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
Jackson Hole, the nearest thing on the central banking calendar to Davos, is upon us again, with some of the world’s most senior monetary officials set to head out to the upmarket Wyoming resort over the next few days.
Unlike the annual bash in the Swiss Alps, however, Jackson Hole, which kicks off on Thursday evening and closes on Saturday night, is usually a bit more than a talking shop. Of late, it has been the venue of choice for Fed chair Ben Bernanke to offer clues on where policy is heading.
But, while tapering looks like it is almost upon us, those hoping for more detail on the pace at which the US central bank will slow its asset purchases will not get it from Bernanke this weekend. Read more
The fourth paper at Jackson Hole, by Princeton economists Markus Brunnermeier and Yuliy Sannikov, is about the redistributive effects of monetary policy — although I think that will mislead people as to its content.
It is not a paper about how low interest rates and QE redistribute wealth from savers to consumers. Instead, it is a paper about how a crisis damages banks and how monetary policy may be able to mitigate some of the negative effects by redistributing wealth to recapitalise them. Read more
The first paper of Jackson Hole 2012 is a statistical review on cross-border financial contagion by Kristen Forbes of MIT. With the eurozone crisis rumbling on, it is a timely topic for Jackson Hole, although the paper illustrates rather than resolves some frustrations with the post-crisis literature on contagion.
Increasingly, financial assets tend to move in unison across borders, both in normal times and during crises. Prof Forbes describes that phenomenon in detail, especially for times of crisis, and then offers some policy conclusions on how to prevent and mitigate contagion through four main channels. Here is a crude summary: Read more
I wrote one of the more aggressive reports on Ben Bernanke’s speech in Jackson Hole, saying he “hinted” that the Fed will do more to support the US economy, but qualifying that by noting that he avoided the emphatic language of his 2010 speech and offered no discussion of the Fed’s easing options.
Quite a number of analysts found no such hint in the text and it would have been better – although not very practical for a Saturday newspaper – to say that he showed an easing bias.
What is interesting now is to go back and read the speech in light of subsequent FOMC-speak and the minutes of the August meeting. Read more
The monetary policy parts of Ben Bernanke’s 2011 speech in Jackson Hole read as a carefully calibrated attempt to aim off his 2010 speech, and send a signal that the Fed is willing to do more, but that the scope for further action is less than it was a year ago.
The main statement of the Fed’s willingness to act is:
“The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.”
Compare that with the 2010 equivalent: Read more
The first paper of Jackson Hole 2011, by Harvard economist Dani Rodrik, is about economic convergence. It’s a neat and very accessible summary of recent research by Mr Rodrik, his collaborators and colleagues about the vexed question of why poor countries do not catch up with the rich. There’s a lot in there, but here’s a brief summary of some of the most interesting and original points.
Gaps between rich and poor countries are as high as they’ve ever been, but before the financial crisis, they’d started to come down
“Central bankers alone cannot solve the world’s economic problems,” Ben Bernanke said today in a speech that – had it not been so carefully phrased – would have been guilty of wilful optimism.
Stripping out the padding, for example, we can pull together one logical sequence from his speech:
Fiscal impetus and the inventory cycle can drive recovery only temporarily. For a sustained expansion to take hold, growth in private final demand–notably, consumer spending and business fixed investment–must ultimately take the lead… The prospects for household spending depend to a significant extent on how the jobs situation evolves… Incoming data on the labor market have remained disappointing.
And as for prospects for a revival next year, Bernanke’s assertion is quite damning in its timidity:
Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place.
So, the necessary (but not sufficient) conditions for growth currently in place do not appear to be getting any worse for next year. Well phew. Read more
Just a few months ago, Jean-Claude Trichet, the European Central Bank’s president, would have felt some trepidation about spending a weekend with US counterparts. Back then, Europe’s debt crisis was troubling the world, and Washington was piling pressure on European policymakers to take firm action to stabilise the crisis.
Today, it will be a more confident Mr Trichet who addresses the central bankers’ summit in Jackson Hole, in the US. In Germany, where the ECB is headquartered, the economy is powering ahead, with scant signs of anything more than a modest slowdown after an exceptional second quarter performance. Eurozone prospects overall have brightened as a result. For the global economy, a slowdown has been factored in – but a dangerous “double dip” is not foreseen.
Instead – at least from a European point of view - the onus is now on US policymakers to address the weaknesses in its economy. No doubt, Mr Trichet will be as charming as ever, but his perspective is different to that of his US hosts. Read more