The winner of the second debate was Group 4, the group that argued in favor of a dual mandate. To come to this decision, we made a list of seven main points discussed by the teams. They were: 1. The American comparison, discussing whether the Fed was a good model to follow in Europe; 2. The effect of a dual-mandate versus an inflation-targeting mandate on the independence of central banks; 3. Transparency of the actions of the central bank; 4. The contradiction between the targets (Since the goals are contradictory, does it make sense to have one institution work towards both? Is it worse to have the central bank work towards one while the state works towards another?); 5. The ability of a central bank to manage crises in the short-term with or without a dual mandate; 6. The long-term inefficiency of monetary policy on unemployment; 7. The form of the argumentation. [1]The majority of these components were addressed by both teams. Group 4 spoke extensively about the first point, which was contrasting the reaction to the crisis taken by the Federal Reserve to that of the ECB. While their argumentation was strong, we found that Group 5 did an effective job pointing out the discrepancies between data collection methods on unemployment rates in the U.S. and Europe, which make the numbers less convincing. Group 5 made the point quite well that it is difficult to draw accurate comparisons between the United States and the EU. They also pointed out the ambiguity in whether monetary policy and the dual mandate were responsible for the difference in outcomes, or if other factors were at work. We considered this point to be a draw. [2][3] Independence of the central banks was a concern of Group 5, who argued that the ECB would be increasingly politicized if the dual mandate were implemented. While pointing out the fact that the ECB would have a less-straightforward policy role, we felt that the rhetoric for a more politicized central bank as a result of the dual mandate was too rooted in the American system of politics rather than the European one. We found Group 4’s argument that a dual mandate would heighten transparency to be more convincing, given that they could clearly state their objectives rather than cover up any deviation from a strictly inflation-targeting policy. [4] Group 5 argued that by definition the ECB’s policies would hinder one of its two goals in advancing the other as their only tool is manipulating interest rates and there is a trade off between unemployment and inflation. The strength in a single mandate is that economic assumptions will follow the clearly set goal of an inflation rate thus guiding the economy in that direction. Group 4 looked at this contradiction from the angle of the ECB acting in contradiction to statelevel fiscal policies, if they in fact are enacted. It is counterproductive when the ECB is continuing to focus on lowering inflation when states are combatting unemployment, with economic effects that butt heads.
[5] Group 4 made a more convincing argument that central banks with dual mandates are better equipped to handle crises in the short-term. The most urgent concern, as they said, is not always inflation, and central banks should be able to act on that. [6] Group 5 earned this point, which Group 4 did not successfully refute. Group 5 argued that according to existing economic models, monetary policy alone is not capable of addressing high unemployment in the long-term, and thus that responsibility should remain on the fiscal policy side. [7] We did not put too much weight on this, but we felt that that Group 4’s presentation style was more clear as it was organized by subject headings with subheadings underneath. There was disagreement within the group as to which team had a better form, but we gave the point to Group 4. Ultimately, we decided that each group had one point that was very strong, and we gave these points more weight. For Group 4, this was the speed with which banks with dual mandates can react to crises versus banks with inflation-targeting mandates. Their point that the ECB waited too long to act while fearing an inflation problem that never happened was very strong when compared to the rapid response of the Federal Reserve Bank, which allowed inflation to increase temporarily in order to get more liquidity circulating. For Group 5, the strongest point was the disparity between the economies of Member States. The doubt that one single monetary policy can effectively address the varied levels of unemployment seemed very valid when compared with the relative uniformity of unemployment levels between US states. However, we felt that Group 4 offered a strong response to this argument in stressing the role of state-level fiscal policy in dealing with specific unemployment problems: the ECB would be better equipped to react quickly to a Europe-wide contraction under a dual-mandate.
