Monday , August 19 2019
Home / Tag Archives: Monetary Policy

Tag Archives: Monetary Policy

Preparing for the monetary rocky horror

Over at Newsroom (ungated), I discuss the importance of RBNZ being very clear about its intentions should it find itself in a position to pursue unorthodox monetary policy. As Doctor Frankenfurter prepared to step up the reactor power input three more points and bring life to the Rocky Horror in the classic Rocky Horror Picture Show, he welcomed the assembled “unconventional conventionists” who would witness his triumph.Unconventional monetary policy is a bit like Doctor Frankenfurter’s...

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Letter 2 from Argentina

Alejandro Rodrigues writes again from Argentina (previous post)"This  graph shows the evolution of peso denominated fixed income mutual funds. On Monday (after the elections) this funds suffered withdrawals of 6% of the total shares. Net assets fell by more as prices plummeted (-5%). On Tuesday, shares fell by 6% again but prices remained constant. On Monday, Money Market funds suffered withdrawals (drop in shares) of 16% although they didn't break the buck (on average). "I gather from...

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The Reader’s Guide to Optimal Monetary Policy

The Reader's Guide to Optimal Monetary Policy is a snazzy new website created by Anthony Diercks and Cole Langlois at the Federal Reserve Board.  Screenshot: Who said 2% inflation is a good idea? The graph shows publication date on the horizontal axis, the optimal inflation rate on the y axis, and the size of the circle is the number of citations. The sizeable number of dots around -4% reflect the "Friedman rule" idea. (Sadly, the graph doesn't include Friedman. It only goes...

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RMB reaches 7.0; US names China a manipulator

TweetAugust 12, 2019 –The US-China trade war heated up in the first week of August.  On August 1, Donald Trump abruptly announced plans to impose a 10 % tariff on the remaining $300 billion of imports from China that he had not already hit with earlier tariffs.   The Chinese authorities then allowed their currency, the renminbi (RMB), to fall in value below the highly visible line of 7.0 RMB/$.  The US Administration promptly reacted on August 5 by naming China a “currency manipulator” —...

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Whither the Fed?

Steve Williamson has an excellent long essay, "Is the Fed Doing Anything Right?" on the current state of monetary policy.Why is the Fed lowering rates? (If you're impatient, skip to the ** of the most interesting and provocative points)Steve starts with an Ode to Rules. It would be nice if the Fed acted more stably and predictably, leaving less room for the interpretation that they're just changing their minds, or panicking, or giving in to Trump tweets.So Steve phrases the question nicely:...

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Letter from Argentina

My friend Alejandro Rodriguez, at Universidad del CEMA, sends the following report:Oops we did it again. Macri (the current president) lost in the open primary elections (all parties present their candidates in an open  general election so it is like a very big poll). The formula Alberto Fernandez- Cristina Fernandez (the ex president who ruled between 2007 and 2015 is the candidate to vice president) is expected to win in October. The peso is falling like a rock (down 25%) and...

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Trade and the Fed

Nina Karnaukh of Ohio State sent along this lovely graph of the 6 month Fed Funds futures around the beginning of August. Read this as the market's guess about what is happening to the Federal Funds rate over the next 6 months.The first drop in price occurs with the FOMC announcement 2 PM July 31. The price drop is equivalent to a a rise in expected future interest rates of about 5 basis points or 0.05%. This has been read as market disappointment that the Fed did not signal more future rate...

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Central Bank Independence Is Not Enough

Four former chairs of the Fed  wrote in the Wall Street Journal today about the importance of Fed independence. I agree, but their article should have emphasized that independence is not enough.  Economic performance has been affected by large shifts between more rules-based and less rules-based policy by the Fed without any concomitant change in the legal basis for independence. De jure independence has not prevented the Fed from harmful departures from rules-based policies. The...

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Let’s Forget about 2% Inflation

TweetJuly 28, 2019 — The Fed has some reasons for cutting interest rates at its meeting July 31, or subsequently if the US economy weakens. (And there are some good arguments on the other side as well, if growth remains as strong as it has been over the last year.)  But I find less persuasive one argument for easing: a perceived imperative to get inflation up to 2.0% or higher. Federal Reserve Chairman Ben Bernanke set a 2% target for the US inflation rate in January 2012.  Some other...

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Every era’s monetary and financial institutions are unimaginable until they’re real

Every era’s monetary and financial institutions are unimaginable until they’re real, writes Tyler Cowen in an excellent Bloomberg.com essay on the anniversary of Bretton Woods. (MR link)Our ancestors' experience with paper money leading quickly to massive inflation would leave them agape at our completely unbacked fiat money and floating exchange rates which has led only to mild inflation....fast forward [from the gold standard] to the current day. Currencies are fiat, the ties to gold are...

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