Prof Simon Johnson’s recent piece is on governance at Federal Reserve. In his typical style, he lambasts what has been going on at Fed esp. at NY Fed.
Archive for the ‘Central Banks / Monetary Policy’ Category
Aesop relays the tale of a hare who ridicules a slow-moving tortoise, who then challenges the hare to a race. The hare soon leaves the tortoise far behind and, confident of winning, takes a nap midway through the race. When the hare awakes, however, he finds that his competitor, crawling slowly but steadily, has crossed the finish line before him.
Investors may wonder how long the European Central Bank (ECB) will slumber after taking an early lead in the race to expand its balance sheet to facilitate growth across the eurozone – the world’s second-largest economy.
We could call it an economic fable…
It has come to pass that the first- and third-largest economies on the planet – the U.S. and Japan, respectively, and the tortoises of our tale – have engaged in massive quantitative easing (QE) programs as a means to spur monetary velocity (via increased asset velocity – that is, the rate at which assets circulate). Yet some analysts insist the eurozone may not follow suit.
He goes on to suggest that QE may not work in theory but does in practice…
The gold fetters are worrying central banks once again. One keeps hearing some news or the other. Swiss are anyways going to vote on Nov 3o on whether SNB should hold 20% of its reserves as gold and hold all its gold reserves in Switzerland (currently 30% gold reserves held in UK and Canada; see one, two and three on this)
Now, I read this about Dutch Central Bank. It too has adjusted its gold location policy:
Andy Haldane of BoE discusses the issue in this speech.
He first lists the behavioral biases and then suggests what central banks can do to overcome the biases:
Preference biases – where the decision maker might put “personal objectives over societal ones, such as personal power or wealth”
Ken Rogoff writes an article which is a must read for all central bankers and the media which hypes them.
He wonders what is all this hype about central bankers? Why do we care so much about each word they say, their color of tie and god knows what all. Most central bankers love the publicity and hype and don’t shy from photo-ops and enjoy their sudden new popularity. In the process they don’t realise they are becoming victims of financial markets and governments:
A one week old news..not sure how many saw it.
IMF charges an interest rate for lending against SDR. These rates are calculated on a weekly basis. These interest rates are in turn calculated by the prevailing interest rates in developed economies, With rates even touching negative, there was a threat to SDR rates as well. So IMF has set the floor rate at 0.05%:
The International Finance Centres are now discussing questions like these which were bread and butter (or mickey mouse) before the crisis. Even asking such qs was a crime and laughed upon.
The Fair and Effective Markets Review (FEMR) has today published a consultation document on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.
The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high profile abuses, and to influence the international debate on trading practices.
The Chancellor, George Osborne, said:“The integrity of the City matters to the economy of Britain. Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy.
I am determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them. I want to make sure it is done in a way that preserves the UK’s position as the global financial centre for many of these markets, with all the jobs and investment that brings.
The consultation that the Fair and Effective Markets Review has launched today is comprehensive, balanced and rigorous, and asks all the right questions. I look forward to the Review’s final recommendations in June next year.”
Wholesale fixed income, currency and commodity markets ultimately make it possible to do business across almost every sector of the global economy. They help determine the borrowing costs of households, companies and governments, set countries’ exchange rates, influence the cost of food and raw materials, and enable companies to manage financial risks associated with investment, production and trade.
However, in recent years there have been a number of high-profile abuses in these markets. These have included the attempted manipulation of benchmarks, alleged misuse of confidential information, misleading clients about the nature of assets sold to them, and collusion.
Interesting times..Despite all this, hype over finance and financial development continue..
It is all about operating in secrecy. Central banks end crisis by making sure no one knows what you are doing and who are the partners (Banks and FIs) in crime.And general public is made to feel that as if there is some magic going on.
Gary Gorton and Guillermo L. Ordoñez in this paper explain the importance of secrecy in ending crisis:
Yellen has this useful speech to show how inequality has risen so much in US.
This is a trend which has clearly caught US econs napping. Economists is around two questions: How much to produce and how to distribute. The question of distribution was dismissed by most economists in recent years. There was a widely held belief that just like econs have resolved the problem of depression, they have resolved for distribution as well.
And now both, depression and inequaity have hit these economies hard. And what is worse that there were clear signs of this but were ignored.
David Miles of BoE has this article on forward guidance. FG was something which was slated to replace all mon pol tools or supersede them. With all these inflation targeting forward looking central banks came the idea of guiding markets towards the future policy decisions. So statements like what central bank is likely to do etc became fashionable. Some central banks started even giving paths over how their interest rates shall move going ahead. In other words central banks became nothing but Gods. There is a reason why they are so hyped and celebrated after all.
This was all good till this crisis and things have become crazy since then. FG was taken more seriously as economies dived to assure markets but as things moved ahead one is not sure how to forward guide. Whatever you say, it is usually the opposite making you look mere human.
So Miles says, we should not be so precise. C-banks FG statements should be more qualitative: