Archive for the ‘Central Banks / Monetary Policy’ Category

Great news for Yellen…one in six Americans think Greenspan still runs the Fed

October 7, 2014

The survey is highly limited as it was polled across 1002 adults. That is too small really to draw results.

Nevertheless, it seems Yellen is doing a great job  as just 24% could recognise Yellen.  So much so, around 16% of Americans still think that Greenspan is running the Fed.  Bernanke did a better job of being recognised with 33% recognising him in a survey in 2009.


Central bankers as new philosophers to fix world economy and why that is a problem..

October 6, 2014

A brilliant column by Prof Harold James bringing a lot of things under one column.

He points how Europe and US have differed on philosophy of life. The philosophy of course comes from one’s world values which are shaped by culture and history. These differences reflect in all things including economic policy. Whereas US has been much more active trying to stimulate their economies out of trouble, Europeans have dithered for a long time.


Re-discovering the Phillips curve and it is actually back to life in Europe…

October 1, 2014

Philips Curve showed the trade-off between inflation and unemployment. If you want low unemp, you tolerate high inflation. If you want low inflation, you get higher unemployment. The idea died during 1970s when we had both high inflation and high unemployment making the Philips Curve vertical.

However, old ideas keep coming back. In these interesting times, Europe needs both. Higher inflation and lower unemployment is not really a trade-off. They need both these.

László Andor EU Commissioner for Employment, Social Affairs and Inclusion has this interesting piece revisiting the Philips Curve. There are interesting graphs which show Philips Curve has flattened out in France, Spain and Germany:


Why is Nouriel Roubini so surprised over surging markets?

October 1, 2014

Well, this has been the story for a very long time. Economic prospects have declined (age of diminishing expectations as Prof Krugman wrote) and continue to decline but markets remain as great as ever. So why is Nouriel Roubini surprised? I mean he even saw this irrationality build-up before the crisis .  This should not be anything new to him…


Time for helicopter drop of money?

October 1, 2014

Biagio Bossone, Thomas Fazi and Richard Wood say none of the policies are working. We need to look at Friedman (or Bernanke) idea of Helicopter drop of money.

But the traditional Friedman view of central bank directly providing money to people cannot work. We instead need a government helicopter drop:


Reconstructing macro theory to manage maco policy

September 30, 2014

Prof Joseph Stiglitz chips into the debate over state of macro.


Connections between NY Fed and Wall Street (read Goldman) getting exposed

September 29, 2014

Over the weekend, some really interesting and scandalous story broke out. Propublica’s Jake Bernstein wrote this long article showing how the cosy relationship between NY Fed and Wall Street. As if this was anything new really. Michael Lewis adds more to the story.

The difference is Bernstein gets this former NY Fed  regulator Carmen Segarra to speak up. Segarra was an onsite supervisor a Goldman Sachs. Onsite regulators are those who actually sit in the office of the regulated entity. She was assigned Goldman Sachs and in act of bravado she taped her conversations while being in conversation with NY Fed and Goldman officials. The tapes show how NY Fed officials were just so afraid to ask Goldman to behave.

And this was after NY Fed actually appointed someone to sort its culture right. Lewis adds:


Thinking about the yield curve in Euroarea..

September 26, 2014

An oldish speech by Vítor Constâncio of ECB, which I missed linking.

Euroarea is both frustrating and interesting in most matters. It does not change when we think about the yield curve.

First, what is it about the yield curve?


How China’s central bank works?

September 26, 2014

WSJ Blog explains:

Unlike the U.S. Federal Reserve and other western central banks, the People’s Bank of China isn’t independent of the government. It reports to the State Council, the Chinese government’s top decision-making body and as a result, the PBOC has no real control over China’s monetary policy.

But on inflation front, China has had low inflation for a while. So even if the central bank is not so called independent,  it has managed to keep govt at bay:


Prof. George Akerlof or Mr. Janet Yellen?

September 26, 2014

It was kind of funny to get this post from WSJ blog. It is trivia really but is fine given it is Friday evening.


Improving inflation statistics…

September 26, 2014

Herve Hannoun of BIS has a nice speech on the topic. The speech is given during Irving Fisher Committee Conference.

He says monetray stability can only be achieved if we know the actual  inflaiton level. For latter, we need to continue to review our stats

As monetary stability is no less important, I find it highly appropriate that the first session of this conference is devoted to “New monetary policy indicators”. No topic could be more topical, given the vigour of the current debate about the supposed threat of deflation. But no debate can be productive, especially at the policy level, unless the supporting data are sound. In this light, measures of inflation and inflation expectations are surely an appropriate focus for an intensive review by central bank statisticians – and I would like to raise the question here if the IFC might not play a catalytic role in that process. Let me start by revisiting the intricacies of inflation measurement

He points how fin markets say inflation is too low whereas households think it is high:

Has the public understanding of CPI measures improved? As you know consumer surveys reveal a large gap (6% in some cases1) between inflation as measured by the statisticians and inflation as perceived by the public. In other words, the general public may view price trends very differently from financial market participants who complain that “inflation is too low”. And, needless to say, if the central bank itself starts to express concerns that inflation is too low, it may find it difficult to convince the public of its case.

He shows how financial markets expectations of deflation in EU is misplaced given how the long term trends have been.

In the speech he also discusses ways to improve statistics on inflation..

Why NZ is worried about its overvalued currency?

September 25, 2014

Well, it is worried as the currency is overvalued!

In this speech RBNZ chief Graeme Wheeler discusses why NZ currency is so strong. He first says that there are some reasons for currency to appreciate:


Fed has a problem buying private sector assets and ECB has a problem buying govt. assets….

September 23, 2014

Economists differ greatly on what a central bank can do and not do. Adam Posen is in the camp

In this oldish speech released recently, he reflects on recent ECB measures. He says somehow the bad ideas that central banks cannot stimulate economies keeps coming back:


Liquidity: Meaning, Measurement and Management

September 23, 2014

Title of Robert Lucas speech at St Louis Fed. A rare readable paper from Prof Lucas :-)

He starts visiting the objective of Canada central bank:


T.L.T.R.O. is Too Low To Resuscitate Optimism

September 22, 2014

Silvia Meiser of Bruegel reflects on the low bidding for TLTRO funds.

Out of the expected EUR 180 bn of funds, banks only bid for EUR 83 bn:


Making sense of dissents: a history of FOMC dissents..

September 22, 2014

Dissent is part of human life. People assenting or dissenting to other’s views is quite common. However, when it comes to central banking it becomes quite abnormal and generates significant hype.

Daniel  Thornton and David Wheelock of St. Louis Fed have this superb paper tracking history of FOMC dissents.

This article presents a record of dissents on Federal Open Market Committee (FOMC) monetary policy votes from the Committee’s inception in its modern form in 1936 through 2013. Dissents were rare during the Committee’s first 20 years but began to increase in the late 1950s. The number of dissents increased sharply during the late 1970s and early 1980s, when both inflation and unemploy- ment were unusually high. However, at other times, the number of dissents was not correlated with either inflation or the unemployment rate. A review of FOMC records and published statements indicates that dissents often reflect fundamental disagreement about (i) how to achieve the Committee’s macroeconomic objectives and (ii) the current stance of policy. The number of dissents also appears to have been influenced by the language used by the FOMC to communicate instructions to the manager of the System Open Market Account.

There is a lot of trivia and interesting stuff in the paper:


ECB has a FOMC now…

September 19, 2014

ECB had announced the shift earlier. The details came y’day.

There will be 3 groups:

  • Executive members – All  6 will have voting rights in all 12 months
  • Big members -there are 5 members. 4 out of 5 shall maintain recording rights every month. one will drop out. IN Jan 15, Spain shall drop out.
  • Small economy members – Post Lithuania joining we shall have 14 members in this group. Out of this 3 shall drop out every month.

So basically, there will be 21 members voting each month (6+4+11). The difference is members shall rotate every month. Unlike FOMC where members rotate every year, here it shall be every month.

But still 21 is pretty large..

From Taylor rule to Hayek rule…

September 17, 2014

Mateusz Machaj of Mises Institute says shift to Taylor rule will not help Fed. One should instead follow a Hayek rule and abolish Fed. The banks should be free to do their own thing without any Fed intervention.


Do Regional Fed members have a regional bias?

September 16, 2014

The question is kind of tautological. I mean what good are regional Fed members if they do not bring regional angle to the table. After all that is their role.

The issue is whether their voting pattern for interest rates is based on regional understanding or not. Ideally, one would think that monetary policy should be based on the national economy and not on regional basis.

This paper by ECB econs Alexander Jung and Sophia Latsos look at the issue:

In a federal central banking system there is an undisputed need for a regional dimension to monetary policy decision-making. In fact, the literature suggests that monetary policy-makers, who are part of such a system, should use a wide range of indicators when assessing economic and financial conditions. Therefore, it appears warranted if these policy-makers choose to monitor regional data in order to enhance their understanding of national economic dynamics. At the same time, monetary theory cautions that policy-makers should avoid voting in a manner that would favour their region of origin. Such voting behaviour may reflect a regional bias in the interest rate preferences of policymakers and could lead to suboptimal monetary policy outcom econometric strategies, these studies mostly find evidence in favour of the existence of some form of regional bias in policy-makers’ deliberations on interest rates. However, two important questions remain unresolved: do previous findings represent robust evidence that policy-makers’ preferences are subject to a regional bias, and, if so, to what extent does the possible presence of a bias influence monetary policy decisions?

They estimate Taylor rules for each of the regions and check that with interest rate preferences to figure the regional bias. Some Regional Feds did have regional bias but that did not overall affect the mon pol decision:

In order to detect a regional bias in policy-makers’ interest rate preferences, it is necessary to apply specific empirical methods. In this sense, the evidence detecting such biased preferences has to be twofold. First, it has to show that a policy-maker’s interest rate preference responds to regional data stemming from the respective home district. Second, the preference also has to be such that a policymaker would favour the regional economy in his or her decision on the (national) interest rate. For example, a Federal Reserve Bank President with a regional bias would opt for lower (higher) interest rates when his or her region’s unemployment rate was higher (lower) than the national average. The empirical approach to the hypothesis of a regional bias thus requires estimating policy-makers’ reaction functions and augmenting them with a regional variable. The evidence obtained from this has to show that the regional variables of the policy-makers’ respective home districts explain why their interest rate preference deviates from the FOMC’s federal funds rate.

By estimating individual Taylor rules for FOMC members, we examine the interest rate preferences of the Federal Reserve Bank Presidents during the Greenspan era (sample 1989 to 2006). In order to evaluate the regional bias hypothesis, we augment individual Taylor rules for the Federal Reserve Bank Presidents with regional variables and test for their influence on the Presidents’ preferences. Information on individual interest rate preferences stems from FOMC transcripts. Estimates based on these augmented Taylor rules reveal that the preferences of some Federal Reserve Bank Presidents were not free of a regional bias, a result that applies particularly to the smaller districts. 

However, Taylor rules with inertia show that this finding could also be due to the presence of an interest rate smoothing motive. Moreover, further tests confirm previous results by Chappell et al. (2008) who found that compared to the nationwide unemployment rate the district unemployment rate only has a small (negative) impact on FOMC members’ interest rate preferences. Overall, our findings support the view that the presence of a regional bias in the interest rate preferences of some Federal Reserve Bank Presidents is unlikely to have impeded on the Fed’s capacity to set interest rates with a nationwide focus.

Interesting stuff. We shall have some research on ECB as well when the minutes etc are published from next year onwards.

Astonishing Story of how Federal Reserve reacted on 9-11…

September 16, 2014

The US just celebrated its anniversary of the terrorist attacks.

Arliss Bunny writes this stirring account of how Fed reacted during the attacks:



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