Brad Delong reviews the book by big Ben and is puzzled what went wrong:
Archive for the ‘Central Banks / Monetary Policy’ Category
Why inflation fighting is the the wrong war and inflation targeting the wrong strategy for Central Banks..October 28, 2015
This blog keeps arguing to move towards a world with less and less of central banking. Central banks evolved in times when banking was not well really understood as a business and may be there was a case for a central bank type of an organisation. Even then the interventions of central banks had more unintended consequences. Federal Reserve was formed to resolve banking panics but played a stellar role in aggravating the same in 1929. Same is the case with central banks worldwide as we are so clearly seeing now.
As a result, one is never sure which battle the central bank should fight and whether the strategy is right. A lot hinges on these decisions given their monopoly over monetary forces. In today’s context, some say central banks should maintain their focus on inflation and inflation targeting is the only game. Whereas others say it is not the right battle and they should switch to financial stability and move away from inflation targeting.
Stephen Roach belongs to the second camp and says they should instead focus on fin stability:
Perhaps one of the oldest and fascinating topics on monetary economics. How and why did coinage emerge in places historically?
Prof. Jacques Melitz has a superb piece on the topic. He first discusses places which started coinage and then on the issues with the coinage. There were two of them:
Jaimini Bhagwati has a piece saying India should not ape the west by overdepending on finance and central bankers.
He highlights how Janet Yellen was put as the most powerful person ahead of Obama in the world. This is even more ironical as Yellen has tried some bit to lower all the hype. She does not draw same attention as her predecessors:
You can explain much of economics thinking in terms of fashion waves. They just keep coming back and each time the new fashion designers show it as a new look of the town.
This crisis has obviously questioned pre-crisis fashions. Instead we have the post-crisis fashions which is just old wine in new packaging (which isn’t attractive). Capital account convertibility is one such fashion. It was in vogue before crisis and any talk against it was seen as anti-markets. anti -liberal and so on. Post-crisis, thinking has changed and even likes of IMF suggesting capital controls can be used though it should be the last option. From not a choice at all to using it as a last choice is some change by itself.
AV Rajwade writes on the dilemma for emerging markets (he was a member of 1997 Capital Account Committee and 2006 one as well). More interestingly, group of IMF economists suggest Mundell-Fleming model needs to be retweaked to bring this reality. It is the Mundell-Fleming model which has been used by experts to push open their capital accounts.
Actually, much of recent problems around macro today is related to capital flows. People blame advanced country monetary policy over spillovers, search for yields, volatile currency/equity markets and so on. All this is due to rise in capital flows across the world. And capital runs in both the directions seamlessly. That was also the main idea also.
The same people once advocated opening capital accounts in emerging markets strongly. Instead of accepting that they need to rethink on their worldly wisdom, the blame has been pushed to advanced country central banks.
Keep going in circles. Whenever crisis recedes, am sure it will be back to opening capital account…
Nice interview of Patrick Barron of Mises Institute. Exposes all the fancy talk done by central bankers across the world:
Our guest this week is Patrick Barron, a professor of economics and a student of global currency markets. Patrick and I dissect the Fed’s big announcement this past week not to raise interest rates, and consider whether Janet Yellen and other central bankers really believe in what they’re doing.
Is it all just to save themselves from the judgment of history, by kicking the can down the road? Have they read, or even considered, Austrian arguments on money and banking? Or are they simply so wedded to Keynesian orthodoxy that they literally don’t know what else to do? And what type of precipitating events might spell the end of US dollar imperialism?
Anatole Kaletsjy of Gavekal Dragonomics has an interesting piece on recent Fed decision to keep rates unchanged.
He says Fed does not believe in monetarism anymore. It has gone back to the earlier idea of trade-off between inflation and unemployment. It realises that monetary policy has a much deeper impact on unemployment than shown by earlier research:
Applies to central banking in general.
Jeffrey Tucker Director of Foundation of economics education has a piece on the topic. He points to how this time elite central bankers met with protesters at the (ill now) famed Jackson Hole Conference. There is also a parallel opposition conference running critically looking at monetary policy:
Fed again chose not to cut rates.
I mean how many times we have had this situation. Not to forget it started way back in 2010 when Bernanke made exit policy really popular. Since then, it has been looking for a gate to exit not able to find one. Some central banks which did find the exit gate (ECB, Riksbank, Norges Bank, RBA, Australia in 2010-11) found the weather really bad outside and forced themselves back in the theatre,
It has been a while this blog has read any of the central bank policy statements. It is just the same old story over and over again. But still the attention and hyoe keeps rising and getting shriller by the day. Infact after many thousands of years when records on Fed are going to be read by then historians they will surely wonder what all this noise was about. They will compare statements after statements to figure why there was so much attention and noise on this FOMC animal. They will be disappointed to find any correlations and wonder what the world was thinking back then. Same for other central banks as well.
So it took quite something to read the FOMC statement which was released last night. Given the noise one just wanted to see what was it all about. The statement just read like those old ones saying we are trying to do so and so for US economy. I mean how little things have changed really.
The problem is actually much bigger. It is not about whether Fed should cut or ease rates. This is just a much smaller question in the scheme of things. A much bigger question is whether we should allow some 10-12 people to determine economic fortunes of the entire world? The same applies to other central banks in their countries as well. Much of history of money and monetary policy is tragedy and recent events are just a continuation of the same.
Jeff Deist of Mises Institute sums up the breaking news:
While price fixing is generally considered illegal, when the central banks do it, it is called capitalism…September 16, 2015
Jeff Deist of Mises Institute has a piece which criticises Federal Reserve setting interest rates. But the criticism applies to all central banks generally.
He says generally economics says price fixing by any central agency is a bad thing and deemed as illegal. But when central banks fix interest rates it is called capitalism:
Economists, bankers, fund managers, and investors around the world are absolutely fixated on the Federal Reserve’s anticipated announcement this week, with many fearing that a rate hike could trigger more shocks like the recent Black Monday selloff.
In a world of social media and 24-hour news cycles, it’s fair to say Wednesday’s FOMC meeting in the Eccles Building has been the most widely reported and discussed central bank action in history. But missing from the coverage is one fundamental point: “monetary policy” and bureaucratic control over interest rates is not capitalism, it is outright centralized planning.
What else can we call the orchestration of a pivotal price signal in the worldwide economy by 12 individuals sitting in one room? If one accepts the Fed’s role in setting interest rates, it’s hard to understand where and when to draw the line.
Why not prices of goods, services, and wages? If experts can determine the price of money, why can’t they determine the price of a bushel of wheat or an automobile? When the former Soviet Union’s State Committee on Prices attempted exactly that, western capitalists scoffed. Yet we accept centralized monetary planning as part and parcel of free markets!
As this blog keeps saying nothing is more ironical than seeing central bankers talk about free markets/capitalism..
Christopher Coakley of IMF has a nice article on the topic:
When it comes to money, it is a man’s world. Or so it seems, judging from the faces of the great and the good who adorn the vast majority of countries’ bills and coins. Yet some countries do use their currency to honor the contributions of their female leaders, artists, and other trailblazers—past and present. The United States is a latecomer to the club, announcing in June 2015 that it would feature a woman on a banknote for the first time in over a century. So who are the women getting recognition—and why does it matter?
Good bit of info.
Carin van der Cruijsen, David-Jan Jansen, Jakob de Haan have a piece on how central banks can improve their communications with the public.
Central banks in other countries should consider themselves really lucky that they do not have to deal with politicians like Ron Paul (and his son Rand Paul). Moreover, they do not have as troubled a central bank history or have higher number of scholars polishing their central bank history.
Central bankers in other countries can keep politicians quiet by just showing off their US university pedigree. It is just so easy really. But these games do not work on US politicians as most themselves come from such univs. The grilling a Fed official goes through is way higher than what central bankers go through in other countries. In latter, there is no grilling really.
Here is Rand Paul writing on why he thinks Fed should be audited more thoroughly.
A nice article by Jessie Romero of Richmond Fed.
The biggest irony of Fed is how it rose from being really an unwanted organisation to the most powerful central bank in the world. Econs/experts ridicule when some politician makes a case for ending the Fed. But the bigger point is this is the history of central banking in the country. A country which was built by states uniting together has always been sceptical of centralised finance. They had two editions of central banks (1791-1911 and 1916-36) but allowed the 20 year charters of both to expire. Whereas in UK, BoE was also on a charter but it kept getting renewed. So from 1836 onwards there was no central bank in the country and hardly any talk of having one was entertained.
Given the scepticism, any such effort to form a central bank in US is likely to be a highly secretive clubby affair. This was indeed the case as the central bank was given shape in Jekyll Island in 1910. A group of financial elite got together and planned a central bank for US in a meeting so secretive that its list of members is not fully known. Also, the members actually addressed each other by first names to ensure no one notices/overhears them.
The name of Jekyll Island is also ironical given the setting as one immediately connects to the story of Dr Jekyll and Mr Hyde. Most econs present the Fed as Dr Jekyll which has done a lot of good to US economy. But then there are people from Austrian school and some politicos who feel Fed is just Mr. Hyde which has caused far more harm than is visible.
Even the name suggested for Fed was given to hide the fact that it was a central bank. The first proposed name was Reserve Association of America which was later changed to National Reserve Association and finally to Federal Reserve.
So this piece by Romero gives a broad account of how things piled up at the famous island.