Hawtreyan 'credit deadlock' or Keynesian 'liquidity trap'? Lessons for Japan from the great depression

This paper outlines the ideas of Ralph Hawtrey and Lauchlin Currie on the need for monetised fiscal deficit spending in 1930s USA to combat the deep depression into which the economy had been allowed to sink. In such exceptional circumstances of 'credit deadlock' in which banks were afraid to lend and households and business afraid to borrow, the deadlock could best be broken through the spending of new money into circulation via large fiscal deficits. This complementarity of fiscal and monetary policy was shown to be essential, and as such indicates the potential power of monetary policy - in contrast to the Keynesian "liquidity trap" view that it is powerless This lesson was not learned by the Japanese authorities in their response to the asset price collapse of 1991-92, resulting in a lost decade as ballooning fiscal deficits were neutralised throughout the 1990s by unhelpfully tight monetary policy with the Bank of Japan refusing to monetise the deficits

Credibility and adjustment: gold standards versus currency boards

It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.http://deepblue.lib.umich.edu/bitstream/2027.42/40078/3/wp692.pd

Accounting: A General Commentary on an Empirical Science

Many researchers have questioned the view of accounting as a science. Some maintain that it is a service activity rather than a science, yet others entertain the view that it is an art or merely a technology. While it is true that accounting provides a service and is a technology (a methodology for recording and reporting), that fact does not prevent accounting from being a science. Based upon the structure and knowledge base of the discipline, this paper presents the case for accounting as an empirical science

Thrift, Productivity and the Real Rate of Interest in Australia

In a small open economy, it is common to regard the domestic interest rate as a function of the world rate plus a local risk premium. At the same time. Irving Fisher's longstanding theory of the real interest rate emphasises the twin domestic forces of consumer thrift and producer productivity. This paper tests for a relationship between the Fisher variables and Australia's real interest rate. It is found that these two variables explain well the observed stationarity of the Australian real rate of interest since the early 1980s, indicating that thrift and productivity provide a robust theoretical framework for the macroeconomic factors that determine the risk premium. 2 downloads: http://www.eap-journal.com.au/download.php?file=362 and http://www.eap-journal.com.au/download.php?file=363Consumer, Interest Rates, Interest, Productivity

The Fisher effect and Australian interest rates

The Fisher hypothesis states that price inflation is fully reflected in nominal interest rates, implying that the underlying real rate is constant. This hypothesis is tested for Australian short and long-term interest rates using the Johansen methodology of cointegration testing, on both a pre- and post-tax basis. It is found that while the Fisher effect fails prior to the financial deregulation of the 1980s, there is evidence following deregulation that the relationship is restored.

The Australian economy: Your guide

In today's world, many people wish that they had an understanding of economics, and of the Australian economy and how it operates. This book is designed to provide people who have little or no knowledge of economics with a clear and understandable up-to-date commentary on the Australian economy. This book does what most other books on the subject of economics are yet to achieve-it makes economics interesting, understandable and very relevant! The use of technical theories and concepts has been avoided; instead the book clearly explains all the information a reader will require to be able to discuss government policy, international trade, the financial sector, and the economy's main industries (agriculture, manufacturing, mining and services). For readers who are unfamiliar with economics, a comprehensive glossary has been provided. This contains short, clear definitions of any words or terms that the reader is likely to want. Words that appear in the glossary are written in bold in the text on their first use in each chapter. In such a contemporary book as this, it is inevitable that the economy will change over time. The reader may wish to update data using the relevant websites referenced in the figures and tables in the book. I trust that this book will enhance your interest and understanding of all that involves the Australian economy, and its place in the world