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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Exchange Rate Policy and Full Employment

Posted by WARREN MOSLER on October 4th, 2010

New Addition to Mandatory Readings:

Exchange Rate Policy and Full Employment

December 1998, loosely structured lecture in Newcastle, Australia.

15 Responses to “Exchange Rate Policy and Full Employment”

  1. Keith Newman Says:

    To those reading this post:

    BSE stands for Buffer Stock Employment which is currently referred to as the Job Guarantee.


  2. Min Says:

    BSE = Breast Self Exam

    BSE = Bovine Spongiform Encephalopathy



    roger erickson Reply:

    put the 3 together and you have Congress! amazing!

    Bovine Spongiform Employment

    linguistics is truly awe inspiring; this could spawn an entirely new cult, maybe even a political party


    beowulf Reply:

    @roger erickson,

    “linguistics is truly awe inspiring; this could spawn an entirely new cult, maybe even a political party”

    Watch out for that Noam Chomsky. :o)


  3. Craig Says:

    great paper warren. as a laymen some of your shortest statements are the most helpful to bring focus to the larger picture (ex. the only reason to trade is to import….or the cost of importing is exporting.)

    so i’m trying to get my head around exchange rates from a MMT perspective. You mentioned inflation and currency deprecation are pretty much the same thing. you’ve also mentioned that the value of a currency is determined by the prices paid by the currency issuer. along those lines of thinking how would you perceive exchange rates changes among large currency issuers (USD, Euro, Yen, GBP)? would it be correct to say each currency issuer sets their own currency value and the markets react accordingly to chase profits setting exchange rates in the process? not sure if that makes any sense but it almost seems as if the currency issuers are the prime movers within the economy and currency users react accordingly. as you can tell its a bit foggy so any insight to bring clarity would be helpful.



    yes, you are correct, with neither the currency issuers nor the currency users understanding how it works, and acting accordingly

    and thanks!


    MamMoTh Reply:


    A very interesting article indeed. IMO it deserves to be in the top 5 mandatory readings, whilst other links should be better shifted to the proposals section.

    I wonder how the Euro fits in the picture. As I understand, in the case of a peg, the exchange rate is exogenous and the interest rate endogenous, whilst in the case of a floating currency it’s the opposite. But in the case of the Euro for EZ countries it seems both rates are (at least partially) endogenous. Is that right?



    the euro is a floating fx regime
    the national govs are like the US states, the ECB like the Fed which sets rates


    MamMoTh Reply:


    Well, I know that. But EZ countries still have their own central banks which are responsible for maintaining the interest rate set by the ECB within their domestic banking system right?


    yes, they are agents of the ecb which sets rates, like the ny fed sets rates set by the dc fed

    giulio Reply:


    so in EZ, what’s the role of bond issues? in EZ isn’t a monetary operation, is also a fiscal operation, right?

  4. Kristjan Says:

    Iceland Won’t Bring Back Free-Floating Krona

    The island is still recovering from its 2008 banking meltdown, which sent the krona down about 80 percent against the euro offshore before the central bank halted the sell-off with capital controls

    Was this right action in your opinion Warren?
    Do you think that free floating krona would be too volatile?



    not what i would do to serve public purpose

    nor did they do what i would have done re the ‘crisis’

    yes, i’d float the Krona, along with a lot of other things.

    With what they are doing, you might call it Crisisland (with a lime in the krona)


  5. MamMoTh Says:

    Warren, link is broken because the epicoalition site is down.


  6. Functional Finance and the Debt Ratio—Part II - New Economic Perspectives Says:

    [...] have long argued (and taught in our courses) much the same, including papers (to name but a few) by Warren Mosler, Stepanie Kelton and John Henry, Randy Wray and Claudio Sardoni, and myself.  The key point—as [...]

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