Interview with Masaaki Shirakawa
Professor, Aoyama Gakuin University; former Governor, Bank of Japan; former Vice Chairman, Bank for International Settlements.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Governor Shirakawa: My view has not changed that much. I guess that this assessment is different from the frequently-heard view of U.S. and European policy makers...
Read MoreSince its cyclical peak in 2007 – just prior to the financial crisis – the U.S. economy has grown by only 1.2% at an annual rate. This is down sharply from the 3.0% pace that had prevailed since 1990. The resulting cumulative shortfall now exceeds $2 trillion, or more than $6,500 per capita. Naturally, we all want to know why. And what, if anything, to do about it...
Read MoreInterview with Guillermo Ortiz
Member of the Group of Thirty; former Governor of the Bank of Mexico; former Chairman of the Board of the Bank for International Settlements: former Secretary of Finance and Public Credit of the Mexican Federal Government.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Governor Ortiz: I think that we have to make a distinction between the central bankers in the developed world whose banking systems were affected and those in the emerging market world where banking systems were not affected...
Read MorePeer-to-peer (P2P) lending is all the rage. The idea is that individuals can bypass traditional financial intermediaries and borrow directly from investors at lower cost (or obtain credit that banks would not provide). Improving the lot of borrowers would be great if it works. But the key question is whether lenders can efficiently screen and monitor borrowers to get an attractive risk-adjusted return on their investment. In effect, individuals would be beating the technology that traditional lenders use. It’s far too early to tell, but there is plenty of scope for skepticism...
Read MoreWhen we were college students in the mid-1970s, some of our friends wanted to change the world. Their work aimed at providing cheap energy, improving information technology, curing cancer, and generally making our lives better. By the 1990s, attitudes had changed. Many top students, including newly-minted Ph.D.s, moved from natural science and engineering to finance. Their goal was to get high-paying jobs.
Would we be better off today if some of these financial wizards had focused instead on inventing more efficient solar cells or finding ways to forestall dementia? The older we get, the more we think so. And, believe it or not, there is now notable, cross-country evidence buttressing this view.
Read MoreInterview with Paul M.W. Tucker
Senior Fellow, Kennedy School of Government and Business School, Harvard University; former Deputy Governor at the Bank of England; former member G20 Financial Stability Board Steering Committee.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Deputy Governor Tucker: It would be hard for it not to have made me think about many things. I identify three distinct dimensions: the first is about balance sheet policy, the second about the lender of last resort, and the third about macroprudential policy...
Read More“Unfortunately, we have as yet devised no method to estimate accurately and readily the natural rate of either interest or unemployment. And the ‘natural’ rate itself will change from time to time.” Milton Friedman, American Economic Association Presidential Address, 1968.
What do you do if, on a dark and foggy night, you are forced to drive on a road with a sheer cliff on one side? Unless you know precisely where the road ends and the cliff begins, you will likely go slowly and keep your foot near the brakes. Driving like a tortoise is not the “first best” solution – fog lights that distinguish the road from the cliff would be better. But, absent proper illumination, going slowly is a safe response to perilous driving conditions. It helps prevent catastrophic, irreversible errors.
Such robust strategies are key to central bankers' success as well...
Read More“Negative capability … is when a man is capable of being in uncertainties, mysteries, doubts, without any irritable reaching after fact and reason…” John Keats, 1817.
Will growth be high in the future? Or, will it be low? Everyone is preoccupied with this question in one way or another. Individuals worry about whether their real incomes will grow. Fiscal policymakers wonder what will happen to tax revenues and required expenditures. And central bankers are trying to figure out whether they should ease or tighten monetary policy...
Read MoreWhat would you think if you were to open your morning newspaper to find the following headline?
“Congress Closes Down Fed, Takes Over Monetary Policy”
If you’re like us, you’d panic. In short order, you’d think that long-term inflation expectations would rise, pushing bond yields higher. You’d anticipate an increase in the volatility of growth, employment and inflation. That more volatile environment would drive up the risk premium required on new investments, hindering long-term economic growth. Finally, you'd be very worried about how these Congressional policymakers would manage the next financial crisis.
This is not a pretty picture. Why would anyone want it to become a reality? Well, these are surely not the intended goals, but they are the likely outcomes should lawmakers ever replace the Federal Reserve Board with what we would call a Congressional Reserve Board...
Read MoreInterview with Timothy Geithner
President, Warburg Pincus; former Secretary of the Treasury of the United States; former President of the Federal Reserve Bank of New York.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Secretary Geithner: In the United States, we completely redefined the lender of last resort tool kit, and the Federal Reserve Board Chairman redefined the frontiers of how to think about monetary policy at the zero bound. So yes. Absolutely.
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