Some interesting speeches etc to read

I would have preferred to put all these as separate posts but am running out of time. The stuff is getting outdated as well:

  • Which Fed member moved markets most in 2009? An excellent analysis by Macroadvisers Blog. It tells you how Fed speak leads to movement in markets. It demonstrates the power Fed members have or have acquired over the years.In 2009 Bernnake still rules, but big surprise is Charles Plosser of Philadelphia Fed comes second.  I have been reading Plosser for a while and posting his speeches. I find his speeches more on the theoretical side and he talks very less on economic outlook etc. Other Fed members speeches (like Bernanke. Kohn, Yellen, Rosenberg, Lacker etc) are mostly on US economic outlook and markets should be moving more based on these speeches. Even speeches of Tarullo, Warsh etc move markets which is a big surprise really.
  • Renee Courtios of Richmond Fed has written a nice note on whether financial crisis has eroded the value of efficient market hypothesis. To sum up, we still don’t know whether EMH is useful or not.
  • Charles Plosser of Philadelphia Fed (yeah the powerful one as shown above) has outlined his list of Financial Reform. He says biggest challenge is to address the TBTF problem (we know now the basics). To end TBTF we need a bankruptcy court which extends to non bank firms as well. Let us not leave it to discretion of policymakers and increase moral hazard issues. Fed should supervise all the banks and not just TBTF. Finally all efforts to protect Fed independence should be made. He also talks about removing Fed’s section 13 (3) lending authority under which Fed can lend to anybody in distress. Also advocates Fed to issue financial stability reports.
  • In a nice speech, William Dudley of NY Fed Central Banks need to take a more proactive approach to manage asset bubbles . He says bubbles exist. They exist typically after an innovation has occurred and creates uncertainty over the valuations. So all bubbles are different and rules based approach will not work. It requires judgement. Just because task is difficult does not mean there should be no action on this important issue. He says bully pulpit  (speaking about bubbles) and macroprudential tools are better tools than simple monetary policy. So like Tucker Posen and host of others now say c-banks need additional tools.


  • Is decline in core inflation because of drag on housing? No, says this research from FRBSF.

Some analysts have raised the question of whether the unprecedented declines in house values, which have been the hallmark of the recent recession, might be artificially dampening core inflation readings. However, a close examination of recent inflation data shows that the weakness in housing costs is representative of a broad pattern of subdued price increases across most consumption goods and services and is not distorting the broad downward trend in core inflation measures.

Yellen of FRBSF also chips in (her speech as always is a very good description of US economy and other timely issues):

So what of the claim that housing is once again distorting our reading of inflation trends? I don’t think this is a major factor. Of course, I wouldn’t dispute that the bust has sent house prices tumbling. But house prices are not directly included in inflation indexes. In figuring what it costs to live in a home, official measures of consumer prices estimate the amount of rent that a homeowner would have to pay to be in the home they own. This is done by looking at actual rents paid for comparable homes. The result is an inflation index category called “owners’ equivalent rent.”5 The overall price of housing used in inflation indexes combines rents actually paid by renters and owners’ equivalent rent for those who own their homes.

Now, it’s true that the housing crash and the corresponding rise in vacancies of rental properties have put substantial downward pressure on rents. But this can only explain a portion of the drop in PCE price inflation over the past year and a half. The 12-month inflation rate for the cost of housing has slowed from 2.9 percent in mid-2008, when core inflation was peaking, to 0.3 percent in February of this year. Housing makes up about 15 percent of personal consumption expenditures and 18 percent of core expenditures, excluding food and energy. If you do the math, the deceleration in housing prices accounts for only about half a percentage point of the roughly 1½ percentage point decline in core inflation. That equals one-third of the overall decline. Put differently, if we exclude housing prices, the resulting measure of core inflation has declined by1 percentage point, from 2.6 percent in mid-2008 to 1.6 percent in February.

No matter how you slice the data, housing prices explain only part of the downward inflation trend. Given my expectation of persistent and sizable slack in the economy, I expect both core and headline inflation rates to edge down further, falling to about 1 percent later this year and in 2011. This is below the 2 percent rate that I and most of my fellow Fed policymakers consider an appropriate long-term price stability objective.

A “trilemma” is like a dilemma, only there are three things to choose from and you can have just two. The current debate over post-crisis financial regulation suggests we face such a trilemma: We can choose any two of the following, but not all three: 1) efficient capital markets 2) no bailouts to big banks and 3) a depression-free economy.

From the 1980s until 2007, we essentially opted for one and two. Financial markets operated with more freedom than at any time since the 1930s and the Federal Reserve stood ready to cut interest rates if asset prices tanked. But the idea that big banks might be able to get new capital from the Treasury was scarcely even contemplated. Choosing one and two resulted in a global financial and economic crisis worthy of the name depression.

In the aftermath, congressional Democrats are claiming that we can have three out of three. In effect, the bill introduced to the Senate by Christopher Dodd purports to prevent future depressions without sacrificing the efficiency of our financial markets or committing taxpayers to future bailouts of the banking system. This trifecta is not credible.

  • James Hamilton analyses why it was hard for some institutions to resist buying that commercial paper.

We’re fond of building models of rational people reacting in a predictable way to the incentives they face; if their behavior changes, we look for an explanation in terms of changed incentives. It turned out to be in the fund managers’ short-term interests to go with the more aggressive strategy, with disastrous longer-run consequences. Was the manager rational before 2006 and irrational after 2006, or did the incentives fundamentally change?

One of the explanations I sometimes hear is a story about “search for yield,” which appears to be a combination of the two interpretations, attributing some of the altered risk-taking strategy to the period of very low interest rates in the preceding years. If this indeed accounts for some of the changed behavior by lenders, it is a channel for the transmission of monetary policy to the economy that’s left out of the Fed’s standard models, and another reason to be cautious about overestimating the benefits that are practical to achieve from a stimulative monetary policy.

4 Responses to “Some interesting speeches etc to read”

  1. unicon india Says:

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  2. select your broker Says:

    William Dudley of NY Fed Central Banks need to take a more proactive approach to manage asset bubbles . He says bubbles exist. They exist typically after an innovation has occurred and creates uncertainty over the valuations. So all bubbles are different and rules based approach will not work. It requires judgement. Just because task is difficult does not mean there should be no action on this important issue. He says bully pulpit (speaking about bubbles) and macroprudential tools are better tools than simple monetary policy. So like Tucker Posen and host of others now say c-banks need additional tools.

  3. select your broker Says:

    Freedom of speech is the freedom to speak without censorship and/or limitation. The synonymous term freedom of expression is sometimes used to indicate not only freedom of verbal speech but any act of seeking, receiving and imparting information or ideas, regardless of the medium used. In practice, the right to freedom of speech is not absolute in any country and the right is commonly subject to limitations, such as on “hate speech”.

  4. unicon india Says:

    The right to freedom of speech is recognized as a human right under Article 19 of the Universal Declaration of Human Rights and recognized in international human rights law in the International Covenant on Civil and Political Rights (ICCPR). The ICCPR recognizes the right to freedom of speech as “the right to hold opinions without interference. Everyone shall have the right to freedom of expression”.[1][2] Furthermore freedom of speech is recognized in European, inter-American and African regional human rights law.

    It is different from and not to be confused with the concept of freedom of thought.

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