Last month, students from four continents joined forces to call for reform of the economics curriculum.
In an open letter, the students said they wanted their courses to delve into a wider range of economics theories and methodologies than the standard neo-classical model that dominates undergraduate teaching, and to learn more about the implications of policy-making.
Speaking to those students was a heartening experience – all of them struck me as extremely thoughtful and articulate. Their desire for reform seemed driven by a curiosity about the world and what economics could do to improve it.
I suspect they’ll be encouraged by comments made in a speech today by the similarly thoughtful and articulate Benoît Cœuré, who sits on the European Central Bank’s executive board.
For those who have followed the scrap between Raghuram Rajan, governor of the Reserve Bank of India, and his counterparts at the European Central Bank and the Federal Reserve on the ill-effects of Fed tapering, Benoît Cœuré’s thoughtful speech today is worth a read.
In Mr Rajan’s view, the way the Fed conducts its monetary policy is irresponsible. The US central bank acts merely on the basis of national interest, with scant regard for the ramifications of mass dollar printing in a world where the dollar remains the dominant reserve currency.
These attacks have usually been parried with remarks that central banks such as the Fed (and, given its role as issuer of the only other real reserve currency, the ECB) have little choice but to act within the national interest given the scope of their mandates. From Mr Coeure’s boss Mario Draghi earlier this year:
Draghi: Mr Rajan is really an excellent economist. What one would have to demonstrate to speak of selfishness is the following. One would have to show that monetary policy actions within the United States, the ECB and so on were decided for reasons other than for the sake of the mandate and that, as a result, they were harmful to other countries. As I said, the priority for all of us is compliance with our mandate, which for us is maintaining price stability and for the Federal Reserve Board is the dual mandate.
Mr Cœuré’s speech is interesting as, while he does not go so far as to side with Mr Rajan, he is not so intellectually dishonest as to say that all is fine with the pre-crisis orthodoxy. In short, this said that if everyone just sticks to their inflation targeting mandate and flexible exchange rates everything will be just great.
It appears that the ECB’s top brass are divided over whether or not the recent rise in Spanish bond yields is warranted.
Bloomberg on Wednesday attributed the following comments to ECB executive board member Benoît Coeuré:
European Central Bank Executive Board member Benoit Coeure suggested that the bank could revive its bond-purchase program to reduce Spain’s borrowing costs.
“Market conditions are not justified,” Coeuré said at an event in Paris today. “Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”…
…”We have a new government in Spain that has taken very strong deficit measures,” Coeuré said. “All this takes time. The political will is enormous.”
Mr Coeuré’s view that Madrid’s political will is “enormous” contrasts somewhat with comments made by his boss, ECB president Mario Draghi at last Wednesday’s presser, which suggested that market pressure was justified both by economic fundamentals and the Spanish government’s inaction.
How far would the European Central Bank under Mario Draghi go in cutting interest rates?
The ECB president has taken care to rule out little in the way of possible steps were the eurozone crisis to deteriorate again. But Benoît Cœuré, the ECB’s new French executive board member, has hinted at one limit. In a speech delivered in the US a few days ago but just published on the ECB’s website, he warns of the potential costs of reducing interest rates to zero, or even pushing them into negative territory.
A chink in the European Central Bank’s tough stance on bond buying? Benoît Coeuré, nominated by France to join the ECB executive board, told the European Parliament late on Monday that bond purchases might have to be stepped up. He thus went beyond the comments in his written evidence, which I wrote about in a previous post.
“If we feel there is a deterioration in terms of the transmission of monetary policy, then we should do more,” Mr Coeuré said, according to Reuters.
Nicolas Sarkozy, France’s president, who strongly believes the ECB should be acting far more aggressively in combating the eurozone crisis, lobbied hard to have a compatriot on the European Central Bank’s executive board. Last month, a place finally became vacant when Lorenzo Bini Smaghi announced his departure for Harvard University.
Mr Sarkozy’s nominee to replace him, Benoît Coeuré, deputy director general and chief economist at the French treasury, has now outlined his views in written evidence submitted to the European Parliament.
Anyone hoping he would create a revolution at the ECB may be disappointed. On the main points of ECB policy, there appears little that would upset Frankfurt.
Just what the eurozone did not need right now: another possible German-Franco row, this time over jobs at the European Central Bank. In Brussels late on Tuesday, Wolfgang Schäuble, German finance minister, pressed for his deputy Jörg Asmussen to take over the ECB’s economics department from Jürgen Stark when he joins the ECB’s six-man executive board at the start of 2012.
The problem is that France’s Benoit Coeuré, an academic economist as well as French civil servant, who will arrive at the ECB at the same time as Mr Asmussen, is arguably much better suited for the economics portfolio.