ECB Puts Pedal to Metal

[Dennis Robert Redmond <dredmond@xxxxxxx>]

Hmm, the Eurobourgies seem to be getting their act together at last. Here
are official short-term interest rates, minus CPI inflation and minus per
capita GDP growth (giving a growth-adjusted proxy of the tightness of
monetary policy) for the US, EU and Japan in the 1990s. Note the
unprecedented austerity in the EU from 1992-95, whose average of 3.6
admittedly pales next to the truly deranged hypermonetarism of the US from
1980-82 (average: 6.6). Data is from Eurostat, the Fed and OECD; pre-1998
ECB was calculated by Eurostat from a currency basket.

Year	ECB	US	Japan
-------------------------------
1992 	5.3	-1.2	1.9
1993 	4.6	-1.2	2.3
1994 	2.1	-1.1	1.7
1995 	2.4	1.8	0.6
1996 	1.7	0.6	-2.7
1997 	0.8	-0.1	-2.6
1998 	0.5	0.6	2.9
1999 	-0.2	0.1	0.6
2000 	-1.3	-0.1	0.3

So Japan is actually tighter than the US, which may partly explain the
firm yen. EU rates drove up the Euro-currencies during the early 1990s
and choked growth, but turned hugely stimulative since 1997, which nicely
coincides with the Eurozone recovery. 1995 may well have been the Waterloo
of Maastricht monetarism.

-- Dennis