One Chart Shows Why the Odds Keep RisingThat the Fed Will Raise Rates

Will policymakers at the Fed raise interest rates at their December meeting? Wall Street  oddsmakers increasingly think they will. One simple chart shows why. The chart tracks the economy’s progress toward the central  bank’s target of “stable prices and maximum employment.”  The Fed’s rate-setting Federal Open Market Committee (FOMC) has operated under this so-called  dual […]

Monetary Policy and Capital Centralisation in the EMU

Monetary Policy and Capital Centralisation in the EMU

photo: Theophilos Papadopoulos The ‘unconventional’ monetary policies implemented by central banks seem to have failed. Quantitative easing, zero interest rates and – more recently – negative interest rate policies have not been able to bring inflation and growth targets back to ‘normal’ levels. On the contrary, the world’s major economies are close to deflation. The European […]

Monetary Policy in an Open Economy

Monetary Policy in an Open Economy

photo: Paul Falardeau The recent research related to the trilemma (see here) confirms that policymakers who are willing to sacrifice control of the exchange rate or capital flows can implement monetary policy. For most central banks, this means using a short-term interest rate, such as the Federal Funds rate in the case of the Federal Reserve […]

Can Systemic Financial Risk Be Contained?

Can Systemic Financial Risk Be Contained?

Risk aversion is a basic human characteristic, and in response to it we seek to safeguard the world live in. We mandate airbags and safety belts for automobile driving, set standards for the handling and shipment of food, build levees and dams to control floods, and regulate financial transactions and institutions to avoid financial collapses. […]

Whither Emerging Markets Foreign Exchange Reserves

Whither Emerging Markets Foreign Exchange Reserves

After a exponential rise in foreign exchange reserves accumulation by emerging markets from 2000 onwards, the tide seems to have turned south since mid-2014. Changes in capital flows and commodity prices have been major factors behind the inflection, with the new direction expected to remain, given the context of the global economy going forward. Although […]

Dilemmas, Trilemmas and Difficult Choices

Dilemmas, Trilemmas and Difficult Choices

photo: Fr Lawrence Lew, O.P. In 2013 Hélène Rey of the London Business School presented a paper at the Federal Reserve Bank of Kansas City’s annual policy symposium. Her address dealt with the policy choices available to a central bank in an open economy, which she claimed are more limited than most economists believe. The subsequent debate reveals […]

Krugman, Summers and Secular Stagnation

Krugman, Summers and Secular Stagnation

photo: Chris Potter Secular stagnation and escape routes Paul Krugman and Larry Summers are having an interesting conversation on secular stagnation and the continuing decline in global real interest rates.[1] The ‘new secular stagnation hypothesis’ was first evoked by Larry Summers in his now famous speech at the IMF in 2013, and subsequent elaborations, to explain […]

The External Debt of the Emerging Market Economies

The External Debt of the Emerging Market Economies

The outflow of money from emerging markets this year will most likely surpass inflows for the first time since 2008, and net capital outflows may total $541 billion according to the Institute of International Finance. The flows have been accompanied by currency depreciations, stock market collapses, and in the case of Brazil, a downgrade in its credit rating […]

US Fed: It Is Not “The When”, It Is How Long It Will Take to Normalize Policy

Key takeaway – On September 16-17, the US Federal Reserve (Fed) will take a difficult decision: to hike rates for the first time in nearly a decade – or wait. It is a close call: US domestic economic conditions could justify tighter policy but remain fragile. While the GDP is growing, inflation is below the […]

China, US Should Transcend Economic Fears

What Washington and Beijing need today is not fear about their real or perceived vulnerabilities, but confidence about their respective strengths and joint opportunities. In his inaugural address of 1933, Franklin D. Roosevelt famously said that, “the only thing we have to fear is fear itself”. Those words provide guidance to the upcoming summit between […]

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