Claude Ménard and Mary M. Shirley
When New Institutional Economics (NIE) first appeared on the scholarly scene in the early 1970s, it was a transformative movement. NIE aimed to radically alter orthodox economics by showing that institutions are multidimensional and matter in significant ways that can be statistically measured and systematically modeled. In the decades since, thousands of articles and books have pursued this premise and NIE has evolved from an upstart movement to a major influence on researchers in economics, political science, law, management, and sociology. What made New Institutional Economics a radical idea was that it abandoned: [. . .]the standard neoclassical assumptions that individuals have perfect information and unbounded rationality and that transactions are costless and instantaneous. NIE assumes instead that individuals have incomplete information and limited mental capacity and because of this they face uncertainty about unforeseen events and outcomes and incur transaction costs to acquire information. To reduce risk and transaction costs humans create institutions, writing and enforcing constitutions, laws, contracts and regulations – so-called formal institutions – and structuring and inculcating norms of conduct, beliefs and habits of thought and behavior – or informal institutions. (Menard and Shirley, 2005, p. 1)
Edited by Claude Ménard and Mary M. Shirley
Fernando J. Cardim de Carvalho
Much of the criticism directed at austerity programs implemented after the 2007/2008 financial crisis, more forcefully in the eurozone, have relied on the same arguments Keynes and others raised against the (British) Treasury View developed in the 1920s and 1930s. Austerity, however, has been proposed most insistently in the 2010s by European authorities, led by the German Federal Ministry of Finance, the Bundesfinanzministerium (BMF). While the arguments for austerity then and now share some common elements, there are enough original arguments being presented by the BMF to make many of the criticisms ineffective. The paper reconstructs both views, the Treasury's and the BMF's, to show and evaluate their similarities and their differences.
Barbara Fritz and Daniela Magalhães Prates
Capital account regulation (CAR) has experienced profound reconsideration since the global financial crisis. This new debate focuses on the macroeconomic gains of regulating international capital flows in terms of reducing external and financial vulnerability, but it does not consider relevant aspects relating to the context in which these regulations are implemented. In this paper, we undertake a comparative analysis of similar types of CAR applied in Brazil during the 1990s and 2000s. Based on this analysis, we conclude that for the design of CAR, which is relevant for its effectiveness, institutional features of both the financial market and the macroeconomic regime, shaped by macroeconomic constraints, are relevant. For the case of Brazil, we conclude that, contrary to the 2000s, the strong preference given to inflation stabilization in the 1990s, together with high external vulnerability, strongly limited the CAR's design of this period.
Philip Arestis, Ayşe Kaya and Hüseyin Şen
Using annual data over the period 1980–2014, this paper attempts to provide an answer to the question of whether fiscal consolidation promotes growth and employment in the context of the PIIGGS countries (Portugal, Ireland, Italy, Greece, Great Britain, and Spain) by using the Bootstrap Granger causality analysis proposed by Kónya (2006), which allows testing for causality on each individual country separately, and by accounting for dependence across countries. Our findings indicate that in no country considered does fiscal consolidation promote growth. However, fiscal consolidation negatively affects employment in Portugal and Italy, whereas it positively influences employment in Great Britain. Based on our findings, we may suggest that the effects of fiscal consolidation on employment produce mixed results, varying from country to country.
John Grahl and Photis Lysandrou
In February 2015, the European Commission published a Green Paper in which it put forward the goal to ‘build a true single market for capital’ for all European Union member states by 2019. The present paper argues that there is no realistic prospect of achieving this goal given that the Green Paper omits any reference to a formidable impediment blocking a European capital-market union: the German government's stance on debt. The inescapable fact is that this government's reluctance to increase the supply of its bonds is depriving the European capital market of one of the essential ingredients necessary to its enlargement on the one hand and to the efficiency of its operation on the other: the former because capital-market enlargement crucially depends on attracting institutional investors who must hold a substantial proportion of their bond portfolios in the form of safe government bonds; the latter because the efficient functioning of the capital markets crucially depends on the efficiency of the money markets where safe government bonds are by far the most important form of collateral.