Wednesday, December 4, 2013

Appreciation is important...


Article;
Improved jobs inflation offer modest eurozone respite.

Comment;
…”unemployment is high and deflation risks persist” it means we need to remove excess supply of labor by reducing wages/income. Deflation means prices are falling, a downward bias... it means the market is trying to correct itself but our inflation targeting is making things worse. We are not trying to let the popular wish materialize. What we should do is to let the economies deflate. Prices and wages/income will fall. But we have evidence of nominal downward-wage-rigidity in many parts of the Europe but as we say that there is a downward pressure on the prices which is an evidence of no downward rigidity in case of prices, opposite of what Keynes said. It means prices will fall more than wages means a rise in real wages/income. Which would increase demand to remove excess labor supply. Precisely called (again) the Pigou-Effect. And, if we want to increase the wealth-effect we can float a lower denomination of Euro which will increase the space between which the prices can fall. I think the Union should let the member countries with high unemployment deflate and low unemployment countries inflate their economies (already suggested by Paul Krugman). Precisely means real depreciation in countries with high unemployment and nominal appreciation  depreciation in low unemployment countries. The economies should grow and appreciate either in nominal sense or real sense. I think the Union should give the countries liberty to print currencies in lower denomination (of Euro) which is expected to keep money-supply intact even in situation of distress. They are too much dependent… 

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