Three Unemployment Rates Relevant To Monetary Policy

We construct a Neo-Keynesian model, with a standard utility specification and nominal rigidities, in which monopolistic firms have employment-related norms and the wage bargaining power is variable. Due to norms, firms hire workers in excess of the number of employees required by technology. Workers in excess are efficiency reserves of the firms. We present the implications for the unemployment-inflation trade-off. We show that, with norms and variable bargaining power, besides the natural rate of unemployment, the unemployment rate at which firms establish/cancel norms, and the one at which the labor bargaining power reach maximum are relevant to decision making We show that, in the presence of norms, the response of the unemployment rate to a change in the monetary policy stance is relatively large, and temporarily concomitant increases in the unemployment rate and inflation can occur.

With a permanently pro-cyclical fiscal policy, we could lose democracy and monetary policy

This article shows that if, in a young democracy with weak institutions, one and the same party governs in virtually all upswings of the business cycle and promotes each time pro-cyclical fiscal policies, three serious negative effects emerge. The first is the loss of fiscal policy; fiscal policy remains pro-cyclical during the downturn as well, deepening the recession and extending the period in which output stays below potential. The second effect is the loss of democracy; unable to use fiscal policy to help exit the recession and speed up economic growth, the parties governing during downturns compounded by the pro-cyclicality of fiscal policies are perceived by the public as impotent and are penalized accordingly through a lower share of parliamentary seats, until the party that governs exclusively during business cycle upturns finds itself without a real opposition. The third effect is the loss of conventional monetary policy, manifesting if interest rates and inflation are low when recession sets in. Under these circumstances, lowering the monetary policy rate to zero might no longer suffice to stimulate the exit from recession and the quick return of output to its potential level, leaving central banks no option but to resort to unconventional monetary policies, such as quantitative easing.</p

How Countries’ Different Attitudes towards Inflation can thwart the European Dream

In this paper I show that countries’ commitment to maintain a fixed exchange rate is unsustainable if their attitudes towards inflation differ. This means that, if these attitudes are different, two of the solutions to the macroeconomic policy trilemma (those involving the fixed exchange rate) are unsustainable. Countries’ different attitudes towards inflation are an expression of different attitudes vis-à-vis competitiveness and reflect diverse national preferences regarding the objectives of economic growth, solidarity and sustainability, which are parameterised in the economic policies of nation-states. If countries commit themselves to maintaining fixed exchange rates and open capital accounts or they set up a monetary union, the segregation of their attitudes towards inflation engenders a mechanism that generates and perpetuates major current account imbalances across countries. The mechanism systematically places the adjustment burden on countries with a deficit, through wage and/or price deflation in countries with preferences for relatively high inflation rates, and leads to a lower effectiveness of fiscal policy or even to the loss of this policy as public debts as a share in GDP increase and come to exceed relatively elevated levels. At the end of the day, the commitment to a fixed exchange rate or to the currency area vanishes, showing that – if countries’ attitudes towards inflation differ – nation-states are incompatible with monetary integration, contradicting in this case one assertion of the political trilemma of the world economy described by Rodrik (2000). Keeping the commitment in place in a sustainable manner calls for giving up nation-states and for their democratic federalisation. In light of the above, the “executive federalism” (Habermas, 2011) instituted after 2008 in the euro area is not a solution for the survival of the currency union. It can prove useful only if it has been used in order to buy time for creating genuine demand from the public for a democratic federalisation of the euro area

Democracy, Political Competition and Public Debt

There are two major preferences shaping political choices: one, regarding who should play the leading role in running the economy (mar-kets or politicians) and the other, concerning social spending. According to reputation, leftist parties assign the leading role to politicians (i.e. the state), whereas rightist parties entrust mar-kets with the central role in running the econo-my. Right-wing parties’ reputation of not favoring social spending is not backed by facts. Since both the left and the right display similar behav-iors vis-à-vis social spending, it is preferable that markets play the central role in running the econ-omy. Flexible markets help economic growth and employment, reducing the need for high social spending. The freedom of property and freedom from corruption indexes show that, in Romania, the market has never played the central role in running the economy. People’s prevailing con-cern over their wellbeing ‘now’ rather than ‘to-morrow’ generates competition among political right and left for higher social spending, leading to high public debt. Neither left, nor right can guarantee sustainable limits for social benef ts and public debt. Capping the share of public debt in GDP by means of the Constitution provides no guarantee for public debt sustainability, but is worth a try

How Inflation is a Policy Nowadays

After World War II, democracies witnessed transformations that were and are much more lenient vis-à-vis the rise in inflation. The main institutional changes that have occurred gradually ever since and can combine nowadays to fuel inflation refer to (i) the shift in ideas referring to equality and redistribution, (ii) the labor market policies, (iii) bringing man’s natural environment to the level of importance of the social environment, with a particular focus on climate, and (iv) preserving a large capacity of the government to produce inflation in a context in which political power has granted independence to the central bank in terms of monetary policy. We show how features of society listed under items (i)- (iv) had combined to lead to low and stable inflation during 1982-2008, to lower than desired inflation during 2009-2020, and to the high inflation starting with 2021. The inflation-taming efforts succeeded only when three elements acted jointly: (A) raising the interest rate while no longer considering the inflation-unemployment tradeoff, impacting features (ii) and (iv); (B) adjusting budget deficits and stabilizing fiscal expectations, impacting feature (iv); (C) measures for reviving economic freedom, with an impact on features (i), (ii), and (iii).</p

Democracy, Political Competition and Public Debt

There are two major preferences shaping political choices: one, regarding who should play the leading role in running the economy (mar-kets or politicians) and the other, concerning social spending. According to reputation, leftist parties assign the leading role to politicians (i.e. the state), whereas rightist parties entrust mar-kets with the central role in running the econo-my. Right-wing parties’ reputation of not favoring social spending is not backed by facts. Since both the left and the right display similar behav-iors vis-à-vis social spending, it is preferable that markets play the central role in running the econ-omy. Flexible markets help economic growth and employment, reducing the need for high social spending. The freedom of property and freedom from corruption indexes show that, in Romania, the market has never played the central role in running the economy. People’s prevailing con-cern over their wellbeing ‘now’ rather than ‘to-morrow’ generates competition among political right and left for higher social spending, leading to high public debt. Neither left, nor right can guarantee sustainable limits for social benef ts and public debt. Capping the share of public debt in GDP by means of the Constitution provides no guarantee for public debt sustainability, but is worth a try

De ce trebuie să ţinem cont când reformăm economia mondială

There is frequent talk nowadays on the chances to use the “opportunity” that the present crisis has given to us, in order to, at least try to, reform the world economy. The current crisis seems to show us that it is of an imperious nature not only the need to reform the global regulatory and supervisory framework, but equally the need to reform the global monetary system anchored in the US dollar.world economy, global currencies, central banking, monetary policy, economic and financial crisis, regulation reform

Programmatic Advertising and Online Publishers: The Case of Libertatea.Ro

Programmatic advertising rose in the early 2000s, aiming at streamlining the online media buying process. It offered marketers the means to buy millions of advertising impressions instantly and helped publishers increase their revenues. The deployment of automated algorithms for media trading led to a significant decrease in campaign setup and management costs and created a new revenue stream for online publishers. However, by the late 2010s, the emergence of ever more complex algorithms and the opaque practices of the Advertising Technology (AdTech) companies in charge of them have led to complaints that programmatic advertising functions largely as a “black box”. This article inquires into the programmatic media trading process, with a focus on the impact of the algorithms’ increased sophistication on the monetization strategies of online publishers. We analyze the case of Libertatea.ro, a leading Romanian newspaper, in its attempt to offset the decrease of revenue from printed circulation by increasing revenues generated through its online website. The findings show that publishers are forced to apply increasingly complex website monetization strategies. This can, in turn, lead to a loss of control over their advertising inventory and decreased bargaining power when facing AdTech companies, thus threatening the economic models of online publishing