Monetary Policy in Spain and Germany

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来自 IE Business School 的课程

Understanding economic policymaking

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IE Business School

Understanding economic policymaking

647 个评分

课程 1（共 3 门，Specialization Globalization, Economic Growth and Stability）

This is the first of the three courses part of the Globalization, Economic Growth and Stability Specialization. This course will employ a non-technical approach to analyze how governments use policy to influence a country's economy. Upon completing the course you should be able to discuss national debts and deficits, examine fiscal and monetary policy and their appropriateness to the situation of an economy, and anticipate the results of fiscal and monetary policies and structural reform on a country. These concepts will give you the tools to develop your own position in many current economic debates, such as fiscal stimulus vs. austerity, the merits of quantitative easing, the need for higher interest rates or the future growth path of many modern economies.

从本节课中

Policymaking in the Wake of the Financial Crisis

You are now in the last module of our Understanding Economic Policymaking course! Having reviewed the theory behind economic policymaking, we devote the last module to discovering what policymakers are actually doing in the leading developed countries of the world. We will discuss whether interest rates have been appropriate in a group of countries, and what the consequences are if they are not. We will also discuss quantitative easing, the main “unconventional” monetary policy, and anticipate some of its consequences. We will have a look at deficits and debt in some countries and use the tools to determine whether they are problematic; we will analyze the “austerity” policies applied in many European countries; and we will have a look at the combination of fiscal, monetary and structural policies being used in Japan, dubbed “Abenomics”. We´ll also consider the perils of policymakers´ aggressive pursuit of growth at a time when it is becoming more elusive. The final exam will have questions from this module and from each of the previous modules, so you can study your earlier quizzes to prepare. Good luck as you complete the course! I´ve enjoyed getting to know you a little. Warm regards.

Monetary Policy in the United States8:02

Monetary Policy in Spain and Germany6:04

与讲师见面

Gayle Allard
Professor
Economics

[MUSIC]

Here's another example of interest rates that were too low.

And it this case, it wasn't the fault of the central bank of the country, alright.

The case we're going to look at now is Spain.

And we've got again, the same picture I showed you with the United States.

We got the real short-term interest rate in red.

So I've taken the interest rate and subtracted inflation from it.

And then we've got the output gap in blue.

So again, like with United States, you can see there's a period of recessionary

gap in the mid-90s, alright, when that blue line drops below the zero axis.

And then we've got an inflationary gap the whole period from about 1998 to 2008,

and then it drops, as we know, with

the financial crisis into a big recessionary gap.

So, were interest rates appropriate?

Well, we would expect that interest rates would be rising in the

period of recessionary gap which lasts, as we said, throughout the early 2000s.

Instead, we find interest rates falling and then

becoming negative in real terms from 2003 to 2006.

Why on earth would they do that if the economy is growing so strongly?

We're looking at an output gap that goes

up to 4 percentage points above potential, right?

In other words, if the potential is 2, they're growing at 6.

Okay, why would they do that?

Well, there's a very simple reason, which is

that the interest rates were not set in Spain.

They were set by the ECB, by the European Central Bank, which exercises monetary

policy over the, at present, 17 countries that share the Euro as a currency.

So they all share this central bank, and the central bank

sets a target interest rate for the whole group of countries.

Well, sometimes they don't all need the, need the same interest rate.

So Spain, for instance, was in an

inflationary gap, it needed a higher interest rate.

However, Germany, as we'll see in a moment, was in a recessionary gap or

at potential, and Germany is much bigger in the Eurozone countries than Spain is.

So the ECB governor and his council, thinking about what's best for

most of the Eurozone, dropped interest rates until they were quite low.

And we also have to remember that the real interest rate

would be one thing in Spain and another thing in Germany.

Because even if we have the same ECB rate, let's say it's 3 in this period, okay?

If Spain had an inflation rate of 4, then we take

3 minus 4, that interest rate becomes negative in real terms.

But imagine that Germany had an inflation rate of 2, so

3 minus 2 means they still have positive real interest rate, okay?

So, these interest rates, because Spanish inflation was higher than German

inflation became too low for Spain, what happened in that period?

Well, we can, we know from history, this was

a period of a huge housing bubble developing in Spain.

In Spain people tended to invest in buildings rather than

putting their money into sort of exotic or risky financial assets.

And so all of the force of these excessively

low interest rates was felt in the housing market,

and by most indicators, Spain had the biggest housing

bubble of any country in the world in this period.

We can look at the next slide and we see the same picture.

You can see, again, the real short term interest rate dropping down

into negative terms, and now we're comparing it with real GDP growth.

Remember for, for monetary policy to be neutral, they should be roughly the same.

And look at the big difference between interest rates and GDP growth rates.

So clearly, that interest rate was very expansive for

Spain at a time when it needed a restrictive policy.

Now that same interest rate, if we look at Germany, was more appropriate, okay?

Here we're seeing the German output gap, okay?

And we can see that, whereas Spain had an inflationary

gap in that early 2000s, Germany had a recessionary gap, alright?

So you can see the real short-term interest

rates coming down to help Germany, which forms,

which is the biggest economy in the Eurozone,

to help Germany in that period of recessionary gap.

And then, they went up when Germany was

recovering, as you can see happen starting in 2006.

So, Germany got the right interest rates.

This is an appropriate monetary policy.

It was wrong for Spain.

Just another thing that you might want to think about here.

We can see Germany in 2011 and 2012, it

still has a recessionary gap, but it's quite small.

And those real short-term interest rates are very low.

So, some people say, and maybe we can see better on this next slide.

Here you see real GDP growth and the real short-term interest rate.

Remember for the monetary policy to be neutral, they need to be about the same.

So at the end of this period, 2011-2012, we see negative real interest rates.

And the real growth rate of Germany is above them.

So we see that these interest rates will have an expansive Impact on Germany.

There are some people who are concerned that maybe a

housing bubble is developing in Germany, where there was none

in the period when Spain and Ireland and Portugal, who

also experienced two low interest rates, were developing their housing bubbles.

Germany did not have one, and we can

see the reasons why, because interest rates were appropriate.

Now, it appears that there's a housing bubble

developing in Germany, and some people are concerned.

We can see part of the explanation for it here.

[MUSIC]

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