Wednesday, June 12, 2013

The Dutch Central Bank Is Apparently Unconcerned About Unemployment

The Dutch central bank made its economic forecast and concluded that unemployment would rise in 2014.  Most macroeconomists would not recommend fiscal contraction in the face of rising unemployment.  It is apparent by now that fiscal austerity restrains economic growth during a recession.  Unemployment rises, tax revenue falls, GDP decreases and the deficit to GDP ratio also rises.  The Dutch central bank, however, appears to be unaware of the recent history with austerity in Europe.  It recommends fiscal austerity in order to satisfy the requirement of the European Commission that its debt to GDP ratio must be brought down to 3.5% from the 3.9% ratio that it has forecast in the absence of fiscal contraction.  In other words, it recommends medicine that will increase the debt to ratio instead of lowering it.  Moreover, the central bank, appears to be unconcerned about rising unemployment.  It has a mandate to maintain price stability and, unlike the US Federal Reserve, it has no mandate to maintain employment stability.

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