Interesting interview in the Financial Times (Martin Arnold) with Isabel Schnabel from the European Central Bank. Worth reading!
Here are some highlights:
„It’s a myth that the inflation trajectory would have been the same in the absence of monetary policy action. Monetary policy was and remains essential to bring inflation down. If you look around, you see signs of monetary policy transmission everywhere.“
„Incoming data speak against adjusting the policy stance soon“
„Everybody has a model in their mind, whether you write it down in mathematical equations or not. Any policymaking has to rely on models about how the economy works and how our policy decisions affect different parts of the economy. So, models are indispensable.“
„Apart from climate change, there are many other challenges ahead affecting long-term growth prospects. We face a massive demographic challenge. We face geopolitical shifts. And we face changes in globalisation and digitalisation.“
„What I’ve learned is that we shouldn’t believe that the world tomorrow will necessarily be similar to the world today. It can change very quickly.“
https://www.ecb.europa.eu/press/inter/date/2024/html/ecb.in240207~f5dd364a89.en.html
Interview with Jay Powell on inflation and monetary policy. Several noteworthy statements:
“…we want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.”
“We’re focused on the real economy and doing the right thing for the economy and for the American people over the medium and long term. And I can’t overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don’t have to think about it in their daily lives. In their daily economic lives, inflation is just not something that you talk about.”
“We do not consider politics in our decisions. We never do. And we never will. And I think the record — fortunately, the historical record really backs that up. People have gone back and looked. This is my fourth presidential election in the Fed, and it just doesn’t come into our thinking, and I’ll tell you why.”
“So in hindsight, it would’ve been better to have tightened policy earlier. I’m happy to say that.”
https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economy
China’s New Currency Playbook, by Brad Setser from the Council on Foreign Relations:
“China presents a puzzle – a currency that appears managed, with the central bank balance sheet of a country that has a nearly free float. And a country that should be shedding reserves to defend the weak edge of a band is instead reporting higher reserves.”
“it is possible to get a relatively clear understanding of how the PBOC [The People’s Bank of China] avoided intervention when the fix was fixed and the yuan was at the weak edge of the band: there are multiple reports suggesting that the PBOC leaned on China’s state banks to do its dirty work.”
“That is a challenge for both the Treasury – as its core methodology for doing foreign exchange surveillance relies entirely on changes in a country’s formal reserves to determine if there is unwarranted intervention** – and the IMF, which, at least in theory, is responsible for assessing whether a country’s foreign exchange market practices impede orderly balance of payments adjustment.”
https://www.cfr.org/blog/chinas-new-currency-playbook
Andrew Metrick has an interesting paper in the Journal of Economic Perspectives: “The failure of Silicon Valley Bank on March 10, 2023 brought attention to significant weaknesses across the banking system.”
“Several features of the Silicon Valley Bank failure make it an ideal teaching case for explaining the underlying economics of banking (in general) and banking crises (specifically). This paper tries to do that.”
Andrew Metrick (2024): The Failure of Silicon Valley Bank and the Panic of 2023, Journal of Economic Perspectives, Vol. 38, No. 1, Winter 2024, pp. 133-52:
https://www.aeaweb.org/articles?id=10.1257/jep.38.1.133
“Challenges for monetary and fiscal policy interactions in the postpandemic era”. A useful overview in this ECB Occasional Paper:
“This report explores some of the renewed challenges to monetary and fiscal policy interactions in an environment of high inflation. The main general conclusion is that, with an independent monetary policy that aims to bring inflation back to target in a timely manner, it is still possible to design fiscal policy in a way that protects vulnerable parts of society against the costs of high inflation without pulling against the central bank’s effort to tame inflation.”
The supply-chain disruptions during the pandemic and the recent problems associated with the Suez and Panama canals have shown that the shipping industry plays a crucial role in international trade. An interesting working paper studying the global shipping industry was published by Jason Dunn and Fernando Leibovici of the Federal Reserve Bank of St. Louis. They study the dynamics of the global shipping industry empirically and in a theoretical model “with a global shipping market where shipping firms and importers endogenously determine shipping supply and costs.” They find “that accounting for global shipping is critical for the dynamics of aggregate economic activity.”
“Navigating the Waves of Global Shipping: Drivers and Aggregate Implications”:
Conference on Macroeconomic Policy Perspectives: “a new joint initiative between the Federal Reserve Bank of Minneapolis, the University of Chicago, and Stanford University on „Macroeconomic Policy Perspectives“ which strives to bring together, in a yearly conference, researchers in various fields of economics to address important policy issues.”
The first conference will be hosted by the Federal Reserve Bank of Minneapolis on October 17 – 18, 2024:
https://sites.google.com/view/mppconferenceseries/home
In a new paper, Dani Rodrik and Joseph Stiglitz argue: “While manufacturing will remain an important sector for most countries, we do not believe it can be the protagonist of economic growth in the way it was in East Asia and other successful economies of the past…[T]he export-oriented industrialization strategies of the past [will now be] less viable and effective. We have argued in this essay for a strategy with two key prongs: investment in the green transition and productivity enhancement in labor-absorbing, mostly non-traded services.”
Other economists such as Noah Smith are not convinced. He writes: “In my opinion, to tell these countries to give up on industrialization right now, at the cusp of their big moment, and to refocus on nontradable services instead, would be to do them a deep disservice. Instead, I think they should keep trying the traditional model of development, taking advantage of trends like friend-shoring and de-risking to encourage FDI and build up their manufacturing sectors.”
https://www.noahpinion.blog/p/do-poor-countries-need-a-new-development
Lamfalussy Research Fellowship – Call for projects: “The European Central Bank (ECB) is seeking applications from promising young researchers for up to five Lamfalussy Fellowships in 2024. The Lamfalussy Fellowship programme was launched in 2003 and aims to promote high-quality research on the structure, integration and performance of the European financial system.”
https://www.ecb.europa.eu/pub/economic-research/programmes/lamfalussy/html/lrf2024.en.html
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