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Home >> Great Minds China Forum >>  3rd Great Minds China Forum >>  Research Frontiers of Macroeconomics: Theories, Methodologies and ToolsResearch Frontiers of Macroeconomics: Theories, Methodologies and Tools
Huang Haizhou


Professor Harald Uhlig has talked much with us. He has mentioned five important topics: the relationship between economy and technology, house prize and financial market, savings and aging population, health care market and climate change. Traditionally, we Chinese think the number “8” is auspicious, so I would like to add 3 points.


All these five topics raised by Professor Harald Uhlig carry weight. Professor Harald Uhlig, who comes from the monetarism headquarter, Chicago, doesn’t give any speech about “money” but the prize only. So, the first one of my three points shall be related to monetary economy and policy, discussing the relationship between money and economic growth and inflation. Friedman said, “The inflation is always a monetary phenomenon at any time and any place”. After the crisis of 2008, central banks around the world have increased much in money supply, but can we see any sign of inflation? Some economists hold criticism toward the monetary policy of some country, for example, they think the FED has issued too much money. What is the measurement of the amount of money issued? How much can be regarded as exceeding? This is the first question the economists shall answer.


After the crisis of 2008, what approach did the FED apply to save the American economy? Apparently, neither Keynesianismnor monetarism. The FED adopted QE policy and then expanded the debt of 800 billion dollars on balance sheets before 2008, to 5,000 billion dollars nowadays. Undoubtedly, the FED did issue a lot of money. Therefore, we should understand the importance of money, monetary policy, and monetary system.


After the crisis of 2008, the economic circles on the globe began to make some reflection on this crisis. Since the 1980s, the world has witnessed a severe stagflation-low growth and high inflation. Fortunately, these two problems got nicely solved. The inflation was solved through inflation targeting regime. So as the problem of growth. Then, the economic growth of developed country began to increase steadily. Before the crisis, the macro-economists appeared a scene of great rejoicing, for they thought they had sovled all the problems of macro-economics, and they only needed to concern about two places decimal, as the macro-economics was now in the Great Moderation. But as the crisis happened, we found that this positive judgement about the economy was so wrong.


The second point of mine is that the fiscal regime of a country is very essential. In China, there are some significant researches, such as the fiscal federalism of Professor Qian Yingyi, the county economics of Professsor Xu Chenggang, and so on. These policies are more important for us to understand the economic growth of China than mere TFP. The first and second topic of our conference here today are to emphasize the importance of institutes or institution design. Before 2008, in the light of Maastricht Treaty, the yearly fiscal deficit of Euro-zone countries shall not surpass 3%, and the stock of deficit shall not exceed the 60% of GDP. Unfortuately, after the crisis of 2008, these requests proved false.


Thirdly, China has become the biggest developing country nowadays, and is increasingly influential over the globe. One of the most important institutes reflecting China’s influence over the globe is the People’s Bank of Chinait stably retains the third position among the most influential central banks in the world. After the collapse of Bretton Woods system, there are many aspects of the global monetary system need researching by us. Professor Harald Uhlig comes from Germany, and in his PPT, he also mentioned Germany and Japan. In fact, there are many scholars in China concerned about the situation in Japan, too. In China, scholars are very curious about that after the 1990s, how Japan’s economy could retain zero growth, zero inflation, and zero interest rates. Many people hold that it is because of the 1985 Plaza Accord which resulted in sharp rise in the yen against dollar, and the sluggish economy in Japan. Therefore, the Plaza Accord is the root of all the problems in Japan. However, if we compare Germany with Japan, we may find that this conclusion is false. Around the 1985 Plaza Accord, the appreciation amplitude of Deutsche Mark against dollar is similar to that of Japan, but finally, Germany’s economy recovered from the setbacks. Why? What is done rightly by Germany? What is the mistake made by Japan? I think it is worthwhile to study these two countries’ situations jointly.


Different from Japanese, the Germans have experienced the reunification of their country, and benefited from the new growth space after enrolling in the Euro-zone. Comparatively, once Japanese obatined the opportunity to internalize the yen, but they failed to grasp it. So, after the 1980s, Japan’s economy has no growth space either at home or in Asia due to that. In this sense, we can better understand the problem of RMB internalization and the startegy of the Belt and Road.


I hope all the attendees today, especially those young fellows, besides the five topics mentioned in this conference, please do study the other three topics carefully. I suggest you to read the article“The Capital Structure of Nations”jointly written by Professor Bolton and me in your free time. In this article, we will give some attractive analysis to the problems we have talked about. May you find your answer in it, thank you!







◆please indicate the source if authorized: National Economics Foundation

◆photo:National Economics Foundation