From Adam Posen, writing in the Cato Journal…
This article challenges the validity of the the assumption that monetary policymakers can correctly identify asset price bubbles in time to respond preemptively (or at least usefully). This is something where many policymakers even previously skeptical now feel they can be like Supreme Court Justice Potter Stewart and recognize obscenity in asset prices when they see it. Some patterns do emerge if we look more carefully at the historical record of asset price booms and busts, but, in light of those patterns, the prospect of getting the call right becomes very daunting. The difficulty arises because of the complex nature of asset price booms and busts, a complexity that seems to be overlooked in the advocacy of leaning against the wind.
This is careless. The Bank of England has managed to lose Adam Posen, the outspoken American dove on the Monetary Policy Committee. He’s off to the Peterson Institute in Washington, from whence he came three years ago, taking over as president of the renowned think tank from Fred Bergsten.
John Kemp at Reuters has made the point that Posen may in any case have decided not to seek a second term on the MPC when his current stint expires in August. In March last year, in a Guardian interview, he said that if he was proven wrong in his calls for more quantitative easing in Britain he would change his vote and retire from the committee. Read more
From the body that brought us Adam Posen, four policy recommendations:
• The Federal Reserve should purchase an additional $2 trillion of longer-term debt securities, with an average maturity of around 7 years.
Hey, this should be fun.
The Treasury has just announced that one Adam Posen is to join the Monetary Policy Committee, replacing Tim Besley. Read more