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Articles by Biagio_Bossone

Thinking Out of the Box: “Unconventional” Fiscal Policies for Economic Recovery After Covid-19

7 days ago

The Covid-19 pandemic and its dramatic economic consequences are pushing national policy authorities to fight hard on all macroeconomic fronts – monetary as well as fiscal – through massive provision of liquidity to financial and nonfinancial entities and distribution of various forms of fiscal support to large categories of individuals and businesses. And much as medical research is frantically looking for effective treatments of the virus, economic research is searching for effective ways to counter economic recession (Baldwin and Weder Di Mauro, 2020). Original ideas have emerged, and some are now been revisited, regarding alternative fiscal policy tools as means to support the economy, especially when other avenues are precluded. Some of these tools, discussed below, have become less

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The Euro after COVID-19 and the “Three Germanies”

May 22, 2020

In international matters, it is customary to think in terms of countries understood as "monoliths" guided by clearcut national interests that each monolith tries to assert by leveraging its own political weight (including, if necessary, its military prowess), as well as its economic influence, network of alliances, negotiating ability and internal leadership, and everything that can be used for the purpose. In short, it is like reasoning with a chessboard in mind on which homogeneous national subjects, unitarily identified, confront each other.The decision of the German Constitutional Court of last 5 May stated that the public securities purchase program launched by the ECB in 2015 is inconsistent with the principle of proportionality enshrined in the European treaties, casting a shadow on

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The Monetization of Fiscal Deficits: What is it Exactly?

April 28, 2020

Biagio BossoneIn many countries, governments are responding to the economic consequences of the Covid19 pandemic with exceptionally large fiscal support programs, while central banks, on their side, are conducting similarly large purchases of government securities.As a result, many people, including renowned scholars, talk wrongly about fiscal deficits being monetized and draw wrong conclusions about possible their economic and financial policy effects. In the following, I will try to correct the misperceptions and the ensuing confusion as well as the wrong implications that derive from the concept of monetization as commonly discussed. What is monetization of the fiscal deficits?Central banks are in the business of governing monetary policy and, as part of their typical modus operandi,

Read More »

The Monetization of Fiscal Deficits: What is it Exactly?

April 28, 2020

Biagio BossoneIn many countries, governments are responding to the economic consequences of the Covid19 pandemic with exceptionally large fiscal support programs, while central banks, on their side, are conducting similarly large purchases of government securities.As a result, many people, including renowned scholars, talk wrongly about fiscal deficits being monetized and draw wrong conclusions about possible their economic and financial policy effects. In the following, I will try to correct the misperceptions and the ensuing confusion as well as the wrong implications that derive from the concept of monetization as commonly discussed. What is monetization of the fiscal deficits?Central banks are in the business of governing monetary policy and, as part of their typical modus operandi,

Read More »

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER

April 2, 2019

Don’t banks extract seigniorage (as governments and central banks do) when they create money via lending?
COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER
by Biagio Bossone and Massimo Costa
What is "seigniorage"?
Derived from the old French for "seigneur", which stands for "feudal lord" (the lord of a manor), the word "seigniorage" according to the Oxford Dictionary etymologically means the "right of the lord to mint money" and economically denotes the difference between the value of money and the cost of producing it, where the former equals the real resources that money can buy or the economic benefits that lending it can earn.
Seigniorage has historically belonged to governments, which over the ages have appropriated real resources through the monopoly of the coinage. It is thus a form of

Read More »

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER

April 2, 2019

Don’t banks extract seigniorage (as governments and central banks do) when they create money via lending?
COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER
by Biagio Bossone and Massimo Costa
What is "seigniorage"?
Derived from the old French for "seigneur", which stands for "feudal lord" (the lord of a manor), the word "seigniorage" according to the Oxford Dictionary etymologically means the "right of the lord to mint money" and economically denotes the difference between the value of money and the cost of producing it, where the former equals the real resources that money can buy or the economic benefits that lending it can earn.
Seigniorage has historically belonged to governments, which over the ages have appropriated real resources through the monopoly of the coinage. It is thus a form of

Read More »

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER

April 2, 2019

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER
by Biagio Bossone and Massimo Costa
What is "seigniorage"?
Derived from the old French for "seigneur", which stands for "feudal lord" (the lord of a manor), the word "seigniorage" according to the Oxford Dictionary etymologically means the "right of the lord to mint money" and economically denotes the difference between the value of money and the cost of producing it, where the former equals the real resources that money can buy or the economic benefits that lending it can earn.
Seigniorage has historically belonged to governments, which over the ages have appropriated real resources through the monopoly of the coinage. It is thus a form of taxation, which the state imposes on the economy and implies a net transfer of real resources from the

Read More »

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWER

April 2, 2019

COMMERCIAL BANK MONEY AND SEIGNIORAGE POWERby Biagio Bossone and Massimo CostaWhat is "seigniorage"?Derived from the old French for "seigneur", which stands for "feudal lord" (the lord of a manor), the word "seigniorage" according to the Oxford Dictionary etymologically means the "right of the lord to mint money" and economically denotes the difference between the value of money and the cost of producing it, where the former equals the real resources that money can buy or the economic benefits that lending it can earn.Seigniorage has historically belonged to governments, which over the ages have appropriated real resources through the monopoly of the coinage. It is thus a form of taxation, which the state imposes on the economy and implies a net transfer of real resources from the economy

Read More »

DIGITAL CASH AND THE MACROECONOMY

March 27, 2019

The macroeconomic implications of digital cash would depend on the public‘s preferences for it.
The recent contributions from Brunnermeier and Niepelt (2019) and Andolfatto (2019) offer useful analytical frameworks to organise one’s thinking on how the introduction of a central bank digital currency (CBDC) is likely to impact the macroeconomy. The former derives an equivalence result whereby the CBDC need not alter resource allocation and the price system, while the latter shows that the introduction of the CBDC leads to an expansion of commercial bank demand deposits (CBDD). Both suggest that many of the concerns that have been raised in the recent literature on digital cash are in fact misplaced.
Below I point to a key criterion that presides over the relevance of the CBDC for the

Read More »

DIGITAL CASH AND THE MACROECONOMY

March 27, 2019

The macroeconomic implications of digital cash would depend on the public‘s preferences for it.
The recent contributions from Brunnermeier and Niepelt (2019) and Andolfatto (2019) offer useful analytical frameworks to organise one’s thinking on how the introduction of a central bank digital currency (CBDC) is likely to impact the macroeconomy. The former derives an equivalence result whereby the CBDC need not alter resource allocation and the price system, while the latter shows that the introduction of the CBDC leads to an expansion of commercial bank demand deposits (CBDD). Both suggest that many of the concerns that have been raised in the recent literature on digital cash are in fact misplaced.
Below I point to a key criterion that presides over the relevance of the CBDC for the

Read More »

DIGITAL CASH AND THE MACROECONOMY

March 27, 2019

The recent contributions from Brunnermeier and Niepelt (2019) and Andolfatto (2019) offer useful analytical frameworks to organise one’s thinking on how the introduction of a central bank digital currency (CBDC) is likely to impact the macroeconomy. The former derives an equivalence result whereby the CBDC need not alter resource allocation and the price system, while the latter shows that the introduction of the CBDC leads to an expansion of commercial bank demand deposits (CBDD). Both suggest that many of the concerns that have been raised in the recent literature on digital cash are in fact misplaced.Below I point to a key criterion that presides over the relevance of the CBDC for the macroeconomy and discuss some more general results, also in light of the position of the international

Read More »

DIGITAL CASH AND THE MACROECONOMY

March 27, 2019

The recent contributions from Brunnermeier and Niepelt (2019) and Andolfatto (2019) offer useful analytical frameworks to organise one’s thinking on how the introduction of a central bank digital currency (CBDC) is likely to impact the macroeconomy. The former derives an equivalence result whereby the CBDC need not alter resource allocation and the price system, while the latter shows that the introduction of the CBDC leads to an expansion of commercial bank demand deposits (CBDD). Both suggest that many of the concerns that have been raised in the recent literature on digital cash are in fact misplaced.
Below I point to a key criterion that presides over the relevance of the CBDC for the macroeconomy and discuss some more general results, also in light of the position of the international

Read More »

WHICH EXCHANGE RATE REGIME? CREDIBILITY AND EXCHANGE RATE NEUTRALITY

March 26, 2019

Is it true that floating exchange rates protect the economy from the consequences of “sudden stops” in capital flows,[i] and grant policymakers greater flexibility in both managing demand and sustaining public debt?
I have recently submitted that the effectiveness of the exchange rate as an adjustment mechanism in a given country depends critically on three key variables (Bossone, 2018). These include the country’s
degree of financial integration into the global markets
size of its public debt (irrespective of currency denomination), and
level of policy credibility.
Exchange rate (non)neutrality
To see this, take a fully financially integrated country economy, suffering from weak policy credibility (based on its past policy track record), and assume that its policymakers adopt a floating

Read More »

WHICH EXCHANGE RATE REGIME? CREDIBILITY AND EXCHANGE RATE NEUTRALITY

March 26, 2019

Is it true that floating exchange rates protect the economy from the consequences of “sudden stops” in capital flows,[i] and grant policymakers greater flexibility in both managing demand and sustaining public debt?I have recently submitted that the effectiveness of the exchange rate as an adjustment mechanism in a given country depends critically on three key variables (Bossone, 2018). These include the country’sdegree of financial integration into the global marketssize of its public debt (irrespective of currency denomination), andlevel of policy credibility.Exchange rate (non)neutralityTo see this, take a fully financially integrated country economy, suffering from weak policy credibility (based on its past policy track record), and assume that its policymakers adopt a floating

Read More »

WHICH EXCHANGE RATE REGIME? CREDIBILITY AND EXCHANGE RATE NEUTRALITY

March 26, 2019

For highly-indebted and poorly-credible economies, the exchange rate is a ‘veil.’
Is it true that floating exchange rates protect the economy from the consequences of “sudden stops” in capital flows,[i] and grant policymakers greater flexibility in both managing demand and sustaining public debt?
I have recently submitted that the effectiveness of the exchange rate as an adjustment mechanism in a given country depends critically on three key variables (Bossone, 2018). These include the country’s
degree of financial integration into the global markets
size of its public debt (irrespective of currency denomination), and
level of policy credibility.
Exchange rate (non)neutrality
To see this, take a fully financially integrated country economy, suffering from weak policy credibility (based on

Read More »

WHICH EXCHANGE RATE REGIME? CREDIBILITY AND EXCHANGE RATE NEUTRALITY

March 26, 2019

For highly-indebted and poorly-credible economies, the exchange rate is a ‘veil.’
Is it true that floating exchange rates protect the economy from the consequences of “sudden stops” in capital flows,[i] and grant policymakers greater flexibility in both managing demand and sustaining public debt?
I have recently submitted that the effectiveness of the exchange rate as an adjustment mechanism in a given country depends critically on three key variables (Bossone, 2018). These include the country’s
degree of financial integration into the global markets
size of its public debt (irrespective of currency denomination), and
level of policy credibility.
Exchange rate (non)neutrality
To see this, take a fully financially integrated country economy, suffering from weak policy credibility (based on

Read More »

CESifo and Fiscal Money: Omissions and Blunders

March 18, 2019

In its report on the European economy, CESifo – one of the most highly reputed economic research centers of Germany – devotes some considerable space to our Tax-Credit Certificates (TCCs) proposal to revamp the Italian economy (pp. 68-70).TCCs represent one form of what we have elsewhere termed as Fiscal Money.[i]The report criticizes our proposal but contains several critical errors and misrepresentations of it and fails to capture many of its important features. While we have repeatedly asked Prof. Clemens Fuest, president of the ifo Institute, to give us right of reply and let us address the report’s criticism, he has declined our request. It is regrettable that those who preach “virtuosity” in the realm of financial and fiscal rules become stranger to it when it comes to the most basic

Read More »

CESifo and Fiscal Money: Omissions and Blunders

March 18, 2019

In its report on the European economy, CESifo – one of the most highly reputed economic research centers of Germany – devotes some considerable space to our Tax-Credit Certificates (TCCs) proposal to revamp the Italian economy (pp. 68-70).
TCCs represent one form of what we have elsewhere termed as Fiscal Money.[i]
The report criticizes our proposal but contains several critical errors and misrepresentations of it and fails to capture many of its important features. While we have repeatedly asked Prof. Clemens Fuest, president of the ifo Institute, to give us right of reply and let us address the report’s criticism, he has declined our request. It is regrettable that those who preach “virtuosity” in the realm of financial and fiscal rules become stranger to it when it comes to the most

Read More »

CESifo and Fiscal Money: Omissions and Blunders

March 18, 2019

The recent CESifo report on Europe discusses Fiscal Money; unfortunately, it misses its whole point.
In its report on the European economy, CESifo – one of the most highly reputed economic research centers of Germany – devotes some considerable space to our Tax-Credit Certificates (TCCs) proposal to revamp the Italian economy (pp. 68-70).
TCCs represent one form of what we have elsewhere termed as Fiscal Money.[i]
The report criticizes our proposal but contains several critical errors and misrepresentations of it and fails to capture many of its important features. While we have repeatedly asked Prof. Clemens Fuest, president of the ifo Institute, to give us right of reply and let us address the report’s criticism, he has declined our request. It is regrettable that those who preach

Read More »

CESifo and Fiscal Money: Omissions and Blunders

March 18, 2019

The recent CESifo report on Europe discusses Fiscal Money; unfortunately, it misses its whole point.
In its report on the European economy, CESifo – one of the most highly reputed economic research centers of Germany – devotes some considerable space to our Tax-Credit Certificates (TCCs) proposal to revamp the Italian economy (pp. 68-70).
TCCs represent one form of what we have elsewhere termed as Fiscal Money.[i]
The report criticizes our proposal but contains several critical errors and misrepresentations of it and fails to capture many of its important features. While we have repeatedly asked Prof. Clemens Fuest, president of the ifo Institute, to give us right of reply and let us address the report’s criticism, he has declined our request. It is regrettable that those who preach

Read More »

“Unconventional” Fiscal Policies

February 16, 2019

Until the eruption of the Global Financial Crisis, macroeconomists agreed that fiscal policy was essentially unsuitable to manage aggregate demand and thus assigned to monetary policy the role to stabilize the business cycle (Bean et al 2010). The reasons invoked for rejecting fiscal policy as a stabilization tool typically included implementation lags, larger permanent deficits resulting in higher long-term interest rates and distortionary future taxes, and higher marginal propensities to save out of a temporary tax cut (i.e., lower income multipliers).
In fact, the crisis shook this old tenet as monetary policy proved ineffective at influencing nominal GDP when the zero lower bound (ZLB) constrained nominal interest rates and the economy was in a liquidity trap (Dotsey 2010). Such

Read More »

“Unconventional” Fiscal Policies

February 16, 2019

This commentary discusses heterodox fiscal policies that can be considered when use of conventional tools is precluded.

Until the eruption of the Global Financial Crisis, macroeconomists agreed that fiscal policy was essentially unsuitable to manage aggregate demand and thus assigned to monetary policy the role to stabilize the business cycle (Bean et al 2010). The reasons invoked for rejecting fiscal policy as a stabilization tool typically included implementation lags, larger permanent deficits resulting in higher long-term interest rates and distortionary future taxes, and higher marginal propensities to save out of a temporary tax cut (i.e., lower income multipliers).
In fact, the crisis shook this old tenet as monetary policy proved ineffective at influencing nominal GDP when the

Read More »

“Unconventional” Fiscal Policies

February 16, 2019

Until the eruption of the Global Financial Crisis, macroeconomists agreed that fiscal policy was essentially unsuitable to manage aggregate demand and thus assigned to monetary policy the role to stabilize the business cycle (Bean et al 2010). The reasons invoked for rejecting fiscal policy as a stabilization tool typically included implementation lags, larger permanent deficits resulting in higher long-term interest rates and distortionary future taxes, and higher marginal propensities to save out of a temporary tax cut (i.e., lower income multipliers).In fact, the crisis shook this old tenet as monetary policy proved ineffective at influencing nominal GDP when the zero lower bound (ZLB) constrained nominal interest rates and the economy was in a liquidity trap (Dotsey 2010). Such policy

Read More »

“Unconventional” Fiscal Policies

February 16, 2019

This commentary discusses heterodox fiscal policies that can be considered when use of conventional tools is precluded.

Until the eruption of the Global Financial Crisis, macroeconomists agreed that fiscal policy was essentially unsuitable to manage aggregate demand and thus assigned to monetary policy the role to stabilize the business cycle (Bean et al 2010). The reasons invoked for rejecting fiscal policy as a stabilization tool typically included implementation lags, larger permanent deficits resulting in higher long-term interest rates and distortionary future taxes, and higher marginal propensities to save out of a temporary tax cut (i.e., lower income multipliers).
In fact, the crisis shook this old tenet as monetary policy proved ineffective at influencing nominal GDP when the

Read More »