‘Money Mischief’ – a major inspiration for ‘monetary thinkers’

I am in the process of surveying a number of “monetary thinkers” about their favourite books on monetary matters. I hope to do a number of posts on the survey results.

I had initially planned only to do one post on the survey, but I can see that there is material for a lot more. So I will likely do a number of posts on the topic in the near future. It is vacation time for the Christensen family – so I am a bit focused on reading books.

Among the monetary thinkers in the survey are George Selgin, David Laidler, Kurt Schuler, Josh Hendrickson, Marcus Nunes, Tobias Straumann, Steve Ambler and Douglas Irwin and many more and more will follow.

Milton Friedman’s “Money Mischief” is short, fun and informative

One of my own absolute favourite books on money is Milton Friedman’s “Money Mischief” from 1992. It is a collection of Friedman articles. Most of the articles are about episodes from monetary history. The book is extremely well-written and generally a very easy read.

Money Mischief is being mentioned as an major inspiration by a number of  the monetary thinkers in my survey. Josh Hendrickson calls Money Mischief “a great overview of money for non-economists and economists alike” and Douglas Irwin calls the book “just fun”. Both Josh and Doug have contributed to my survey and in later posts I will return to some of their other book recommendations.

Money Mischief to a large extent is a inspiration for this blog as I always thought that I wanted to write a blog about different monetary episodes in the spirit of Money Mischief to illustrate my views on monetary issues and I had in fact originally thought naming my blog Money Mischief.

Take for example Chapter 9 in Money Mischief“Chile and Israel: Identical Policies, Opposite Outcomes”. In this Chapter Friedman describes how fixed exchange rate policies was a major success in Israel, but a failure in Chile. In the chapter Friedman once again spells out his general opposition to fixed exchanges, but he also acknowledges that fixed exchange rate regimes might work well for certain countries. Friedman mentions Hong Kong’s currency board as an example of a fairly successful fixed exchange rate regime.

In the chapter he also makes a comment that have been a major inspiration to my own thinking about monetary matters. This is the statement (page 241):

“Never underestimate the role of luck in the fate of individuals and nations”.

I have written numerous blog posts inspired by this comment. See for example:

Never underestimate the importance of luck
The luck of the ‘Scandies’
National stereotyping is not an explanation for boom-bust – it is mostly about luck

And this is exactly what my survey of monetary thinkers is about – books that have inspired them and books that they think should be read by students of economics and money.

The survey has also inspired Kurt Schuler to reproduce his extensive reading list on monetary economics. You can see Kurt’s amazing reading list here.

In the near future I will share more survey results.

This is a picture of my own copy of Money Mischief – did you get a copy yet?

Money Mischief

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Market Monetarism has come to Croatia, but unfortunately not to the Croatian central bank

Good news – the Market Monetarist gospel is spreading across the world. The latest arrival is Petar Sisko’s blog Money Mischief in Croatia. Petar blogs both in English and in Croatian. Petar has been a frequent commentator on my blog so I am happy that he is now taking the Market Monetarist message to Croatia. I like the fact that Petar has named his blog Money Mischief – undoubtedly after Milton Friedman’s book. Money Mischief is one of my favourite books on monetary matters and I strongly considered naming my blog Money Mischief when I started it in 2011.

Croatia certainly needs a shot of Market Monetarism. Since 2008 Croatian monetary policy has been extremely tight. Just take a look at the graph below.

Croatia NGDP RGDP

Prior to when the crisis hit in 2008 the Croatian central bank (CNB) kept nominal GDP growth around 8% – more or less evenly split between 4% real GDP growth and 4% inflation.

However, since 2008 nominal GDP has barely grown. Since the central bank is in full control of nominal GDP the stance of the CNB since 2008 can only be termed extremely tight.

This is certainly also visible on the price level. From 2000 to 2007 inflation – measured with the GDP deflator – averaged around 4%. However, since 2008 inflation has dropped well below 4% and has averaged 2%.

Price Level Croatia

Obviously one could argue that inflation of 2% is preferable to 4% inflation and that 6% NGDP growth is preferable 8%. However, the shift in NGDP growth and inflation does not reflect the announcement of a new target, but rather a negative shock to monetary policy and that I believe is at the core of the Croatian crisis.

The best way to pull the economy out of the crisis is for the CNB to announce a 6% NGDP level target – and allow the Croatian kuna to float much more freely than is presently the case.

Over the longer run that would keep inflation around 2% as I think it is fair to think that trend real GDP growth is 4%.

I am sure Petar’s blog will help further the discussion about monetary policy and that should be welcomed.

PS If somebody asks why the CNB has not implemented more aggressive monetary easing then the answer probably is that the CNB fears weakening the Croatian kuna (the CNB is de facto operating a managed float/quasi-pegged exchange rate regime). Croatian households and corporations are heavily indebted in foreign currency. Hence, the CNB undoubtedly fears setting off a financial sector crisis if the kuna were to weaken significantly on the back of more aggressive monetary easing. I think those fears are unfounded, but that is another story that I might return to at a later stage.

PPS here is my old friend Boris Vujcic who since 2012 has been CNB governor in an interview with CNBC from last year on Croatian monetary policy. I say ‘old friend’, but don’t blame Boris for my views.

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