Central banks’ role in financialization has received increasing attention in recent years. These debates have predominantly revolved around authorities’ ‘benign neglect’ of asset bubbles, their deregulatory policies, and the safety nets they provide for speculative exuberance. Most analyses refer to the dominance of pro-market interests and ideas to explain these actions. The present article moves beyond these accounts by showing how an alignment between techniques of monetary governance and ‘unfettered’ financial markets can explain central banks’ endorsement of increasingly fragile structures of liquidity and their strategic ignorance towards growing amounts of debt. We analyze the processes of abstraction and formalization by which the ‘programmes’ and ‘technologies’ of monetary governance have been made compatible with the texture of contemporary finance; and we show how central banks’ attempts to make markets more amenable to their methods of policy implementation shaped new conduits for financial growth. As empirical cases, we discuss the Federal Reserve’s experiments with different policy frameworks in the 1980s and the Bank of England’s twisted path to inflation targeting from 1979 to 1997. These cases allow us to demonstrate that the infrastructural power of contemporary central banking is predicated on the same institutional foundations that have made financialization possible.
Money markets are at the heart of financialized capitalism, as those markets that provide the funding liquidity needed for credit creation and leveraged trading. How have these markets evolved, grown, and become critical for larger financial flows? To answer this question, I distinguish an early period of financial globalization marked by regulatory arbitrage, offshoring, deregulation, and informal trading practices from a period of regime-consolidation marked by formal institutionalization. Concentrating on repo markets as the key funding sources for market-based banking, I demonstrate that new institutional arrangements for these markets were initiated by private sector associations, but supported and authorized by public authorities. Bond trader groups codified new contractual arrangements and these were validated via reforms of bankruptcy codes and changes in central banks' policy frameworks in the United States and European Union. Through these modifications and re-articulations in institutional conditions, transactions and large exposures on money markets became routine affairs-for shadow banking actors like money market funds as well as for commercial banks. The article concludes by discussing the continuity of regime-consolidation efforts after the transatlantic financial crisis and hypothesizes that they reveal "neopatrimonial" features.
Central banks have accumulated unparalleled power over the conduct of macroeconomic policy. Key for this development was the articulation and differentiation of monetary policy as a distinct policy domain. While political economists emphasize the foundational institutional changes that enabled this development, recent performativitystudies focus on central bankers' invention of expectation management techniques. In line with a few other works, this article aims to bring these two aspects together. The key argument is that, over the last few decades, central banks have identified different strategies to assume authority over Bexpectational politics^and reinforced dominant institutional forces within them. I introduce a comparative scheme to distinguish two different expectational governance regimes. My own empirical investigation focuses on a monetarist regime that emerged from corporatist contexts, where central banks enjoyed Bembedded autonomy^and where commercial banks maintained conservative reserve management routines. I further argue that innovations towards inflation targeting took place in countries with non-existent or disintegrating corporatist structures and where central banks turned to finance to establish a different version of expectation coordination. A widespread adoption of this Bfinancialized^expectational governance has been made possible by broader processes of institutional convergence that were supported by central bankers themselves.
Public investment spending declined steadily in advanced economies during the last three decades. Germany is a case in point where the aggregate decline coincided with growing inequality in investments across districts. What explains the variation in local investment spending? We assembled a novel data set to investigate the effects of structural constraints and partisanship on German districts’ investment spending from 1995 to 2018. We find that the lack of fiscal and administrative capacity significantly influences local investment patterns. Yet, within these constraints, partisanship matters. Conservative politicians tend to prioritize public investment more than the left. This is especially the case when revenues from local taxes are low. As the fiscal conditions improve, left-wing politicians increase investment more strongly and hence the difference between the left and the right disappears. Our findings are indicative of how regional economic divergence can emerge even within cooperative federal systems and show that, even when decision-makers operate under various institutional and structural constraints, partisanship matters for how these actors allocate discretionary spending.
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