Chairman, Group of Thirty; Former President, European Central Bank; Honorary Governor, Banque de France.
Has the experience of the crisis changed your view of the central bank policy tool kit?
President Trichet: I would say say yes, of course. We had to invent in these exceptional circumstances new concepts that were difficult to think of or even unthinkable before the crisis. We had to cope with an absolutely dramatic situation, particularly after the Lehman Brothers collapse, which we did not foresee. The fragility of the financial system appeared to be much greater than anything we had in mind, even though we were convinced the system was fragile...
Angered by a foreign downing of a U.S. airliner, and frustrated by the ineffectiveness of customary retaliation, fictional West WingPresident Bartlet challenged his military advisors to devise a “disproportional response” that would go beyond “the cost of doing business” to deter future attacks and make Americans safe.
Financial corruption does not put our lives directly at stake. Yet, it is easy to imagine how widespread and recurring corruption could lead a future U.S. President – frustrated by the failure of markets, regulators, and the courts to change financial intermediaries for the better – to ask her financial and legal advisors for a similar disproportional response to make Americans safe...
Sixteenth birthdays can be momentous occasions. A coming of age of sorts. Well, New Year’s Day 2015 the European Central Bank turned 16. It is a momentous birthday, but not all that sweet.
To be sure, there is notable good news. The new headquarters in Frankfurt recently opened. Lithuania has entered the euro area. The frequency of ECB monetary policy meetings is about to decline. And there will soon be timely publication of minutes of these meetings.
But the risk of deflation amid sustained economic weakness makes for a very anxious birthday...
At a time when the recent crisis has given financial innovation a bad name, Shiller’s contrarian message is that well-designed financial instruments and markets are an enormous boon to social welfare. We agree.
Some forecasters are confidently predicting a large further rise in the U.S. dollar against key currencies like the euro and the yen. And a few ominously warn of impending currency wars where central banks outside the United States will manipulate their currencies to gain a global trade advantage.
Not so fast. First, currency forecasting is a hazardous business. And second, even if (as widely projected) the dollar were to rise substantially, its appreciation would seem consistent with relative growth prospects, not currency management by policymakers.
During the debate over the 2010 Basel III regulatory reform, one of the biggest concerns was that higher capital requirements would damage economic growth. Pessimists argued that forcing banks to increase their capitalization would lower long-run growth permanently and that the transitional adjustment would impose an extra drag on the recovery from the Great Recession. Unsurprisingly, the private sector saw catastrophe, while the official sector was more positive...
In September 2010, Brazil’s former finance minister, Guido Mantega, made headlines when he accused the Federal Reserve, the European Central Bank and the Bank of England of engaging in a currency war. The complaint was that easy monetary policy was driving down the value of the dollar, the euro and the pound, at the expense of his country and those like it. More recently, similar charges have been levied against Japan: namely, that the Bank of Japan’s extraordinary balance sheet expansion is aimed at driving down the value of the yen, damaging the country’s trading partners and competitors...
“Captain, we’re here. Why not avail ourselves of this opportunity for study? … No other vessel has been out this far.” Lt. Commander Data, Star Trek: The Next Generation, “Where No One Has Gone Before” (1987)
If you are a student of economics – or an inquisitive android like Lt. Commander Data of Star Trek: TNG fame – then you have a great friend to help you understand the world: FRED. The Federal Reserve Economic Database (FRED for short) is provided free of charge to the public by the Federal Reserve Bank of St. Louis. FRED currently includes more than 238,000 time series from nearly 80 sources covering about 200 countries, and it continues to grow...
The recent international agreement to improve the loss-absorbing capacity of globally active banks is an important move in the right direction. But financial regulators should go significantly further to make these banks and the global financial system resilient...
In the 30 months following the 2000 stock market peak, the S&P 500 fell by about 45%. Yet the U.S. recession that followed was brief and shallow. In the 21 months following the 2007 stock market peak, the equity market fell by a comparable 52%. This time was different: the recession that began in December 2007 was the deepest and longest since the 1930s.
The contrast between these two episodes of bursting asset price bubbles ought to make you wonder. When should we really worry about asset price bubbles? In fact, the biggest concern is not bubbles per se; it is leverage. And, surprisingly, there remain serious holes in our knowledge about who is leveraged and who is not.
