Archive for February 27th, 2009

Symmetrical Monetary Policy anyone?

February 27, 2009

Axel Weber, Chief of Bundesbank (Germany’s Central Bank) says:

The influence of monetary policy on the behaviour of financial market participants might be especially strong in the event that the central bank follows an asymmetric monetary policy that is lowering rates aggressively in the face of macroeconomic downturns but increasing rates only gradually when downside risks have vanished. Contrary to this approach, there is the idea of a symmetrical monetary policy, which would not consider the boom-bust phases in the financial markets as isolated events, but would try to look through the financial cycle and stabilise monetary policy.

Moreover, a symmetrical monetary policy would consider a higher key interest rate in the event of an increase in risk in the financial markets, even in the absence of inflationary risk or macroeconomic risks within the usual time horizon for monetary policy. This does not mean that the central bank would abandon its primary goal of price stability in favour of other intentions. The central bank would rather take a longerterm perspective and include the future consequences of unfavourable trends in the financial markets in its analysis.

This is interesting as it is coming from a Central Banker as they have resisted this all along. He is quite powerful as well and it will be interesting to see other central bankers also saying something similar. If there was no ECB, Bundesbank would have been the next powerful after Fed. Moreover, ECB has been largely on style of Bundesbank.

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Central Bankers should have a degree in economics

February 27, 2009

I came across this interesting resignation letter from David Oddson, Chairman of Board of Governors, Central Bank of Iceland. Before explaining the letter, here is the organisation structure of Central Bank:

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Assorted Links

February 27, 2009

1. Krugman says Obama is trying to do everything right, why not something useful on banks?

2. WSJ Blog points to Volcker testimony

3. Buiter on how to set up a good bank

4. Mankiw points to a new cartoon on moral hazard. He also has an excellent post on accounting differences over classification of TARP money on govt budget

5. Rodrik has a superb post on global fiscal stimulus plans

6.Fin Prof pointsGM lost USD 85 mn every day in Q4 2008

7. TTR points to RBS excesses. What can one say reading all this?

8. Urbanomics on dangers of estimating the bottom

9. Indicus Blog has a good post on forecasting by Indian companies


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