For the last three years, there has been no breakfast for journalists on the opening day of Jackson Hole, while we write up a dramatic, market-moving speech by Ben Bernanke. It’s a more sedate start this year with a thoroughly wonkish paper by Stanford’s Robert Hall.
There is not much new in it on policy. It starts with a fairly straightforward rundown on why the economy got into such a mess when interest rates hit zero after the financial crisis, and it ends by agreeing with last year’s paper by Michael Woodford on what to do with monetary policy (QE doesn’t work, you need commitments about future policy, not just guidance).
The meat of Mr Hall’s paper is about why inflation did not fall much after the crisis despite high levels of unemployment. This has been a surprise during the last few years: unemployment has not driven down wages in a way that led to deflation. Read more
One of the few occasions when I’ve used a ruler since leaving school is during the Bank of England’s inflation report press conferences. I’m not alone — for years a ruler has been an essential tool for those trying to fathom what monetary policy makers thought was going to happen to growth and inflation in the months and years ahead.
The BoE’s practice of waiting a week between releasing its quarterly fan charts for growth and inflation and the data underlying them left bank-watchers with little choice but to dig out the ruler to work out where the MPC thought growth would be in, say, 2014. As Chris Giles commented here, there were several problems with this approach.
Now, thanks to the Stockton Review, reporters need no longer remember their rulers (hat tip to George Buckley at Deutsche Bank for the headline of this post). Read more
The Bank of Japan delivered a statement of intent on Thursday. Under its new governor, Haruhiko Kuroda, the central bank intends to eliminate the persistent deflation of the past 15 years within a two-year horizon. The FT news story provides the main details, save to say that in planning to double the monetary base (notes and coins, plus electronic money created by the BoJ) by the end of 2014, Mr Kuroda means business. Central bank communication does not often use words such as “massive”. Here are five answers to the big questions. Read more
Mark Carney, the incoming governor of the Bank of England, was grilled by MPs and his ECB counterpart Mario Draghi faced awkward questions. By Tom Burgis, Ben Fenton and Lina Saigol in London with contributions from FT correspondents. All times are GMT.
Mark Carney. Getty Images
Mark Carney, the next governor of the Bank of England, has suggested he will act much more aggressively to revive the UK economy when he takes charge next summer, including dumping the BoE’s much-vaunted inflation target if growth fails to pick up.
In a clear break with the views of the BoE’s current senior management, Mr Carney, now governor of the Bank of Canada, said on Tuesday that central banks should consider more radical measures – such as commitments to keep rates on hold for an extended period of time and numerical targets for unemployment – when rates are near zero. Read more
The Bank of England’s forecasting record, both for inflation and growth, has in recent years been woeful.
But would the Bank have done any better if its officials’ pay depended on the forecasts’ accuracy?
According to a paper out today from the Centre for Economic Policy Research, the answer is yes.
Because monetary policy acts with a lag, it has to rely on forecasts.
However, as the Bank of England’s attempts at prediction have illustrated, central banks’ forecasts, and indeed those of most economists, tend to be pretty dire.
This is what Svante Öberg, first deputy governor of Sweden’s Riksbank, refers to in a speech out today as the “Catch-22 of monetary policy.” So what’s a central banker to do? Read more
An important part of the Fed’s outlook when it made its forecast of low interest rates through to mid-2013 in August, and launched Operation Twist in September, was that it expected inflation to fall back as the temporary effects of an oil shock and the tsunami disaster in Japan faded away.
But the FOMC’s November projections show a wide dispersion of views on whether that will actually happen. The central tendency for headline inflation in 2012 is from 1.4-2 per cent and the central tendency for core is from 1.5-2 per cent. Three FOMC members must be higher and three members must be lower than even that range. Read more