Central Banking in the Modern World.

Author:Tymoigne, Eric
Position:Book review

Central Banking in the Modern World, edited by Marc Lavoie and Mario Seccareccia. Northampton, Mass.: Edward Elgar. 2004. Cloth, ISBN 1843766418, $110.00. 296 pages.

This book puts together several articles that provide a concise and clear presentation of current Post Keynesian developments in central banking. The book is divided into three well-defined parts, and, depending on his or her areas of interest, the reader will profit from the reading of any or all of them.

The first part of the book is a detailed critical presentation of the New Consensus, now dominant in academia. The first two articles by Marc Lavoie and Mark Setterfield critically analyze the core mathematical model of the New Consensus. They show that models that include Post Keynesian assumptions are mathematically more satisfactory. John Smithin argues for a monetary-policy goal oriented toward income distribution. In doing so, the central bank should target a small positive (optimally zero) real rate (and so continue its inflation targeting strategy) but should forget about the notion of natural interest rate. Finally, Philip Arestis and Malcolm Sawyer argue that the inflation goal proposed by the New Consensus is too narrow and that the recent decline in inflation is not due to the adoption of inflation targeting by some central banks.

The second part of the book concerns the transmission mechanisms of monetary policy. Robin Rowley and Brenda Spotton Visano critically review the official and unofficial theoretical arguments, and empirical evidence that has been provided in Canada to explain how the central bank influences inflation with its interest rate policy. The authors show that the transmission mechanisms are not straightforward. Marc-Andre Pigeon shows that the centrality of the communication process, only recently understood by central bankers, has long been recognized by John Maynard Keynes (1936, 203) and his followers. Thomas Rymes shows how the disappearance of the Quantity Theory of Money in the New Consensus, and so the causality from reserves to price, brings forward the relevance of Keynes for monetary policy. Louis-Philippe Rochon and Sergio Rossi demonstrate that even if reserve requirements are nil, reserves still matter for the settlement of transactions between banks (Fullwiler 2004). They, then, show how this can be integrated in a monetary circuit and how this gives importance to the central bank. Mario Seccareccia and Marc Lavoie look...

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