Daily Archives: April 30, 2014

Claire Jones

For those who have followed the scrap between Raghuram Rajan, governor of the Reserve Bank of India, and his counterparts at the European Central Bank and the Federal Reserve on the ill-effects of Fed tapering, Benoît Cœuré’s thoughtful speech today is worth a read.

In Mr Rajan’s view, the way the Fed conducts its monetary policy is irresponsible. The US central bank acts merely on the basis of national interest, with scant regard for the ramifications of mass dollar printing in a world where the dollar remains the dominant reserve currency.

These attacks have usually been parried with remarks that central banks such as the Fed (and, given its role as issuer of the only other real reserve currency, the ECB) have little choice but to act within the national interest given the scope of their mandates. From Mr Coeure’s boss Mario Draghi earlier this year:

Draghi: Mr Rajan is really an excellent economist. What one would have to demonstrate to speak of selfishness is the following. One would have to show that monetary policy actions within the United States, the ECB and so on were decided for reasons other than for the sake of the mandate and that, as a result, they were harmful to other countries. As I said, the priority for all of us is compliance with our mandate, which for us is maintaining price stability and for the Federal Reserve Board is the dual mandate.

Mr Cœuré’s speech is interesting as, while he does not go so far as to side with Mr Rajan, he is not so intellectually dishonest as to say that all is fine with the pre-crisis orthodoxy. In short, this said that if everyone just sticks to their inflation targeting mandate and flexible exchange rates everything will be just great. Read more

Chris Giles

The FT reported this morning that China will overtake the US as the world’s largest economy this year. This is a historic moment since the US has been the global economic powerhouse since about 1872. As Jamil Anderlini, the FT’s Beijing bureau chief explains, the news is an important geopolitical moment. Everyone has known the moment was coming (the IMF’s projections suggested 2019) but the report from the International Comparison Programme came as a shock, saying the Chinese economy was already 87 per cent of the US size in 2011. The figures are based on new estimates of Purchasing Power Parity (PPP) and inevitably raise a lot of questions. I will attempt to answer them here.

1. I’ve never heard of the International Comparison Programme. What is it?

The ICP is a loose coalition of the world’s leading statistical agencies, hosted by the World Bank in Washington. Eurostat and the Organisation for Economic Cooperation and Development produce the data for advanced countries and a series of regional offices, usually national statistical agencies, provide the equivalent data for the rest of the world. In total 199 countries are covered. The results are therefore much more comprehensive than any other comparable study. Read more