1 s2.0 S0161893817300017 Main PDF

+Model
JPO-6327; No. of Pages 18 ARTICLE IN PRESS

Available online at www.sciencedirect.com
ScienceDirect
Journal of Policy Modeling xxx (2017) xxxxxx
Maximizing price stability in a monetary economy

Warren Mosler a , Damiano B. Silipo b,
a Valance Co. Inc., St. Croix, USA
b Universit della Calabria, Ponte P. Bucci, Cubo 0C, 87036 Rende, Italy
Received 6 June 2016; received in revised form 22 November 2016; accepted 14 December 2016
Abstract
Article 127 of the Treaty on the Functioning of the European Union establishes that the primary objective
of the European Central Bank (ECB) is to maintain price stability.
In this paper we propose that the ECB fund a transition-job for anyone willing and able to work, at a
wage fixed by the ECB, for the further purpose of enhancing the achievement of its single mandate of price
stability. In addition to superior price stability, the transition-job will define a form of full employment and
work to balanced economic growth.
Estimations of this proposal and the ongoing ECBs unconventional monetary policy show that public
purpose is best served by the selection of the alternative buffer stock policy that is directly managed by the
ECB.
2017 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.
JEL Classification: E31; E40; E52; E58
Keywords: European Central Bank; Monetary policy tools; Price stability; Buffer stock policy
1. Introduction
Article 127 of the Treaty on the Functioning of the European Union establishes that the primary
objective of the European Central Bank (ECB) is to maintain price stability, which is currently
defined as maintaining a year-on-year increase in the Harmonized Index of Consumer Prices
(HICP) for the euro area below but close to 2% over the medium term.
Corresponding author at: Ponte P. Bucci Cubo 0C, 87036 Rende, Italy.
E-mail addresses: warren.mosler@gmail.com (W. Mosler), silipo@unical.it (D.B. Silipo).
http://dx.doi.org/10.1016/j.jpolmod.2016.12.003
0161-8938/ 2017 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.
Please cite this article in press as: Mosler, W., & Silipo, D.B. Maximizing price stability in a monetary
economy. Journal of Policy Modeling (2017), http://dx.doi.org/10.1016/j.jpolmod.2016.12.003
+Model
2 W. Mosler, D.B. Silipo / Journal of Policy Modeling xxx (2017) xxxxxx
The central bank is the monopoly supplier of the euro monetary base (banknotes and bank
reserves). By virtue of this monopoly, it sets the conditions at which banks borrow from the
central bank. The central bank thereby manages liquidity in the money market and also influences
the terms and conditions at which banks trade with each other in this market, including the money
market interest rates.
Over the last several years, the effectiveness of the traditional tools of monetary policy to
achieve that price stability mandate has come into question, as even the ECBs extreme policies
of negative rates, liquidity provision, and quantitative easing have failed to elevate inflation to the
desired levels. The Bank of Japan and the US Federal Reserve Bank, employing measures similar
to those of the ECB, have likewise failed to achieve their inflation targets. Furthermore, these
results call into question the capability of central banks in general to curb deflation. These doubts
have been very recently brought in the spotlight by The Economist (2016: 9): After over five years
of a near-zero percent rate policy, and more recently quantitative easing and negative rates, private
sector credit expansion in the euro area remains depressed and has not, as presumed, acted as a
driver of investment or consumption or inflation. Investors fret that . . . policymakers seeking to
keep recession at bay have run out of ammunition. This paper proposes a new, additional tool for
the ECB for promoting price stability. We propose that the ECB funds a transition-job for anyone
willing and able to work at a wage fixed by the ECB, for the purpose of price stability. Notice that
our proposal is very different from any welfare subsidy policy, like a minimum income guaranty.
We call it a transition-job because it entails active employment that facilitates the transition from
unemployment to private sector employment.
Price stability is promoted as the transition-job wage becomes the defacto minimum wage in
the economy, while at the same time the supply of workers employed in transition jobs are readily
available to private sector employers and thereby act as an anti inflationary price anchor.
And, therefore, control over the transition-job wage becomes a tool for the ECB to sustain its
desired rate of inflation. In other words, the key mandate of the ECB would remain price stability,
current nominal monetary tools would remain in place, but with control of the general price
level further facilitated by the management of the stock of transition workers, a real variable.
The role of the transition-job wage is described by standard microeconomic monopoly pricing
theory. Monopolists are price setters rather than price takers, with monopolists setting two
prices. The first is called the own rate, which is how the item exchanges for itself. For a currency
this is the interest rate, with the ECB, for example, setting policy interest rates for the euro. The
second price set by monopolists is rate at which their item exchanges for other goods and services.
This is achieved by setting the terms of exchange for at least one traded good or service. With
this proposal, that administered price becomes the wage paid to transition workers participating
in the employed labor buffer stock. That is, that wage becomes the numeraire for the currency,
with market forces adjusting all other prices so as to continuously reflect indifference levels with
the employed buffer stock wage.
Therefore, with the general price level a function of the transition-job wage, the setting of the
transition-job wage, as well as the management and operation of the transition-jobs, would rightly
be a responsibility of the ECB. That is, the ECB would then use this wage to achieve its inflation
target.
In addition to the determination of the wage, managing the size of the transition-job buffer stock
to ensure its functions as an effective price anchor would also be the responsibility of the ECB
as per its mandate. If the number of transition-job workers was deemed to be larger or smaller
than needed to be an effective price anchor, the ECB would be responsible for implementing
appropriate policy.
+Model
W. Mosler, D.B. Silipo / Journal of Policy Modeling xxx (2017) xxxxxx 3
The paper begins with a statement of purpose and includes 7 sections. Next section introduces
the transition job, which we show to be a buffer stock policy for the further purpose of promoting
price stability. In Section 3 we review and compare the transition-job buffer stock to other buffer
stock options with regard to price stability. We continue in Section 4 with an analysis of the
implementation and estimations of the effects of the transition-job buffer stock policy, followed
by several additional considerations on the effects of the proposal. In Section 6 we present a
discussion of the likely impact of the current, ongoing ECB monetary policy, which includes a
VAR model to forecast the effects of current monetary policy tools, concluding that public purpose
is best served by the implementation of a transition-job buffer stock policy. The paper ends with
some concluding remarks.
2. Statement of purpose
The purpose of this paper is to introduce an additional central bank tool for controlling the
general price level. Specifically, we propose that a transition-job buffer stock policy that uses the
transition-job wage as an instrument of monetary policy is more effective in pursuing price stability
than current monetary policy that utilizes interest rate alterations that now include negative rates,
quantitative easing, targeted easing, and other forms of promoting a term structure of policy rates.
To that end, we show how a buffer stock policy that utilizes employed labor at a fixed wage would
function as a superior price anchor to current ECB policy that (indirectly) utilizes a buffer stock
of unemployed labor to achieve its single mandate of price stability.
We define a buffer stock policy as a policy of buying a commodity or currency at a support price
while at the same time offering to sell that commodity or currency at the same or a marginally
higher price, for the further purpose of promoting price stability.1
In a market economy the value of a currency what it can buy is necessarily directly or
indirectly tied to a buffer stock policy. The recorded history of such buffer stock policies, in fact,
dates back to biblical writings. Historically monetary authorities have utilized grains, precious
metals, and other currencies as buffer stocks for price stability, including the current wide spread
use of unemployed labor and excess capacity in general to achieve price stability.
With a fixed exchange rate policy, as, for example, with a gold standard, gold functions as a
buffer stock. The nominal price of gold is fixed by the monetary authority, while market forces
then cause all other prices to continually adjust, expressing nominal values relative to gold.
With todays near universal floating exchange rate policies, unemployment, for all practical
purposes, becomes the buffer stock utilized to promote price stability. Public policy is designed
to increase unemployment (the size of the buffer stock of unemployed) when inflation is deemed
to be too high, and to decrease unemployment when higher rates of inflation are desired.
Our proposal replaces the concept of the rate of unemployment with the rate of transitional
employment. We propose that the ECB utilize an employed labor buffer stock policy to control
the price level, rather than an unemployed labor buffer stock, as is the case with current policy.
In its elemental form this policy is implemented by the ECB offering a fixed wage transition-job
to anyone willing and able to work. We call it a transition job because it is designed to facilitate
1 Note that this means that the targeted commodity of the buffer stock policy can always be monetized at the chosen
support price, and in that sense the buffer stock policy commodity can be said to be always fully employed, as it can
always be sold to the monetary authority at that price.
+Model
the transition from unemployment to private sector employment2 , with the further purpose of
promoting control of the price level. Transition-job workers would not be meant to displace
normal government workers to save costs.
The transition-job wage would be determined by the ECB, with all other wages and prices
allowed to adjust continuously, expressing relative values to that fixed transition-job wage. This
wage therefore functions as a price anchor for the currency, as it defines a quantity of labor that
a euro can purchase.
The primary reason for the superior price stability versus todays policy of using unemployment
as a buffer stock is that employers prefer to hire people who are already working rather than
those who are unemployed.3 Furthermore, this resistance to hiring increases as a function of the
length of unemployment. Kroft, Lange, and Notowidigdo (2012) and Krueger, Cramer, and Cho
(2014), among others, provided evidence that long-term unemployed have a 2040 percent lower
probability of being employed one to two years in the future than do the short-term unemployed.
This tendency is exacerbated in a segmented labor market between insiders and outsiders (see,
Gal, 2016), and leads to labor shortages even as unemployment remains at relatively elevated
levels. Therefore, what appears to be excess capacitythe rate of unemploymentis, for all
practical purposes not accessible.4
Therefore, during an expansion, with a given inflation target, the number of workers remaining
in transition-jobs will be less than the number of unemployed would have been had the ECB been
attempting to achieve its inflation target with its current policy. In other words, an employed buffer
stock allows the economy to operate at higher levels of non-inflationary output and employment
than is the current case where the NAIRU (non accelerating inflationary rate of unemployment)
a presumed minimum level of unemployment is an implicit target of monetary policy. That
is, a labor buffer stock policy is likely to both reduce fluctuations in prices compared to current
policy when the private sector slows down, as well as significantly resist price increases when the
private sector expands as it seeks to hire transitional workers rather than unemployed workers.
Once the transition-job policy is enacted, the ECB would then use the transition-job wage to
achieve its inflation target. For example, leaving the transition-job wage constant would promote
0% inflation of final prices, assuming 0% productivity growth. And, for example, if the targeted
rate of inflation was 2%, and again assuming 0% productivity growth, increasing the transition-
job wage at a 2% annual rate would result in 2% inflation. And, with productivity growth, the
transition-job wage could be increased correspondingly to achieve the same increase in final
prices.
In practice, the size of the transition-job buffer stock would grow as demand for labor in the
economy weakens and it would diminish as the demand in the economy for labor increases, much
like todays unemployment pool increases and decreases. Therefore, given the ECB mandate of
2We suggest that it is arguably appropriate to call this policy a structural reform that promotes efficiency and com-
petitiveness. The following are two examples. (1) The transition-job preserves human capital and forces the firms to
compete by innovation. (2) The transition-job facilitates the restructuring of less efficient firms and sectors by facilitating
firing in these sectors.
3 There are several reasons why employers prefer hiring employed than unemployed: (1) people who have a job are
proven to be interested in working; (2) you cant be sure why the unemployed lost their jobs; (3) the employed will adjust
more quickly to a new job; (4) an employed candidate has fresher job skills and known work habits. The Time, Special
report: Out of Work in America., May 23, 2011.
4 Federal Reserve Chairwoman Janet Yellen in a speech to the 2014 National Interagency Community Reinvestment
Conference in Chicago reported evidence of a long-term trend joblessness increase and of a decrease in the participation
rate to the labor force after 2000.
+Model
Table 1
Volatility of potential buffer stocks.
Average annual price change (AV%)
19841994 19942004 20042014
Gold 10.3% 8.5% 17.9%

Silver 14.3% 11.7% 31.8%
Corn 22.0% 17.3% 22.3%
CRB 7.4% 6.5% 13.6%
AHE 2.9% 3.3% 2.7%
Source: Bloomberg.
price stability, we assert that the achievement of this mandate is materially enhanced by maintain-
ing a pool of transition workers (a real variable), as an addition to the ECBs existing monetary
tools. While this policy implies a new approach for the ECB, it is nonetheless fully compatible
with the ECB mandate as prescribed by the Treaty of Maastricht.
3. Selecting a buffer stock
We stated above that a buffer stock policy is a policy of buying a commodity or currency at
a support price and selling that commodity or currency at the same or a marginally higher price.
With the nominal price of the buffer stock fixed, any change in relative value of the buffer stock
itself is expressed as a change in the nominal price level of all other prices. Therefore, the lower
the historic price volatility of that which is selected as the buffer stock, the greater the expected
general price stability when that selection becomes the object of the buffer stock policy.
We next analyze a selection of potential buffer stocks for price stability and liquidity. We use
historic nominal prices to compare price stability, and for purposes of this analysis we define
liquidity as the required quantity of money that an external entity would have needed to spend
to cause a given shift the relative value of that commodity. However, while actual data is used
for the price stability comparison, the liquidity comparison is done only by narrative, as we
found it impossible to quantitatively differentiate specific causes of price changes. While this
determination of liquidity is at best imprecise, the magnitudes of the differences between the
contending commodities were sufficiently large for a useful distinction to be made.
3.1. Volatility
Four buffer stock options were selectedgold, silver, corn, and hourly labor. Additionally we
included data from the Commodity Research Bureau (CRB) index, a combination of numerous
commodities, for general background information. The first three commodities were selected
because they have been used historically and gold has been the object of more recent attention,
including proposals to return to a gold standard. The fourth, an employed labor buffer stock, is a
derivative of our current policy of utilizing unemployment as a buffer stock, and will be used as
a basis of comparison after the analysis of the four options selected.
Table 1 includes the average annual price change of gold, silver and corn. In addition, the table
includes the average annual change of a price index of selected commodities monitored by the US
Commodities Research Bureau (CRB). We display this index as a representative example of how
the price of a basket of commodities fluctuates over time. Finally, the average annual change of
+Model
hourly earnings of production and nonsupervisory employees (AHE), provided by the US Bureau
of Labor Statistics, is shown as a proxy for the wage volatility of this type of labor that would be
employed in conjunction with a transition-job buffer stock policy.
Table 1 shows that the employed labor buffer stock is clearly a superior choice for a price anchor
with regard to ECB policy when its volatility is compared to alternative buffer stock options.
The average annual price change of the commodities clearly appears less severe than gold,
corn, or silver. However, the average hourly earnings displays far lower volatility than the metals
or commodities. On this basis, we judge the employed labor buffer stock as the superior price
anchor, thereby supporting our proposal for a transition-job buffer stock ECB policy.
3.2. Liquidity
For purposes of this analysis, we estimate resistance to price change for a given quantity of
money spent to purchase the content of the buffer stock. To do this assume price resistance is
largely a function of market capitalization, which is defined as the price times the quantity of the
new supply offered for sale annually of each potential buffer stock selection.
Assuming there are approximately 170 million Europeans working at the average wage of D 21
per hour, with an average working week of 35 h, weekly income amounts to approximately D 110
billion, or a wage bill of about D 5.5 trillion annually.
In contrast, annual global gold mining totals about 80 million ounces, which at D 966 per ounce
equals only D 77.2 billion of annual sales. And the annual harvest of 14 billion bushels of corn at
D 3.5 per bushel equals only D 49.2 billion of annual sales.
When compared to the commodities analyzed, the far greater market capitalization of the labor
market indicates far more money would need to be spent on labor to cause wages to increase,
for example, 1%, than would need to be spent on gold or corn to cause those prices to increase
by 1%. Therefore, we also conclude on the basis of our measure of market capitalization that an
employed labor buffer stock will function as the superior price anchor for the euro.
We next compare the transition-job buffer stock policy to current ECB policy.
For all practical purposes the euro uses unemployment as a buffer stock to promote price
stability. The relationship is expressed by what is called the Phillips curve, where inflation is a
function of the level of unemployment, with lower unemployment imparting an inflationary bias
and higher unemployment a deflationary bias. Policy is enacted to increase unemployment (the
size of the buffer stock of unemployed) when inflation is deemed to be too high, and to decrease
unemployment when higher rates of inflation are desired.
To promote alterations in the unemployment rate, the ECB uses its policy tools, which involve
the setting of interest rates. The monetary link between interest rates and unemployment are the
credit channels. The link between interest rate policy and inflation, output and employment has
been deemed sufficiently robust to the point where it is presumed that monetary policy can be
utilized to sustain desired levels of inflation and output, allowing the national governments to
budget for fiscal surpluses and reduce their national debts.
During recent years substantial empirical evidence has emerged which questioned the presumed
causations between inflation and unemployment as well as the effectiveness of the conventional
and unconventional monetary policy tools implemented by the ECB. Blanchard, DellAriccia and
Mauro (2013), Blanchard, Cerutti and Summers (2015), Blanchard and Posen (2015), among
others, pointed out the absence of a reliable relation between output gap and inflation in the last
decade, and Ball (2014) and Gal (2015) stressed the significant differences in the behavior of
unemployment between United States and the Eurozone.
+Model
14.0
12.0
10.0 Infl. Euro area (19
countries)
8.0
Infl. United States
6.0
Unempl. Euro area
4.0
2.0 Unempl. United
0.0 States
2000M01
2000M08
2001M03
2001M10
2002M05
2002M12
2003M07
2004M02
2004M09
2005M04
2005M11
2006M06
2007M01
2007M08
2008M03
2008M10
2009M05
2009M12
2010M07
2011M02
2011M09
2012M04
2012M11
2013M06
2014M01
2014M08
2015M03
2015M10
-2.0
-4.0
Fig. 1. Inflation (percentage change to the same month of the previous year) and rate of unemployment in US and the
Eurozone 2000/012016/02.
Source: Eurostat.
As Fig. 1 shows, after 2008 both in the Eurozone and the US inflation became less sensitive to
changes in unemployment, and in the euro area there is also an hysteresis effect on unemployment.5
The advantage of the transition-job over unemployment buffer stock is to make more liquid
labor, because transition-job workers are more readily hired by the private sector, thereby better
stabilizing private sector wages and prices during an expansion. In addition, the transition-job
wage becomes the de facto minimum wage for the economy, eliminating the need for specific
minimum wage legislation and enforcement, and stabilizing prices also in a recession.
Other advantages of the transition-job are:
a. Transition-job workers can produce useful output for the economy.

b. Transition-jobs reduce negative externalities associated with unemployment, including crime,
domestic disruption, and other anti social behaviors.
3.3. The risks of buffer stock policies
The purpose of the support price is to prevent the commodity or currency from exchanging at a
price lower than the support price. On the other hand, buffer stock policies face two risks. The first
risk is that the support price results in an unwelcome increase in supply and, therefore, quantity
purchased at the support price. This above-market price then results in an excess of supply to the
extent the supply curve is upward sloping. However, employing labor in a transitional job is not
expected to result in a commensurate growth in population, the way a gold or silver standard can
result in new mining and hoarding, or a corn buffer stock can result in an increased corn surplus.
The second risk is financial. A buffer stock policy presents the possibility of substantial
increases in expenditures to purchase the object of the buffer stock. And while the ECB is not
subject to solvency risk,6 additional expenditures during an economic slowdown due to displaced
5 See Gal (2015, 2016). He provides a model which shows that hysteresis is the outcome of a framework in which
wages are set by unions to give a disproportionate weight to a subset of the labor force the insiders when setting wages.
He suggests the optimal policy calls for strong emphasis on unemployment stabilization that a standard interest rate rule
fails to deliver.
6 Indeed, an occasional paper just published by the ECB makes this point in a footnote on page 10: "Central banks are
protected from insolvency due to their ability to create money and can therefore operate with negative equity." Bunea,
+Model
workers opting for transition jobs does add to aggregate demand. However this type of counter
cyclical, anti deflationary expenditure is in this case entirely supportive of public purpose.
4. Implementation and effects of the proposal
We begin by proposing the setting of a non-disruptive wage of D 7 per hour for a 35 h per week
transitional job for anyone willing and able to work. We then further propose that the member
nations first go to their various ministries and departments and announce that they have unlimited
budgets to add any persons willing to work as transition-job workers at the prescribed fixed rate
of pay. These people could work as assistants in the police departments, educational facilities,
and any of the various administrative offices.
After 30 days the program is extended to the various regional governments and city gov-
ernments, and 30 days later to non-profit and charitable organizations. This would allow the
unemployed seeking paid work to be able to find it regionally making and this makes them more
attractive to private sector employers.
The organization, monitoring, and evaluation of this policy could be implemented interactively
between member countries and the European Commission in a similar way to which current
structural policies are implemented, but maintaining ECB independence to establish the terms
and conditions of the employment of the transitional workers as well as the authority to monitor
the policy for fraud and abuse. We recommend that the minimum wage initially be set at a non-
disruptive level, so as not to cause workers already employed to leave their current employment in
favor of the new transition-job.7 This prevents the transition-job from creating an initial, inflation-
ary wage shock which might adversely disrupt commercial arrangements and whats generically
called the competitiveness of the business community. While the minimum wage does function
as a general wage floor, by initially setting it at a non-disruptive level it subsequently works to
prevent deflation while not promoting inflation. This also means that if this wage is offered to
anyone willing and able to work, as a point of logic, it obviates the need for minimum wage
legislation.
Additionally, as previously described, should the ECB desire to promote, for example, a 2
percent rate of inflation and again assuming zero percent productivity growth, the minimum wage
can be increased 2 percent annually from its initial setting.
Next we address concerns that expenditures on an employed labor buffer stock might per se
generate unwelcome inflation by presenting and discussing a model generated forecast of the
likely effects of this policy on inflation and real GDP growth in the euro area. We use a VAR
model to estimate the likely impact of any net expense of a labor buffer stock policy. Notice that
this model do not require to make a priori assumptions on the relationship between these two
variables: The data speak by themselves on the nature of this relationship, and they reflect all the
possible factors that affected inflation and output in the euro area.
Using this analytical framework, we impose an increase in the nominal GDP in the euro
area countries equal to the amount necessary to implement the labor buffer stock policy, and
we estimate the effects of this policy on inflation and output. And, to be conservative, we use
aggressive assumptions for spending and multipliers, and that the employed labor buffer stock
Karakitsos, Merriman, and Studener (2016). This is equivalent to saying that central banks cannot run out of money
because they are the ones that create the money.
7 Currently, the minimum wage in the Euro area countries ranges from euro 300 for Lithuania to euro 1500 for Belgium
and euro 1923 for Luxembourg.
+Model
Table 2
Forecast of inflation (PCONS) and real GDP growth (YR) assuming exogenous an increase of the nominal GDP by 24
billion euro in the first quarter of 2016, and by 0.92 GDPt1 in subsequent periods.
NOMINAL GDP 100*(PCONS 0/PCONS 0(-4))-100 100*(YR 0/YR 0(-4))-100
Million of euro Inflation% Real GDP growth%
2015Q2 2,591,020 0.191652 1.58039

2015Q3 2,606,750 0.454782 1.624601
2015Q4 2,614,623 1.453026 1.434723
2016Q1 2,638,623 2.142802 0.848117
2016Q2 2,660,703 1.875944 0.841399
2016Q3 2,681,016 2.010326 1.022458
2016Q4 2,699,705 1.806927 1.160066
2017Q1 2,716,898 2.084881 1.447849
2017Q2 2,732,716 1.766765 1.277021
2017Q3 2,747,269 1.910983 0.944039
2017Q4 2,760,657 1.650903 0.780207
The source of the Nominal GDP until the end of 2015 is Eurostat.
does not dampen the consequential inflation. The direct nominal cost is related to two indicators:
the minimum transitional job wage fixed by the ECB, and the number of workers employed in
the transitional jobs.
We begin with the assumption of the ECB offering transitional jobs requiring 35 h per week
at a salary of 7 euro per hour, paid for by the ECB. In October 2015 there were 17,240,000
unemployed people in the nineteen countries of the Eurozone. Assuming all the unemployed
opted for a transition-job at this wage, the maximum direct cost for the ECB to implement
this policy would be euro 18.14 billion per month. In the euro area government expenditure on
gross capital formation is about 11.34% of total public expenditure. So by assuming the same
proportion between capital and labor also holds for this program, we add a monthly expenditure
by the member countries of euro 2.1 billion for new equipment.
However, transitional jobs would also allow the euro area countries to immediately save euro
12.3 billion per month on income maintenance and support expenditures currently being spent on
those opting for transition-jobs. These savings, net of the additional capital expenditure, would
be remitted to the ECB, thereby reducing gross ECB expenditures for the transition-jobs.
Therefore, the net total expenditure to implement the transitional job program would be about
8 billion euro per month (18.1410.2 billion of euro).
Next, we estimate the impact of D 8 billion per month of total expenditure by the ECB on
nominal GDP in the euro area. Therefore, in the first quarter of 2016, the increase in nominal
GDP is equal to 24 billion of eurothat is the net amount necessary to implement the program. In
the subsequent quarters the ECB expenditure remains fixed at 24 billion of euro, but the nominal
GDP continues to increase due to the multiplier effect, given our assumption that the propensity
to consume is equal to 0.92%.8 So with the ECB expenditure to implement the labor buffer stock
policy remaining constant, nominal GDP continues to increase by the amount reported in column
1 of Table 2, due to the aggressive (conservative, in this case) income multiplier effect we selected.
8 This is also assumed by the Federal Reserve, and it is consistent with what estimated by Lawrence, Eichenbaum,
and Rebelo (2010) for the government spending multiplier when the zero interest rate lower bound is effective and by
Cugnasca and Rother (2015) for the euro area.
+Model
Given this exogenous nominal GDP growth, by a VAR model we estimated the impact of a
labor buffer stock policy on inflation and real GDP growth for the years 2016 and 2017.
Columns 2 and 3 in Table 2 report respectively the results of the forecast analysis for inflation
and real GDP growth.
The results show that funding a labor buffer stock policy by the ECB would result in a rate of
inflation that hits immediately slightly over 2%, before falling back under 2%, and settling back to
1.65% after approximately two years. That is, even with aggressive assumptions on the number of
jobs to finance and the size of the multiplier effect, and no presumption of superior price stability
from the transition-job buffer stock, there is no evidence that the expense of an employed buffer
stock program would generate unwelcome inflation.
Said another way, with less aggressive assumptions regarding the size of the multiplier, the
model would show that an even lower inflation rate would result from the ECBs net funding of
the transition-jobs.
5. Accounting and other effects
5.1. Accounting
The accounting for the ECB payments for the transition workers in the employed labor buffer
stock per se is of no operational economic consequence. However, the nominal expenses do carry
serious political considerations under the current institutional structure. For example, should the
ECB simply expense the payments, ECB stated capital is reduced. While operationally capital
denominated in its own currency is of no practical consequence for a central bank,6 there are
currently politically determined consequences which are significant in the current situation. For
example, in the European Union there is a political requirement for the ECB to be capitalized,
and if expenses reduce the capital of the ECB, it is required to make capital calls to the member
states, which are further required to comply with debt and deficit limits. The following financial
proposals, therefore, are presented only in response to current political realities.
The first political decision is whether the expense for the buffer stock wage should be accounted
for with an allocation to each member nation based on the expense incurred within its boundaries,
or whether the expense should be divided pro rata based on total population. Given that unem-
ployment compensation is currently paid by the member nations, we are proposing to account for
the nominal cost of transitional buffer stock employees in the same way, even though we suggest
that the transitional employed labor buffer stock be managed directly by the ECB as an additional
tool for meeting their price stability mandate.11
The additional costs per member will be partially offset by savings on various transfer payments
previously paid to unemployed workers who opt for transitional buffer stock employment, with any
additional net cost adding to current spending. To prevent the additional expense from reducing
stated capital of the ECB (again, assuming reduced capital would be a political obstacle) member
nations could issue transferable tax credits to the ECB equal to ECB expenses with regard to
wages and associated costs of the transitional buffer stock workers. These tax credits would be
assets on the ECBs balance sheet and the euro balances credited to member banks as payment for
the said wages and expenses would be the (equal) liabilities. Should it be deemed necessary for
the ECB to convert the tax credits to euro (something we cannot foresee under any circumstances),
11 Previous literature following this approach are: Kregel (1999), Mosler and Forstater. (1998), and Tcherneva (2002).
+Model
the tax credits could be sold to ECB member banks at face value, and the member banks could
then use them on behalf of their depositors as they make tax payments to the member nations.
5.2. Fiscal balance
The fiscal balance is ultimately market determined. The public debt is the accounting record
of the net financial assets held by the non-government sectors. It is the total level of euro spent
by national governments that have not yet been used to pay taxes and will remain outstanding as
cash, as euro balances in reserve accounts in the ECB system, or as euro balances in securities
accounts in the euro system (casually referred to as the public debt of the member nations) until
such time as those euro spent but not yet taxed are used to pay taxes.
When the public deficit is too small to accommodate the private sectors both domestic
and foreign saving desires, market forcesperceived shortages of income required to be able
to meet savings desiresdepress spending and employment, which reduces tax revenues and
increases state transfer payments, thereby increasing the public sector deficit. These market forces
continue to the point where the public sector debt is, by identity, equal to desired net savings of
Euro-denominated financial assets.
With the proposed employed transition labor buffer stock the same market forces are at work
to determine the level of public sector debt. When desired savings exceed the size of the public
debt, market forces work to reduce spending, sales, output, and private sector employment which
reduces tax revenues, and, in this case, increases the number of transition-job employees and at
the same time the total wage bill for the workers in the transition-job. As is currently the case,
the public sector deficit and debt would continue to be set by market forces that equate savings
desires with available savings.
5.3. Exchange rates and competitiveness
The euro area is an open economy with a floating exchange rate policy, where domestic
demand as well as domestic pricing is subject to continuous influence by forces originating in the
foreign sector. Shifting domestic policy from an unemployed labor buffer stock to an employed
labor buffer stock is not expected to materially alter these forces or the challenges they present.
However, some general conclusions can be drawn indicating that the outcomes can be expected
to be no worse and arguably improved by shifting to an employed labor buffer stock policy.
The first implied benefit is that superior price stability over the long term should equate to
superior currency stability as well, which is presumed to render real benefits. Additionally, a
more fluid labor force standing by in transitional jobs enhances the flexibility of private sector
businesses as well as reducing the cost of hiring when reacting to opportunities to expand through
additional employment. These types of efficiency gains tend to enhance competitiveness and,
ultimately, real terms of trade.
5.4. Foreign direct investment
FDI tends to support a currency and fundamentally is largely a function of profitability of

those investments. Historically, foreign direct investment is either directed toward cost savings
countries or toward countries where the profit outlook from domestic demand is favorable. The
transitional workers supported by the employed labor buffer stock policy address both of these
issues, first by providing a ready labor force at a known wage, and also by providing employed
+Model
workers who are also consumers with superior access to credit that can support more aggregate
demand than that of unemployed consumers.
6. Evidence on the impact of the ECB monetary policy
In support of our contention that current ECB policy has been and is likely to be ineffective, we
offer the following analysis, which estimates the likely impact of the ECBs ongoing monetary
policy and compares the results with previous forecasts for inflation and output.
As previously stated, the ECB uses its policy tools to (indirectly) promote alterations in the
unemployment rate for the further purpose of promoting price stability.
During recent years, however the evidence has questioned the effectiveness of the conventional
and unconventional monetary policy tools implemented by the ECB. After over five years of a
near-zero percent rate policy, and more recently negative rates along with quantitative easing,
private sector credit expansion remains depressed and has not, as presumed, acted as a driver
of investment, consumption or inflation. Unemployment remains alarmingly high, and with the
economy bordering on deflation.
Gros, Alcidi, and De Groen (2015) and Micossi (2015) documented that medium-term impact
of QE on growth and inflation have been modest. Similar qualitative results are obtained by
Boeckx, Dossche, and Peersman (2014), Gambacorta, Hofmann, and Peersman (2014), Gibson,
Hall, and Tavlas (2016), and by Kremer (2016), although an easier stance in both standard and
non-standard policy tools helped calm down financial stress. Additional evidence of the mone-
tary policy ineffectiveness is provided by Aristei and Gallo (2014). They show that interest rate
pass-through between interbank and retail bank rates in the euro area decreased during periods
of financial distress. Kucharcukov, Claeys, and Vascek (2016) provided evidence that uncon-
ventional measures by the ECB have generated a variety of responses, however, the effect on
the real economy is slow and limited and inflation often remains unaffected. Similarly, Orlowski
(2015) reported that an increase in the US monetary base has been associated with higher excess
reserves, an increase in security investments, and a contraction of bank credit. And Igan, Kabundi,
De Simone, and Tamirisa (2016) show that the balance sheets of American financial intermedi-
aries affect the impulse response of inflation, output, and unemployment, but their economic
significance in the run-up to the recent financial crisis was small.12 In this section we provide
additional empirical and experimental evidence on the impact of the ongoing ECB quantitative
easing program in the euro area.
The success of conventional and unconventional monetary policies in achieving price stability,
given the assumption that price stability is a function of rates and expectations relies on the
working of two transmission mechanisms: (1) the capability of policy to affect the prices of long
term relative to short-term securities; (2) the ability to align inflation expectations toward the
targeted level.
To estimate to the extent to which these mechanisms may be presumed effective, we tested
a vector autoregression (VAR) model with quarterly data from 1999QI to 2015QIV for the euro
area. Then we performed a forecasting exercise, assuming the ECB will increase total assets by
60 billion euro per month until the end of 2017.
12 Additional evidence on the quantitative easing policy in Japan are: Berkmen (2012), Bernanke (2003), Lam (2011),
and in the United States are: Chung et al. (2011), Gagnon et al. (2010), IMF (2015), Woodford (2015), Baumeister and
Benati (2013), Chen et al. (2012), Liu and Mumtaz (2012). Borio and Disyatat (2010) provide an appraisal of quantitative
easing policies.
+Model
Accumulated Response to Cholesky One S.D. Innovations 2 S.E.

Accumulated Response of DLOG(GPCONS) to DLOG(GPCONS) Accumulated Response of DLOG(GPCONS) to DLOG(YR) Accumulated Response of DLOG(GPCONS) to DLOG(PORT BCE)
1.0 1.0 1.0
0.5 0.5 0.5
0.0 0.0 0.0
-0.5 -0.5 -0.5
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
Accumulated Response of DLOG(YR) to DLOG(GPCONS) Accumulated Response of DLOG(YR) to DLOG(YR) Accumulated Response of DLOG(YR) to DLOG(PORT BCE)
.02 .02 .02
.01 .01 .01
.00 .00 .00
-.01 -.01 -.01
-.02 -.02 -.02
-.03 -.03 -.03

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
Accumulated Response of DLOG(PORT BCE) to DLOG(GPCONS) Accumulated Response of DLOG(PORT BCE) to DLOG(YR) Accumulated Response of DLOG(PORT BCE) to DLOG(PORT BCE)
.3 .3 .3
.2 .2 .2
.1 .1 .1
.0 .0 .0
-.1 -.1 -.1
-.2 -.2 -.2

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
Fig. 2. Accumulated impulse response (3 lags), 1999Q12014Q4.
The VAR model we estimated is reported in Eq. (1) below:
Yt = + A(L)Yt 1 + Bt (1)
where Yt is a vector of endogenous variables, a vector of constants, A(L) is a matrix polynomial

in the lag operator L, and B is the contemporaneous impact matrix of the mutually uncorrelated
disturbances . In our specification, the vector of endogenous variables Yt comprises three vari-
ables: the log of seasonally adjusted real GDP, the log of seasonally adjusted consumer price
index, the log level of seasonally adjusted central bank assets. Thus, we assume the implemen-
tation of monetary policy actions is reflected in the size of the central bank balance sheet. Our
aim is then to assess the overall impact of central bank balance sheet policies on inflation and real
GDP growth, taking account of the agents inflation expectations.
The sources of the data are the Eurostat dataset and the European Central Bank data warehouse.
First, we performed the usual lag-length selection criteria to estimate lags of the endogenous
variables. It turned out that the three-lag length was significant, although the results proved robust
with respect to different specifications of the lag length. Therefore, we estimated a three-lags VAR
system using OLS. Levels and changes of all the variables are quarterly.
In Fig. 2 below, we report the accumulated impulse responses for the full period.
It is interesting to notice that the accumulated response of inflation (GP CONS) and real GDP
growth (YR) to exogenous shocks in the ECB balance sheet (PORTBCE) is negative and becomes
positive after six quarters. Moreover, shocks in real GDP have an initial positive impact on inflation,
which after five months vanishes. These results support previous conclusions regarding the weak
impact of the ECB monetary policy on inflation and output, as well as the empirical evidence on
the weak relationship between inflation and output in the euro area.
+Model

.4 .4 .4
.2 .2 .2
.0 .0 .0
-.2 -.2 -.2
-.4 -.4 -.4

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
.03 .03 .03
.02 .02 .02
.01 .01 .01
.00 .00 .00
-.01 -.01 -.01
-.02 -.02 -.02
-.03 -.03 -.03

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
.12 .12 .12

.08 .08 .08
.04 .04 .04
.00 .00 .00
-.04 -.04 -.04
-.08 -.08 -.08
-.12 -.12 -.12
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

3 3 3
2 2 2
1 1 1
0 0 0
-1 -1 -1
-2 -2 -2
-3 -3 -3
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
.12 .12 .12
.08 .08 .08
.04 .04 .04
.00 .00 .00
-.04 -.04 -.04
-.08 -.08 -.08

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
1.0 1.0 1.0
0.5 0.5 0.5
0.0 0.0 0.0
-0.5 -0.5 -0.5
-1.0 -1.0 -1.0
-1.5 -1.5 -1.5

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
To understand to what extent the last results are influenced by the factors specific to the crisis
period, we estimated the accumulated impulse response separately for the years 19992006 and
20082014. The results are reported in Figs. 3 and 4.
+Model
Table 3
Forecast of inflation (DEFL) and real GDP growth (YR) assuming exogenous the ECB balance sheet and two-years ahead
inflation expectations is 1.5%.
Inflation Real GDP Growth
100*(DEFL 0/DEFL 0(-4)-1) 100*(YR 0/YR 0(-4)-1)
2015Q2 1.301619 1.409245

2015Q3 1.358842 1.152422
2015Q4 1.444656 0.958054
2016Q1 1.488940 0.622841
2016Q2 1.504230 0.502472
2016Q3 1.564958 0.501283
2016Q4 1.579769 0.366197
2017Q1 1.603393 0.199058
2017Q2 1.607359 0.155539
2017Q3 1.598012 0.173293
2017Q4 1.597353 0.189806
Indeed, the evidence support the conclusion that the weak impact of the monetary policy in
the euro area is driven by the specific nature of the crisis period subsequent to 2007 (Fig. 4). By
contrast, in the period preceding the financial crisis random shocks in the ECB balance sheet were
associated with a positive impact on both inflation and real GDP growth (Fig. 3).
In addition, after 2007 prices reacted weaker to random shocks in real GDP growth than before
the crisis. Finally, it seems also that the crisis determined a structural change in the response of
prices to their own shocks: After the crisis, the impact of the latter on the former vanished.
These results suggest that monetary policy has been ineffective in spurring inflation and growth
in the crisis period. Indeed, it may be maintained that in this period the ECB mainly played the
passive role of providing the liquidity necessary to save distressed banks, rather than an active
role in promoting price stability. By contrast, after 2013 the primary target of the ECB has been
the fight against deflation of the euro area in a context of less instable financial markets.
Therefore, it is interesting to ask whether the more aggressive unconventional monetary policy
adopted by the ECB after 2013 may be more effective.
To this aim, one might ask what is the likely impact of the ongoing ECB program of asset
purchase on inflation and output, in light of the latest ECB survey of inflation expectations for
the euro area.
Table 3 reports the results of the forecast, assuming that current ECB monetary policy is
performed until the end of 2017 (i.e., ECB balance sheet increases by 180 billion euro per quarter),9
and taking into account the latest two years ahead inflation expectations (INFLE2), surveyed by
the ECB at December 2015.10
Given current inflation expectations in the euro area and assuming the ECB pursues its current
policy of asset purchases until the end of 2017, the results of the forecast lead to the conclusion that
the target inflation rate of 2% is unlikely to be achieved. Also problematic, though not specifically
mandated, is the low growth rate of real GDP forecast, shown in the last column of Table 3,
9 Indeed, the ECB security purchase program started in March 2015 and is expected to end by September 2016, although
the ECB recently established asset purchases increased to 80 billion per month and will continue also in 2017.
10 Notice that, among other things, we are abstracting from changes in the rest of the world that can affect inflation
expectations as well as the other variables used in the VAR model.
+Model
suggesting that current monetary policy is also unlikely to reduce current output gap in the euro
area.
Interestingly, results reported in Table 3 show that inflation never moves significantly from
the value of inflation expectations surveyed by the ECB at December 2015. In the context of a
large output gap, presumed inflation expectations, which are further presumed to cause inflation,
hamper the achievement of the monetary policy target.
Finally, comparing the last exercise with the forecast in Table 2, it is straightforward to conclude
that the employment buffer stock policy is superior to current unemployment buffer stock policy.
Indeed, a transition-job buffer stock policy not only is more likely to bring the inflation rate to the
targeted level, but it is also more capable to determine a higher real growth rate in the euro area.
7. Concluding remarks
In this paper we analyzed options for the ECB to achieve its single mandate of price stability.
We conclude that the selection of the employed buffer stock policy as the instrument of price
stability directly managed by the ECB as an additional tool of monetary policy will produce
superior results with regard to their mandate.
Shifting from an unemployed labor buffer stock to an employed labor buffer stock will provide
the ECB with a superior price anchor for at least two reasons. By comparing volatility and liquidity
of several buffer stock tools, we have shown that an employed buffer stock provides a superior
price anchor not only to buffer stocks used in the past (gold, corn, etc.) but also to the current
unemployed buffer stock policy.
The ECB will be setting both the wage of the transition-job workers and enacting policy to
alter the size of the employed labor buffer stock, as well as monitoring the policy for fraud and
abuse; and this policy is entirely in accordance to the ECB mandate of price stability.
Additionally, our proposals for implementation and finance are designed to be entirely exe-
cutable within the ECBs current institutional structure. Enacting the transitional job for anyone
willing and able to work also, without prejudice to price stability, delivers additional benefits,
including eliminating the need for minimum wage legislation and the improvement of the quality
(as well as quantity) of public-sector services.
Employed as transitional workers, those previously unemployed will be maintaining and
enhancing their human capital in the process of working and producing useful output. This is
in sharp contrast to the deterioration of human capital during periods of unemployment.
Furthermore, we suggest that an employed labor buffer stock policy can be said to constitute
an aspect of what are often referred to as structural reforms which have been advocated as a
means of spurring growth, facilitating the hiring and firing of workers and the switching of the
firms from less productive to more productive sectors. In addition, the employed labor buffer stock
policy supports the downsizing and the replacement of the hidden economy, and promotes the
reduction of economic disparities between euro area countries.
Finally, we stress that this plan is qualitatively very different from a policy that aims to guarantee
a minimum income be paid to every citizen. Indeed, what are called basic income proposals risk
functioning as the antithesis of a price anchor. Those policy proposals do not require beneficiaries
to sell their time (work) to earn their compensation, and therefore the projected outcomes would
be entirely different.
+Model
Acknowledgements
We thank the Editor. four anonymous referees, Jan Kregel, Pavlina R. Tcherneva, Andrea Terzi,
Giovanni Verga, L. Randall Wray, and Gennaro Zezza for valuable comments and support. The
usual disclaimer applies.
References
Aristei, D., & Gallo, M. (2014). Interest rate pass-through in the Euro area during the financial crisis: A multivariate
regime-switching approach. Journal of Policy Modeling, 36(2), 273295.
Ball, L. (2014). Long-term damage from the Great Recession in OECD countries. NBER Working Paper: No 20185, May.
Berkmen, S. P. (2012). Bank of Japans quantitative and credit easing: are they now more effective? IMF Working Paper:
12/2.
Bernanke, B. (2003). Some thoughts on monetary policy in Japan, Tokyo, May.
Blanchard, O., Cerutti, E., & Summers, L. (2015). Inflation and activity-two explorations and their monetary policy
implications. In Inflation and unemployment in Europe. Conference proceedings.
Blanchard, O., DellAriccia, G., & Mauro, P. (2013). Rethinking macro policy II: getting granular. IMF Staff Discussion
Note: 13/03.
Blanchard, O., & Posen, A. (2015). Getting serious about wage inflation in Japan. Nikkei Asian Review. December.
Boeckx, J., Dossche, M., & Peersman, G. (2014). Effectiveness and transmission of the ECBs balance sheet policies.
National Bank of Belgium Working paper: n. 275.
Borio, C., & Disyatat, P. (2010). Unconventional monetary policies: An appraisal. The Manchester School, 5389.
Supplement.
Baumeister, C., & Benati, L. (2013). Unconventional monetary policy and the great recession: estimating the macroe-
conomic effects of a spread compression at the zero lower bound. International Journal of Central Banking, (June),
165212.
Bunea, D., Karakitsos, P., Merriman, N., & Studener, W. (2016). Profit distribution and loss coverage rules for central
banks. ECB Occasional Paper Series: No 169.
Chen, H., Crdia, V., & Ferrero, A. (2012). The Macroeconomic Effects of Large-Scale Asset Purchase Programs. Federal
Reserve Bank of San Francisco Working Paper: 2012-22.
Chung, H., Laforte, J.-P., Reifschneider, D., & Williams, J. C. (2011). Have we underestimated the likelihood and severity
of zero lower bound events? Federal Reserve Board and Federal Reserve Bank of San Francisco.
Cugnasca, A. & Rother, P. (2015). Fiscal multipliers during consolidation: Evidence from the European Union. ECB
Working Paper Series: No 1863.
Gal, J. (2015). Hysteresis and the European unemployment problem revisited. In Inflation and unemployment in Europe.
Conference proceedings.
Gal, J. (2016). Insideroutsider labor markets, hysteresis and monetary policy. CREI, UPF and Barcelona GSE. Unpub-
lished paper.
Gambacorta, L., Hofmann, B., & Peersman, G. (2014). The effectiveness of unconventional monetary policy at the zero
lower bound: A cross-country analysis. Journal of Money, Credit and Banking, 46(4).
Gagnon, J., Raskin, M., Remache J., & Sack, B. (2010). Large-scale asset purchases by the Federal Reserve: Did they
work? Federal Reserve Bank of New York Staff Reports: No. 447.
Gibson, H. D., Hall, S. G., & Tavlas, G. S. (2016). The effectiveness of the ECBs asset purchase programs of 2009 to
2012. Journal of Macroeconomics, 47(Part A), 4557.
Gros, D., Alcidi, C., & De Groen, W. P. (2015). Lessons from quantitative easing: Much ado about so little? CEPS Policy
Brief: No. 330.
Igan, D., Kabundi, A., De Simone, F. N., & Tamirisa, N. (2016). Monetary policy and balance sheets. Journal of Policy
Modeling,. Available online 3 November 2016.
IMF (2015). Global Financial Stability Report. April.
Kregel, J. (1999). Price Stability and Employment: A Proposal. In The Launching of the Euro, Proceedings of A
Conference on the European Economic and Monetary Union.
Kremer, M. (2016). Macroeconomic effects of financial stress and the role of monetary policy: A VAR analysis for the
euro area. International Economics and Economic Policy, 13(1), 105138.
+Model
Kroft, K., Lange, F., & Notowidigdo, M. J. (2012). Duration dependence and labor market conditions: Theory and evidence
from a field experiment. NBER Working Paper: no. 18387.
Krueger, A. B., Cramer, J., & Cho, D. (2014). Are the long-term unemployed on the margins of the labor market? Brookings
Papers on Economic Activity: Spring.
Kucharcukov, O. B., Claeys, P., & Vascek, B. (2016). Spillover of the ECBs monetary policy outside the euro area:
How different is conventional from unconventional policy? Journal of Policy Modeling, 38(2), 199225.
Lam, R. W. (2011). Bank of Japans monetary easing measures: Are they powerful and comprehensive? IMF Working
Paper: 11/264.
Lawrence, C., Eichenbaum, M., & Rebelo, S. (2010). When is the Government spending multiplier large? Unpublished
manuscript.
Liu, P. & Mumtaz, H. (2012). Changing macroeconomic dynamics at the zero lower bound. Bank of England Working
Paper.
Micossi, S. (2015). The monetary policy of the European Central Bank (20022015). CEPS Special Report: No. 109.
Orlowski, L. T. (2015). Monetary expansion and bank credit: A lack of spark. Journal of Policy Modeling, 37(3), 510520.
Mosler, W., & Forstater, M. (1998). A general framework for the analysis of currencies and commodities. In P. Davidson,
& J. Kregel (Eds.), Full Employment and Price Stability in a Global Economy. Cheltenham: Edward Elgar.
The Economist (2016). Out of ammo? February 20.
Woodford, M. (2015). Quantitative easing and financial stability. Speech at the nineteenth annual conference Central Bank
of Chile: November 1920.

1 s2.0 S0161893817300017 Main PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1 s2.0 S0161893817300017 Main PDF

Uploaded by

Copyright:

Available Formats

+Model

JPO-6327; No. of Pages 18 ARTICLE IN PRESS

Journal of Policy Modeling xxx (2017) xxxxxx

Maximizing price stability in a monetary economy

JEL Classification: E31; E40; E52; E58

19841994 19942004 20042014

Gold 10.3% 8.5% 17.9%

3. Selecting a buffer stock

a. Transition-job workers can produce useful output for the economy.

3.3. The risks of buffer stock policies

4. Implementation and effects of the proposal

and euro 1923 for Luxembourg.

2015Q2 2,591,020 0.191652 1.58039

5. Accounting and other effects

5.2. Fiscal balance

5.3. Exchange rates and competitiveness

5.4. Foreign direct investment

FDI tends to support a currency and fundamentally is largely a function of profitability of

6. Evidence on the impact of the ECB monetary policy

Accumulated Response to Cholesky One S.D. Innovations 2 S.E.

1.0 1.0 1.0

0.5 0.5 0.5

0.0 0.0 0.0

-0.5 -0.5 -0.5

.01 .01 .01

.00 .00 .00

-.01 -.01 -.01

-.02 -.02 -.02

-.03 -.03 -.03

-.1 -.1 -.1

-.2 -.2 -.2

Fig. 2. Accumulated impulse response (3 lags), 1999Q12014Q4.

The VAR model we estimated is reported in Eq. (1) below:

where Yt is a vector of endogenous variables, a vector of constants, A(L) is a matrix polynomial

Accumulated Response to Cholesky One S.D. Innovations 2 S.E.

-.2 -.2 -.2

-.4 -.4 -.4

.02 .02 .02

.01 .01 .01

.00 .00 .00

-.01 -.01 -.01

-.02 -.02 -.02

-.03 -.03 -.03

.12 .12 .12

Fig. 3. Accumulated impulse response (3 lags), 1999Q12006Q4.

Accumulated Response to Cholesky One S.D. Innovations 2 S.E.

.08 .08 .08

.04 .04 .04

.00 .00 .00

-.04 -.04 -.04

-.08 -.08 -.08

0.5 0.5 0.5

0.0 0.0 0.0

-0.5 -0.5 -0.5

-1.0 -1.0 -1.0

-1.5 -1.5 -1.5

Fig. 4. Accumulated impulse response (3 lags), 2008Q12014Q4.

2015Q2 1.301619 1.409245

expectations as well as the other variables used in the VAR model.

You might also like