Tuesday, August 9, 2011

Money is too tight! (amv)

I get increasingly upset with the ECB. I sincerely doubt that its monetary policy which persistently is 'behind the curve' (due to the ECB's refusal to target expectations) and discretionary is appropriate for edgy market sentiments all around the globe. It is frustrating that so many continental economists cannot identify that monetary policy is extremely tight at the moment (I guess, because most confuse low nominal yields with expansionary policy and because they do not trust their own models). Fortunately, we have Kantoos who provides an excellent argument for why, in fact, money is too tight in Europe.

His core statement:
It is time to realize that the policy of the ECB has been extremely tight since 2008, measured by the concept of macroeconomic stability and is therefore an important cause of the current mess.
Some Evidence:

Policy conclusion:
[...] The essence of this: choose a higher inflation, or even better, nominal spending target the more diverse (read: suboptimal) your currency union is. For the Euro area, an inflation target of below 2% is inadequate.