Daily Archives: November 20, 2012

Robin Harding

The most interesting part of Ben Bernanke’s speech today is what he says about the recession reducing potential growth in the US.

“The accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years. In particular, slower growth of potential output would help explain why the unemployment rate has declined in the face of the relatively modest output gains we have seen during the recovery.”

This is quite a big evolution in Mr Bernanke’s arguments about the weakness of the recovery and why the unemployment rate has fallen faster than expected. This is from his March speech on the labour market:

“Notably, an examination of recent deviations from Okun’s law suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009. To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”

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Claire Jones

IMF data to include Australian dollars. Getty

It is often forgotten that central banks are major players in global capital markets. At the last count, monetary authorities held reserves worth $10.5tn, according to International Monetary Fund data.

Most of this stockpile is thought to be invested in “safe” assets, such as government bonds of highly-rated sovereigns and gold. But, while some of the more open monetary authorities, such as the Swiss National Bank, provide some information about the currency composition of their reserves and asset allocation, most of the big reserves holders, located in Asia, don’t.

Not a lot is known about what’s held in central banks’ coffers. This matters because changes in central bank reserve managers’ behaviour can endanger financial stabilityRead more