Googlenomics and how LTRO might have ended the euro crisis

Market Monetarists like David Beckworth have long argued that the European crisis is not really a debt crisis or a fiscal crisis, but rather a nominal crisis. The crisis has been triggered not by too much debt, but rather than by overly tight monetary policy and the resulting drop in nominal GDP.

Recently tensions in the European markets has eased dramatically and this have strongly supported the overall sentiment in the global markets. So while the media attention to some extent still is on the Greek crisis the markets seem to have moved on.

A way to illustrate this is to look at Google searches for the “euro crisis” (take a look at Google Insights – its a great tool!). See graph below.

Judging from the graph the “euro crisis” peaked in mid-December – to be exact in the week of December 4 to December 12. Since then the “euro crisis” has eased dramatically. So what happened in that week? Well, on December 8 the ECB announce that it would move to ease monetary policy dramatically – including a commitment “[t]o conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months and the option of early repayment after one year.”

Since the December 8 annoucement the Google searches for “euro crisis” have dropped dramatically. This in my view is a pretty strong confirmation of the Market Monetarist position: The real crisis is nominal!

PS have a look at the graph again – when did it start “euro crisis” searches start to increase? Well, just around the ECB’s July 8 rate hike…

Leave a comment


  1. Steve

     /  February 21, 2012

    “Trichet” peaked out Oct 2 – Oct 8. The (US) stock market hit bottom on Oct 4. Coincidence?

    Also “NGDP” has been declining ever since Christina Romer endorsed it and Kelly Evans wrote about it in the WSJ. Scott has his work cut out for him!

  2. Steve, I am sure it is not a coincidence. In fact there might even be a correlation between the two. I would argue that “NGDP” searches and the popularity of NGDP targeting is positive correlated to the level of volatility in the markets. If things are bad then people will be more open for “new” solutions. Therefore, if policy makers actually listen and start moving in the direction of monetary easing and the economy and markets recover then NGDP level targeting might then again completely disappear. Sad, but true…

  3. Benjamin Cole

     /  February 22, 2012

    Terrific blogging.

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