Central Banking
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Fed Independence 2025
Headline: The Fed just forced mortgage servicers that got caught submitting "documents that were not properly notarized," among other sins, to cough up money towards principal reduction, for people unaffected by the notarization scandal, as well as to fund "nonprofit housing counseling organizations" and other policy objectives. Deeper question: What will the Fed look like in 2025? How long can it stay independent as it takes on more and more power, and uses that power for these kinds of political policy actions?
The Federal Reserve ’s decision last month to set a soft inflation target is the latest in a series of steps the central bank has taken in recent years to improve policy transparency. It’s also the most controversial among economists, and with good reason. In 2004, Frederic Mishkin, an economics professor at Columbia University who later became a member of the Federal Reserve Board, engaged in a written debate on the issue with Ben Friedman of Harvard University in the journal International Finance.
Fed Inflation Goal Is More Politics Than Policy: Evan Schnidman - Bloomberg
The unprecedented behaviour of the central banks | Gavyn Davies | Insight into macroeconomics and the financial markets from the Financial Times – FT.com
In economic policy nowadays, the unthinkable suddenly becomes the inevitable, without pausing for long in the realm of the improbable. (See this piece in The Economist.) Nowhere has this been more true than in central banking, where the recent huge expansion in the size of balance sheets would have seemed inconceivable as recently as 4 years ago. Markets have not only accepted this use of the printing press with equanimity, they have become increasingly dependent upon it. Most economists are also very relaxed about it, frequently describing it either as inconsequential, or even as entirely irrelevant. But how can a policy intervention which has underwritten the liquidity of the entire western banking system be described as irrelevant?
Alphaville » On the ECB’s ‘most significant non-standard measure’
Back in October 2008, when the ECB first announced its list of extraordinary liquidity measures to help combat the financial crisis, most eyes were drawn to such things as widening eligibility of collateral and the announcement of long-term refinancing operations (LTROs) . But there was one other very significant change, which *perhaps* went under the radar for most people. All the ECB’s refinancings would, from now on, be conducted on a ‘fixed-rate full allotment’ basis, rather than a variable rate tender format, as used before.
La fin du « nouveau consensus monétaire » - La Vie des idées
Ce texte s’inspire d’une allocution prononcée le 24 juin 2008 au Parlement européen. Le 8 novembre 2002, à Chicago, Ben Bernanke, alors gouverneur de la Banque centrale américaine, aujourd’hui son président, prononçait un discours en hommage à Milton Friedman, à l’occasion du 90e anniversaire du fondateur de la théorie monétariste. « Comme tout le monde ici présent le sait, Friedman et [Anna Jacobson] Schwartz affirment dans leur Histoire monétaire que l’effondrement économique de 1929-1933 avait été le résultat du dérèglement du mécanisme monétaire du pays. Contredisant la vision acceptée par leurs contemporains, […] Friedman et Schwartz pensaient que ‘la contraction est en réalité une preuve tragique de l’importance des forces monétaires’. […] J’aimerais dire à Milton et à Anna : au sujet de la Grande Dépression, vous avez raison, c’est notre faute. Nous sommes désolés. Mais grâce à vous, nous ne recommencerons pas ».US annualized real GDP growth from 1950 to 2010, showing the years of the Great Moderation. In economics, the Great Moderation refers to a reduction in the volatility of business cycle fluctuations starting in the mid-1980s, believed to have been caused by institutional and structural changes in developed nations in the later part of the twentieth century. [ 1 ] Sometime during the mid-1980s major economic variables such as GDP, industrial production, monthly payroll employment and the unemployment rate began to decline in volatility. [ 2 ] [ edit ] Origins
Great Moderation - Wikipedia, the free encyclopedia
Monetary policy: Today in central banking | The Economist
Oct 24th 2011, 15:18 by R.A. | WASHINGTON THE Bank for International Settlements, often called the central banker's central bank, is a bastion of conservatism and policy orthodoxy. Unsurprisingly, the BIS is not particularly comfortable with the central bank policy interventions that have been adopted as a response to demand-side weakness at the zero lower bound. And unsurprisingly, the BIS (which demanded in June that "growth must slow") is laying out an intellectual framework to help justify inaction. Here is Claudio Borio: There is considerable cross-country evidence that banking crises tend to be preceded by unusually strong credit and asset price booms (see below), that those crises go hand-in-hand with permanent output losses (BCBS (2010)), and that subsequent recoveries tend to be slow and protracted (eg Reinhart and Rogoff (2009), Reinhart and Reinhart (2010)).
Worthwhile Canadian Initiative: Instrument rules, target rules, NGDP, complexity and learning
At one extreme you have pure discretion . The central bank does whatever it thinks is best. At the other extreme you have an instrument rule . The rule specifies exactly how the central bank should set the monetary policy instrument, conditional on the indicators (i.e. conditional on its information). The Taylor Rule is an example of an instrument rule*; it specifies the exact setting of the interest rate as a function of recent data on output and inflation. Somewhere in the middle you have a target rule .
Is there a credit channel? | afoe | A Fistful of Euros | European Opinion
An important argument at the moment is whether or not the so-called credit channel exists. When central banks carry out quantitative easing, and even more so in the case of a “credit easing” policy like the one George Osborne announced recently, a major reason for it is that they are trying to reduce the price (i.e. the real-terms interest rate) and increase the supply of loans to businesses. This being their effective cost of capital, this should encourage them to invest, and thus to increase aggregate demand. This is the New Keynesian account; the monetarist one is that creating an expectation of future inflation creates a disincentive to hold onto cash.
GILLIAN Tett alerted FT readers to a thoughtful paper from Claudio Borio at the Bank for International Settlements, the central bankers' central bank. For those who don't want to read the whole thing (although it's worth doing so), here are some edited highlights. Mr Borio comments on why recoveries from financial crises tend to be slow and protracted. In all probability this reflects a mixture of an overestimation of potential output and growth during the boom, the corresponding misallocation of resources, notably capital, the headwinds of the subsequent debt and real capital stock overhangs, and disruptions to financial intermediation. Fiscal expansions in the wake of the crises can add to these problems, by piling government debt on top of private debt and sometimes threatening a sovereign crisis. All this reduces the effectiveness of monetary policy in dealing with the bust and exacerbates its unwelcome side-effects.
The debt crisis: Clean-up problems | The Economist
Wall Street 40 La construction à Londres de l’édifice le plus haut du continent confirme la relation entre les projets architecturaux grandioses et les crises économiques. Entre avril 1930 et mai 1931 furent construit à New York trois des premiers gratte-ciels modernes : le n°40 de Wall Street, le Chrysler Building et l’Empire State Building.
La « malédiction des gratte-ciels » frappe l’Europe | Contrepoints
Central banking and central bankers as we know them are out of touch with the modern world and ill-equipped to deal with the challenges set before them. That is the view of Morgan Stanley’s Manoj Pradhan who argued that the current ‘DDD regime’, meaning debt, deficits and deleveraging, requires a different monetary policy strategy. iii) a ‘conservative’ central banker (i.e., one who dislikes inflation more than the average economic agent) can deliver lower and less volatile inflation But two of these three tenants were designed for a regime of low debt when monetary policy was the dominant force, something developed economies will not see for the foreseeable future , Pradhan said. In the DDD world, or era of so-called ‘fiscal dominance’ — defined as a period of time when the fiscal position of the economy effectively ‘sets’ a target that monetary policy has to follow — the first and the last tenets “can cause more harm than good”. Here’s why: (emphasis ours)
Alphaville » The trouble with central bankers…
Milton Friedman on the Euro and QE3 — Marginal Revolution
In 2000 Milton Friedman gave the keynote address to a conference at the Bank of Canada on flexible exchange rates. A Q&A at the end of the talk featured David Laidler, Michael Bordo, John Crow and others. Michael Bordo asked Friedman about the Euro: Milton Friedman:…I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them.Helicopter Drops Are FISCAL Operations
Le blog qui se trouvait là est maintenant à l’adresse http://www.neweconomicperspectives.org/2010/01/helicopter-drops-are-fiscal-operations.html.From the depths of the recession which began in 2007, and severely intensified in 2008:Q3, there has been an ever-growing chorus of (minority) opinion in the blogosphere regarding the nature of the recession, the causes, and the proper prescription for returning the economy to growth. The practitioners of this style of macroeconomics have since been dubbed the “quasi-monetarist” school, of which I consider myself a member. “Quasi-monetarism” has always been a somewhat unsatisfactory title for this group of thinkers, but it has stuck — so far. Lars Christensen, however, seeks to change that in a new working paper entitled “ Market Monetarism: The Second Monetarist Counter-Revolution “, in which he lays out the core tenets of the quasi-monetarist market monetarist view.