Publication: Business cycles and economic policy, 1945-2007
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2010
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Cambridge University Press
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Abstract
We explain how governments contributed and responded to fluctuations
in economic activity in Europe during the second half of the twentieth
century. In the second section we sketch the basic ideas essential to understanding
the relationship between economic policy and business cycles. They include the notion that monetary and fiscal policies influence fluctuations in
output, employment, and inflation according to the financial openness of the
economy (free capital flows versus capital controls), as well as the currency
regime chosen by policy makers (pegged versus flexible exchange rates).
We also document the timing of financial liberalization in Europe and the
persistent preference of most European governments for pegged exchange rate
regimes over the entire period. We then examine the evolution of basic features
of cycles in Europe, such as volatility and synchronization. We note the falling
volatility of cycles in the 1960s and from the mid-1980s until 2007, explaining
why changes in economic policy making were a fundamental driver. In the next
section we support this analysis with narratives of the responses of national
governments and central bankers to cyclical fluctuations before and after the
global recession of 1974-5. Finally we look briefly at the historical and recent
experience of eastern Europe, assessing the area's reintegration from 1989 after
the long economic decoupling from the rest ofthe continent in 1945
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Ciclos económicos, Política económica, Europa
Bibliographic citation
S. Broadberry ; K. O'Rourke (eds.). Cambridge Economic History of Modern Europe. V. 2. Cambridge : Cambridge University Press, 2010, pp. 360-389