by severe deflation and a severe economic slowdown. Swedish prices fell faster and in larger degree than prices in either the United States or the United Kingdom. An index of Swedish wholesale prices (1913 = 100), for example, fell from 366 in June 1920 to 154 in November 1922. The associated economic depression was severe, more severe than that later experienced in the 1930s, as measured by employment and real income. Unemployment during this episode reached the highest level ever recorded in Sweden. Lasting lessons were learned, and they strongly influenced Swedish monetary economists.

The volatile price experience of the early 1920s made economists wary of monetary arrangements associated with falling or rising price levels. The view that price stability was a worthwhile objective readily and understandably found widespread support. Meanwhile, maintaining a fixed exchange rate commodity standard during unstable world monetary conditions was deemed inappropiate for an economy like that of Sweden. The deflation experienced in the late nineteenth century, the inflation of the early twentienth century, as well as the deflation experienced in the early 1920s, were all associated with the maintenance of a fixed exchange rate commodity standard or attempts to return to it.

In unstable world monetary circumstances, therefore, a fiat money, flexible exchange rate regime with price stability as a policy goal, seemed eminently appropiate for an open economy like that of Sweden. It also became obvious that fixing Sweden's exchange rate to the currency of a large trading partner like Great Britain should take place only when British monetary conditions were stable. Finally, the volatile price movements experienced during and after World War I left little doubt that movements in exchange rates had potent effects on prices for an open economy. All of those lessons for Swedish monetary economists proved particularly valuable during the events of the early 1930s.

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