Thursday, December 2, 2010

A Reply to Sumner (fg)

In the latest post, amv refers to a graph by Sumner on the monetary policy stance within the euro area. "Hayek would have told the ECB to print more money". Sumner writes
I get frustrated when I read people arguing the Eurozone problem is that the ECB can’t come up with a one-size-fits-all policy stance. As if monetary policy is too tight for just a few small stragglers on the edge of Europe, comprising just a few percent of the Eurozone GDP. Actually money is even tighter in Europe than in the US. It’s too tight for every single Eurozone member. Nominal GDP is well below the levels of early 2008 (emphasis mine).
When reading these lines, Sumner tries to make the point that monetary policy is too tight for every single Eurozone member. His benchmark is the level of nominal GDP. I checked his statement with the latest data for Germany. Below you find nominal GDP (blue line) and annualized growth rates (red line). As you can see, for Germany, nominal GDP is slightly above the levels of early 2008! In my opinion, Sumner makes a false statement when he feels frustrated about the one-size-fits-all debate against the background of low nominal GDP for all euro area members.