Central Banking - theory & practice...
Charles Goodhart writes (FT-£) that “Proposals that central bankers report their expectations of official rates, beyond some short future horizon, are retrograde, pushed forward by fashionable theory without reference to empirical reality.” By short horizon here I think he means three or six months: much shorter than the recent move by the US Fed. Charles is usually right about most things, and similar comments have also been made by other experienced ex-central bankers, so I think it is important to set out carefully one important counter argument. Charles writes that “whether the publication of central bank predictions of the future path of interest rates is likely to be beneficial depends on the relative accuracy of such forecasts.” I disagree. I’m happy to assume they are no better than those of forecasters in general.
CHICAGO – Poor Ben Bernanke! As Chairman of the United States Federal Reserve Board, he has gone further than any other central banker in recent times in attempting to stimulate the economy through monetary policy. He has cut short-term interest rates to the bone. He has adopted innovative new methods of monetary easing.
Mohamed A. El-Erian 1 Homer Jones Memorial Lecture Federal Reserve Bank of St. Louis Good afternoon. It is a huge honor for me to be here today.
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All Central Bank Balance Sheets Are Exploding Higher, Or Engaged In QE The degree to which central banks around the world are printing money is unprecedented. The first eight charts below show the balance sheets of the largest central banks in the world. They are the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). Noted on the charts are significant events or growth rates.
John Kay on Central Bank Credibility Few, if any, newspaper columnists are as consistently insightful and challenging as John Kay of the Financial Times . In his column today (“The dogma of ‘credibility’ now endangers stability”), Kay brilliantly demolishes the modern obsession with central-bank credibility, the notion that failing to meet an arbitrary inflation target will cause inflation expectations to become “unanchored,” thereby setting us on the road to hyper-inflation of Zimbabwean dimensions. (Talk about a slippery slope!
ECONOMICS blogger Kantoos has written a very nice post on the disastrous conduct of euro-zone monetary policy, in which he gets one thing wrong. He writes: First of all, what is monetary policy supposed to accomplish? Very broadly speaking: macroeconomic stability. An important aspect is to keep aggregate demand (AD) on a stable and predictable path.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph OXFORD – Central banks are now targeting liquidity, not just inflation. The credit boom of the past decade highlighted the inadequacy of focusing only on prices, and underscored the need for the monetary authority of a country (or group of countries in the case of the European Central Bank and the eurozone) to monitor the financial sector. Macroprudential regulation is the new term of art among central bankers, supplementing their well-established inflation-targeting regimes. Comments View/Create comment on this paragraph This shift in focus could radically change monetary policy, but for better or worse?
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph CAMBRIDGE – It is with regret that we announce the death of inflation targeting. The monetary-policy regime, known as IT to friends, evidently passed away in September 2008.
That’s the title of my piece in the Fin last week. As with my previous column, Catallaxy was out with a comment long before I got around to posting here, but it seemed to me to miss the point fairly comprehensively. Ever since the first signs of the global financial crisis emerged back in 2007, the central bankers of the developed world (most importantly the US Federal Reserve, the European Central Bank and the Bank of England) having been making policy on the run, trying one expedient after another, even while insisting that nothing has really changed. Our own Reserve Bank, buoyed by the successful management of the crisis here, is even clearer in the view that the current policy regime needs no real change. They are supported by the government, which has repeatedly rejected calls for an inquiry into the financial system, to examine whether our escape from the impact of the Global Financial Crisis was in fact the result of good management, or whether luck played an important role.