Archive for June 26th, 2008

Are Monetary policy institutions converging?

June 26, 2008

I had asked earlier it will be interesting to see how institutional frameworks in monetary policy  shape up. My hypothesis was though the objective was single- price stability, the way various central banks manage it (their institutional structure) differs widely.

I had pointedto a William White paper on the subject who makes a broad comment confirming my hypothesis.

This recent paper by Corrine Ho of BIS looks at the hypothesis more specifically:

Just as monetary policy at the strategic level has undergone significant changes over the years, so has its day-to-day implementation. This paper documents the key features of 17 central banks’ monetary operating frameworks as of early 2007 and discusses their major developments over the preceding decade. It finds that while some common themes and practices can be identified, there is no unique “best” way to implement monetary policy. Moreover, central banks everywhere – even in industrial economies – have continued to refine their operating frameworks and procedures and to innovate where necessary, responding to changing needs in changing times.

So, like I said there is no one unique way.  The paper is a very good overview of the way various central banks manage their monetary policy.

I liked the way they differentiate certain banks interest rate target- Some Central Banks just give their stance and make changes using a market determined rates like Fed. Others use own rates to signal a rate change like RBI.

Apart from this, a very useful paper to understand various monetary policy frameworks and underlying institutions.


US was discovered because of speculation

June 26, 2008

I came across this interesting noteon speculative bubbles from  Kevin J. Lansing of San Francisco Fed. The note discusses some historical links between speculative bubbles, technological innovation, and capital misallocation.

What caught my eye was this para in the end:

Regarding the merits of speculation, Meeker (1922, p. 419), the economist of the New York Stock Exchange, wrote: “Of all the peoples in history, the American people can least afford to condemn speculation….The discovery of America was made possible by a loan based on the collateral of Queen Isabella’s crown jewels, and at interest, beside which even the call rates of 1919-1920 look coy and bashful. Financing an unknown foreigner to sail the unknown deep in three cockleshell boats in the hope of discovering a mythical Zipangu [land of gold] cannot, by the widest exercise of language, be called a ‘conservative investment.'”

(Note: Wikipedia entry provides more details on Queen Isabella)

So, US was discovered because of speculation. Not bad!

Assorted Links

June 26, 2008

1. WSJ Blog points to economist’s reaction on the Fed pause. Fisher was the lone dissenter this time

2. WSJ Blog points that we need to include soybeans which are used for biodiesel when we talk about impact of bio-fuel

3. Ajay Shah on recent RBI monetary measures

4. ICB points to impending FCCB mess in India. I am wondering what are their advisers who helped them raise these bonds are saying on this issue.

5. This time Cowen visits speculation. James Hamilton also ponders

6. Rodrik says how do we tame financial globalisation

7. PSD Blog points to the latest Transparency International report which focuses on corruption in water

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