Monetary Nationalism and International Economic Instability

Quarterly Journal of Austrian Economics, Forthcoming

32 Pages Posted: 1 May 2011 Last revised: 18 May 2013

See all articles by Andreas Hoffmann

Andreas Hoffmann

Leipzig University

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: February 13, 2013

Abstract

The paper describes the international transmission of boom-and-bust cycles to small periphery economies as the outcome of excessive liquidity supply in large center economies based on the credit cycle theories of Hayek, Mises and Minsky. We show how too expansionary monetary policies can cause overinvestment cycles and distortions in the economic structure on both a national and an international level. Feedback effects of crises in periphery on center countries trigger new rounds of monetary expansion in center countries, which bring about new international distortions. Crisis and contagion in globalized goods and financial markets indicate the limits of purely national monetary policies in countries which provide the asymmetric world monetary system with international currencies. This makes the case for a monetary policy in large countries that takes responsibility for its long-term effects on goods and financial markets in both the home and the foreign countries.

Keywords: Credit Cycles, Monetary Policy, Crisis, Hayek, Minsky

JEL Classification: E42, E58, F33, F44

Suggested Citation

Hoffmann, Andreas and Schnabl, Gunther, Monetary Nationalism and International Economic Instability (February 13, 2013). Quarterly Journal of Austrian Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1826064 or http://dx.doi.org/10.2139/ssrn.1826064

Andreas Hoffmann

Leipzig University ( email )

Institute for Economic Policy
Grimmaische Str. 12
Leipzig, 04109
Germany

HOME PAGE: http://www.a-hoffmann.info

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Stra├če 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

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