This is a guest post from Richard Koo, chief economist of the Nomura Research Institute and, amongst many other things, author of “The Holy Grail of Macroeconomics, Lessons from Japan’s Great Recession”, which lays out his balance sheet recession thesis in detail.
The post is an updated extract from his most recent note for Nomura and reproduced here, with his permission, for your arguing pleasure…
The US, the UK, Japan, and Europe all implemented quantitative easing (QE) policies, but the understanding of how those policies work apparently differs greatly from country to country, leading to very different outcomes. With the US economy doing better than the rest, there has been some debate in Europe as to why that is the case. Read more
Economics blogger Ben Bernanke wrote today on why interest rates are lower than they’ve been in the past. His argument is that changing estimates of future growth and inflation are to blame, rather than an overly activist Fed. While we have some sympathy for this view, we’re struck by the fact that it partly contradicts what Bernanke said when he was actually at the Fed.
In particular, compare this passage from Bernanke’s recent post (emphasis ours): Read more
Back in 2011, inflation climbed above the Fed’s 2 per cent target, but the FOMC resisted the impulse to tighten monetary conditions. Long-run inflation expectations hadn’t risen to worrying levels, and Ben Bernanke perceived that a price spike led by oil was likely to be “transitory”.
No surprise there: he wrote the paper on this very topic. And he was proved right. Read more
Click to read. No taper any time soon?
Our glass house location duly noted. But still, one immediate casualty of Fed non-action has been investment banking prose.
From M&G’s Bond Vigilantes… Read more
After his Congressional testimony in May and the FOMC meeting in June, Ben Bernanke struggled to convince the markets that decisions regarding QE would be state-contingent rather than predetermined — and more to the point, that monetary policy would be accomodative for as long as necessary.
Did he finally get his message across by delaying the widely expected taper? Maybe, if judging by the reaction of Treasury yields and equity markets. Read more
Do bank failures really exacerbate output declines? Do they consequently justify extensive responses to prevent future failures?
Ben Bernanke famously argued in 1983 that bank failures did exacerbate the Great Depression because of how they impacted credit intermediation channels. His findings helped to justify much of the extraordinary intervention we have seen since 2008. Read more
Matt Klein gets in touch with Michael Woodford — macro theorist of world renown, author of a timely monetarist-cheering Jackson Hole paper, intellectual-space-provider for the NGDP level targeting movement — to ask the economist just why he doesn’t mind the Fed’s plan to begin tapering.
Klein first cites a passage from Woodford’s paper at Jackson Hole last year: Read more
The great chart above comes via Mark Perry of AEI. Read more
The US said he was busy “managing the nation’s economy”.
Well, tough. Read more
Larry Summers has his haters, and Tuesday’s report from Ezra Klein that Summers is now the frontrunner to replace Ben Bernanke as the next Fed chair has doubtless set them off.
On this particular issue, I’m not really one of them. Some of the mistakes of his past, such as his role in deregulating derivatives (the Brooksley Born episode) or the Harvard interest rate blowup, don’t really tell us much about his capacity to guide macroeconomic stabilisation policy. Read more
Tim Duy, professor of practice at the department of economics at the University of Oregon, is confusing Brad DeLong, professor of economics at Berkeley, with his observation that the Fed seems to be striving to change the mix but not the level of outright accommodation. This, at least, seems to be the motivation for taper talk.
We’re less confused, and quite like what Duy is saying.
Note the following (our emphasis): Read more
Click for the C-Span feed for Ben Bernanke’s last appearance before the House Financial Services Committee, live at pixel time. They’re trying to fix the audio feed. But sadly not the House Rep preening.
Bernanke’s last Humphrey-Hawkins speech has been pre-released (and his live testimony was due to begin at pixel time). Most analysts are noting the return of dovish sentiment, not to mention the explicit re-emergence of the “D” word: Read more
Bernanke is starring today at the House Financial Services committee, and his comments there and at the Senate Banking committee tomorrow are probably his best communication opportunity for some time, as the FT’s Robin Harding points out — there being no July FOMC press conference scheduled. Plus, there has been all that, er, confusion and consequent attempts to clarify/smooth things over since the June FOMC meeting.
So we’ve assembled here some what-to-look-for highlights from the FT, WSJ, and Goldman Sachs, plus a few others. Read more
Last September, after announcing open-ended asset purchases and making his first strong commitment to allowing above-target inflation (and keeping monetary policy accomodative) even after the economy strengthens, Ben Bernanke made an interesting point about the Fed’s credibility to make such a future promise.
It was about the fact that the voting membership of the FOMC changes over time: Read more
Michael Cloherty of RBC Capital Markets makes an interesting point in a short note today about the role played by market structure in pushing interest rates higher than the Fed expected when Bernanke telegraphed the eventual tapering strategy.
Yes, Cloherty writes, markets might have overreacted — but they are more jittery than in normal times because financial markets have increased their sensitivity to reabsorbing credit risk: Read more
Before the presser on Wednesday, Ben Bernanke’s vague definition of “substantial improvement” in the outlook for labour markets resembled the old line about porn: he’ll know it when he sees it.
The phrase was originally intended to represent the scenario under which asset purchases would end, not when they would be slowed (or “tapered”). And the purpose of this round of quantitative easing was to “increase the near-term momentum” of the economy until growth was self-sustaining, and conducted in the context of price stability. Read more
Time for a rush into Gold? Nope. Read more
It’s starting now, and you can watch it live at C-SPAN.
We have a feeling that the nuances of this passage will be lost on some members of the Committee: Read more
Many factors affect the development of the economy, notably among them a nation’s economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress.
That’s Ben Bernanke addressing a graduating class at Bard College at Simon’s Rock, Massachusetts, on Saturday. He goes on to say that not everyone believes this advancement is going to continue at such a great pace.
Yes, he is talking about Robert Gordon and Tyler Cowen, and their arguments that much of the low-hanging fruit has been plucked and we face a lower-growth future, as evidenced by the incremental advancements of recent years. Read more
The “danger zone” referenced in the chart above by Lewis Alexander of Nomura is a kind of arbitrary area between the Fed’s owning 50 per cent of the outstanding stock of Treasuries in a certain category (and thus potentially starting to affect market liquidity) and the 70 per cent threshold at which the SOMA desk will stop buying outright.
As you can see, it will be a little while yet before the Fed approaches that threshold, even if it increases purchases to $65bn a month. Read more
Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
At some point, Ben Bernanke made appointments on his personal calendar stretching from Thursday 29 August to Saturday 31 August.
And he didn’t think: “Hey, I’m the world’s most important central banker. Is there anything that could possibly be going on at that time that involves people like me? You know, like a symposium at some rando place in Wyoming that journalists refer to as ‘idyllic’ and that takes place at the exact same time every year? If so, I should probably leave the slot open.” Read more
It’s streaming from the LSE and is ostensibly about what economists and policymakers should take from the financial crisis. However, if we were cynical folk we’d suggest this makes a nice opportunity for Bernanke and King to get together, have some wine and go all Norman-Strong. Our eye’s on the ground tell us such luminaries as Carney and Yellen are also in attendance.
Anyway, enjoy, we know all the LSE alums here who made us post this will… Read more
I would say that we will be looking for sustained improvement in a range of key labor market indicators, including obviously, payrolls, unemployment rate, but also others like the hiring rate, claims for unemployment insurance, quit rates, wage rates and so on, looking for sustained improvement across a range of indicators, and in a way that is taking place throughout the economy.
– Ben Bernanke, during Wednesday’s presser, when asked which indicators he would consider when deciding when it was time to end or slow the pace of asset purchases. Read more
During the presser following last June’s FOMC meeting, Ben Bernanke cautioned that another round of QE shouldn’t be undertaken lightly because it may have “various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process”.
The next round was launched in September, of course — after (though certainly not just because of) Fed staff economists presented an analysis to the FOMC concluding that there was “substantial capacity for additional purchases without disrupting market functioning”. Read more
Like Top Trumps, just not as much fun…
From a terrific post by Andy Harless:
Machismo is a type of commitment mechanism. Read more