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Strengths And Weaknesses Of The New Macroeconomics Consensus Economics Essay

The New Consensus Macroeconomics (NCM) emerged from the collapse of the Grand Neoclassical Synthesis in the 1970s and evolved around the notion of inflation-targeting (IT), and has also arisen from a combination of central banks “learning what works (and what doesn’t)” (Charles Bean, Bank of England) and from a convergence of thinking in academic macroeconomics. The NCM has emerged over the past decade or so and has become highly influential in terms of recent macroeconomic thinking and of macroeconomic policy, especially monetary policy. The NCM is now firmly established amongst both academia and economic policy circles. It is also true to say that it draws heavily on the so-called new Keynesian economics. Woodford (2009,pp.2-3) argues that the New Consensus has come about “because progress in macroeconomic analysis has made it possible to see that the alternative which earlier generations felt it necessary to choose were not so thoroughly incompatible when understood more deeply.” Academic contributions also helped the foundations of the NCM on both theoretical and empirical grounds, for example, “The Taylor Rule became the most common way to model monetary policy” [Goodfriend (2007,p. 59). Goodfriend (2007,p.29) further explains “One reason the Federal Reserve began to talk openly about interest rate policy in 1994 was that academic economists had begun to do so. Indeed, thinking about monetary policy as interest rate policy is one of the hallmarks of the new consensus that has made possible increasingly fruitful interaction between academics and central bankers.”
Arestis (2009) explains some basic assumptions of the NCM model, such as, intertemporal optimization of a utility function that reflects optimal consumption smoothing, which is based upon the transversality condition, which, in turn, meaning that economic agents are credit worthy, debts are also perfectly accepted in exchange, and that nobody is liquidity constrained. The model is also a non-monetary model, so there are no private banks or monetary variables. The objective is price stability, as inflation is a monetary phenomenon, and is therefore controlled via changes in the interest rate, rather than by the money stock. In the NCM, fiscal policy should not be used for short term objectives, but solely for medium to long term ones.
There are theoretical issues in the NCM, which can have harmful implications on policy making. For instance, liquidity preference is absent, in view of the transversality condition, which is highly unrealistic. The central bank is in charge of and can therefore change the rate of interest and influences the term structure in a stable fashion, but the term structure of interest rates is influenced by other variables, such as the market power of the banking sector. The NCM is absent of monetary aggregates, as well as banks, who play an important role in the transmission mechanism of monetary policy. Such major theoretical issues leave the NCM model to be considered highly unrealistic and jeopardise the policy which is created using this framework. Canzioneri et al (2008) generates two models, the “standard” NCM, with no banks or monetary aggregates, compared with the “enlarged” model, which banks that create deposits and make loans, and concludes that monetary indicators are useful in forecasting inflation in the enlarged NCM model and not so in the standard model.
The policy implications of the NCM paradigm are particularly important for this development aspect of macroeconomics. Price stability can be achieved through monetary policy since inflation is a monetary phenomenon; as such it can only be controlled through changes in the rate of interest. It is, thus, agreed that monetary policy is effective as a means of inflation control. This is no longer controversial in view of “the worldwide success of disinflation policies of the 1980s and 1990s” (Woodford 2009, pp.12-13). Goodfriend (2007) also argues that this particular set of propositions, amongst many others, has been backed by actual monetary policy experience in the United States and other countries around the globe, following the abandonment of money supply rules in the early 1980s.
Arestis (2009) discusses IT, the main policy implication of NCM, which is designed to fight demand shocks, or demand-pull inflation. Whereas, supply shocks, which produce cost-push inflation, cannot be handled. Therefore, the position taken by IT on supply shocks, is that they should either be accommodated, or that supply shocks come and go, and on average are zero and do not affect the rate of inflation, nor do they impact on the expected rate of inflation. The NCM pays insufficient attention to the exchange rate, and only weighting it into decisions when setting interest rate. A strong real exchange rate contributes to ‘imbalances’ in the economy through its impact on the domestic composition of output, as declines in manufacturing and exports, and increases in services and current account deficit, occur. There is a potential danger of a combination of internal price stability and exchange rate instability. The pass-through effect of a change in the exchange rate first on import prices and subsequently on the generality of prices, both goods and services, has weakened since the late 1980s. Consequently, the stronger real exchange rate has had less offsetting effect on domestic prices than in earlier periods. The argument normally used to justify appreciation in the exchange rate that such a move slows inflation is no longer valid under such circumstances.
Fontana (2009) uses a closed economy model in the discussion of NCM policymaking, listing the criticisms of conventional monetary policy under three distinct headings. Firstly, one of the most controversial features of the conventional policy in the NCM model is the “unemployment bias,” namely the persistent tendency of conventional monetary policy to keep the unemployment rate above the natural rate of unemployment, as long as the economy is not at price stability. Dalziel (2002), Fontana

Intellectual Property Right Protection Issues Concerning FDI

JVC partners in developing countries often cite technology transfer as an important expected outcome of their collaborative activities, but for developed nation partners, the risks that such technology will be misused or ‘leaked’ to other domestic companies are significant.
Discuss the issues faced by foreign partners when entering markets where intellectual property rights have traditionally been poorly protected. What provisions can partners make to protect their interests? (60%)
Introduction In this assignment, I would like to focus on intellectual property right protection issues while foreign investors entering market where intellectual property rights have traditionally been poorly protected, as well as the possible provisions can investors make to protect their interests. On the face of it, intellectual property right protection would seem to be a simple concept, as a prominent contribution on international policy agenda, the importance of IPRs hardly needs to be questioned further. However, although the Trade-Related Aspects of Intellectual Property Rights (TRIPs) had been made agreement, there are still many developing countries and economics such as China and India are less concerning about enhancing their Intellectual Property Rights because they thought there might be some ‘invisible benefits’ inside the poor protection of IPRs. Hence a better comprehension of potential benefits from a higher Intellectual Property Rights regime should be deeply discussed. For instance, stronger IPRs will attract more inflows of foreign direct investment. In another aspect, as globalisation has became one of the most ruling ‘buzz words’ in the world, International Joint Ventures play an important role in modern world, in other words, the protection of IPRs, which is the main issues faced by foreign investors, become more and more significant. Structurally, firstly I would like to discuss the differences between a weak and strong IPR to start this paper, and then I would like to discuss the main issues such as copyright and trademarks which foreigner investors will be faced. At last, a final conclusion will be given.
A weak and strong IPR To make a better understanding of the IPR issues for foreign investors, in this part, I would like to discuss the relationship between Intellectual Property Rights protection and foreign direct investment (FDI). General speaking, it is a little bit complex between IPR protection and FDI. On the one hand, according to Javorcik (2002), strong IPR protection will shift the willing of multinational companies from FDI towards licensing. On the other hand, if that country’s Intellectual Property Rights are to some extend weak, it will increase the probability of imitation, which could lead that country a less attractive location for foreign investors (ibid). In other words, the first issue faced by foreign partners when entering markets where IPRs have been poorly protected is that the phenomenon of imitation.
Fake iPhone in developing country For example, it is no doubt about how popular when the iPhone was born since the June 2007. Its unique operating system and exoteric port made it became gizmo lover’s dream. However, as time goes by, there are many imitation of iPhone had been created in many developing countries such as China. It should have surprised no one if people would want to buy a fake iPhone, just like people want to buy a fake Louisiana Pneumonia handbag. At the moment, in the China’s biggest online C2C shop – TAOBAO, there are many kinds of ‘iClone’ with enough good of the Apple logo and similar pattern to the real iPhone. The package as well as instruction book are completely same as real iPhone, which means it is really hard to find out what are the differences between the real and fake one. The only obvious difference is merely the price. The picture below is from a friend who bought a fake iPhone several months ago, it can be found that from the picture there are no differences between two)
The impact of imitation From the IPR protection perspective, the ‘imitation company’ should need a lesson of IPRs laws. However, it is obviously that such imitation company did it deliberately by taking advantage of poorly intellectual property rights of that country. The impact of imitation is that Apple is to some extend losing their sales; there are unquestionably damages to the Apple, which is the most respected and cleanest technology company in the world. In addition, more significant impact is that such phenomenon will affect other foreign investors’ confidence as well as enthusiasm, which put developing countries such as China at a serious disadvantage. Hence the improvement of IPR protection is important and significant. From another aspect, according to Mansfield (1994