Policy Research in Macroeconomics

Letter of support for the new central bank law in Argentina

Professor John Weeks has arranged for this letter to be published in the forthcoming Newsletter of the Royal Economic Society.  The letter is signed by, amongst others: Ann Pettifor, Michael Burke, Geoffrey Harcourt and Ha-Joon Chang.  The letter and its signees can be read below:

The prevailing ideology over the last thirty years has been that the only legitimate task of central banks everywhere is control of inflation. This has frequently been through the application of an “inflation target”, a maximum rate of increase of some measure of aggregate price changes. The practical consequence of setting the “fight against inflation” as the primary objective has been to reduce substantially the policy options of central banks. Even more, this narrow approach prevents the coordination of monetary policy and fiscal policy, essential to successful countercyclical interventions.

In Argentina in the 1990s economic policy operated under the burden of an extreme form of this narrow approach, a “currency board” regime, involving a fixed exchange rate to the dollar and a monetary base strictly linked to foreign exchange reserves. During 1997-2002 the weaknesses inherent in this monetary policy created disaster, economic collapse and high inflation.

In March of this year, the Argentine government proposed a new central bank mandate, that would repeal the currency board rules and broaden the institution’s mandate to multiple objectives including growth, more equitable distribution, sectoral credit allocation, and price stability. The Congress passed and President Cristina Fernandez signed it into law the new mandate.

We, economists working in the United Kingdom, applaud the Argentine government and the Congress for this farsighted approach to monetary policy. The new mandate allows the current and future governments to choose between wise and foolish economic policies, while the previous law institutionalized the latter.

Sarah Bracking, University of Manchester

Michael Burke, Socialist Economic Bulletin

Ha-Joon Chang, Cambridge University

Hulya Dagdeviren, University of Hertfordshire

Gary Dymski, University of Leeds

John Grahl, University of Middlesex

G. C. Harcourt, Cambridge University

George Irvin, SOAS, University of London

Annina Kaltenbrunner, University of Leeds

Costas Lapavitsas, SOAS, University of London

Terry McKinley, SOAS, University of London

Ozlem Onaran, University of Westminster

Gabriel Palma, Cambridge University

Ann Pettifor, Prime Economics

Malcolm Sawyer, University of Leeds

Kalim Siddiqui, University of Huddersfield

Guy Standing, University of Bath

Engelbert Stockhammer, University  of Kingston

Jan Toporowski, SOAS, University of London

John Weeks, SOAS, University of London

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