Scotching Currency Union

Economics of Scottish Independence, NIESR Feb 2014
Mark Carney raises doubts over Scotland’s plan to share the pound, The Guardian, 29 Jan 2014
The sterling price of Scottish independence, BBC News, 29 Jan 2014
The economics of currency unions, Mark Carney, BoE Governor, 29 Jan 2014
Currency Choices for an Independent Scotland: Response to the Fiscal Commission Working Group, 26 Apr 2013

For information, current Scottish notes are not “legal tender”. Official Bank of England view is here.

Back to the future with Scottish currency, Chris Cook, FT Alphaville, 17 Feb 2014 (entertaining, alternative view)

EU Banking Reform

In February 2012, the EC established a High-level Expert Group to examine possible reforms to the structure of the EU’s banking sector (chaired by Erkki Liikanen – Governor of the Bank of Finland and a former member of the European Commission).
The Group’s mandate was to determine whether, in addition to ongoing regulatory reforms, structural reforms of EU banks would strengthen financial stability and improve efficiency and consumer protection, and, if so, to make proposals as appropriate.
The Group started its work in February 2012 and presented its final report to the Commission on 2 October 2012.
January 2014 follow-up

The Blame Game

This year’s central bank gathering at Jackson Hole heard arguments that the classic policy “trilemma” has morphed into a “dilemma” (the Hélène Rey paper). The basic idea is that financial markets are now so globalised that free capital flows limit monetary policy independence even when the exchange rate is left to float. One possible conclusion is that market heavyweights like the Fed impose significant (negative) externalities on innocent bystanders when flooding the ailing US financial system with liquidity.
While understandable, such conclusions are too simplistic. As this article points out, the recent woes of emerging markets are as much to do with home-grown policy than with the Fed’s prospective tapering.
Don’t blame the Fed for EM woes, Financial Times, 4 Sep 2013

Global Financial Cycles

A new paper examines the global financial cycle in capital flows, asset prices and in credit growth. This cycle co‐moves with the VIX, a measure of uncertainty and risk aversion of the markets. A key conclusion is that, because the determinants of the global cycle are effectively determined by Fed policy, the classic “policy trilemma” actually becomes a “dilemma”: independent monetary policies are possible if and only if the capital account is managed.
Dilemma not Trilemma:The Global Financial Cycle and Monetary Policy Independence, Hélène Rey, Aug 2013

The paper was presented at the 2013 Economic Policy Symposium organised by the FRB of Kansas City at Jackson Hole, Wyoming. Also highly readable is The Routes into and out of the Zero Lower Bound, Robert Hall, Aug 2013.