Interview with Choong-soo Kim
Interview with Choong-soo Kim
James Joo-Jin Kim Visiting Professor of Korean Studies, University of Pennsylvania; former Governor, Bank of Korea.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Governor Kim: The answer is yes, indeed. I say this from the perspective of a former Governor of the Bank of Korea. Until late 2011, the Bank had a single mandate: to maintain price stability. Following the global financial crisis, the National Assembly of the Republic of Korea revised the Bank of Korea Act by stipulating that, as the central bank works to secure the objective of price stability, due consideration must be paid to maintaining financial stability...
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Not so fast
GE’s planned sale of its financial division – GE Capital – looks like a home run for systemic regulators. It adds to a string of recent announcements that big intermediaries are responding to improved financial oversight. Deutsche Bank’s decision to shrink its investment banking business and sell Postbank is another example, as is the more general pruning of oversized balance sheets elsewhere: UBS assets are now less than half the pre-crisis level.
If the regulatory reforms in the United States and elsewhere really work to reduce systemic risk, the list of Systemically Important Financial Institutions (SIFIs) would become an historical artifact: either these financial behemoths become safer, or they go out of existence...
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Residential real estate in China: the delicate balance of supply and demand
When President Nixon and Chairman Mao shook hands in Beijing in 1972, only 17% of the 862 million Chinese lived in urban areas and the entire stock of housing was state owned. Today, more than half of China’s 1.4 billion residents live in cities, while 9 out of 10 households own their homes. Unsurprisingly, this housing revolution has brought with it a property price boom. Over the past decade, urban land prices have risen more than four-fold, with high flyers like Beijing surging by a factor of more than 10 (for the data, see here).
Will China follow the same path the U.S. took in the last decade? Will China’s boom turn into a bust?...
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Interview with Duvvuri Subbarao
Interview with Duvvuri Subbarao
Former Governor, Reserve Bank of India
Has the experience of the crisis changed your view of the central bank policy toolkit?
Governor Subbarao: Most certainly. Post crisis, I believe, the central bank toolkit has expanded in three important dimensions: (i) deployment of unconventional monetary policy by way of quantitative easing (QE); (ii) extensive use of forward guidance; and (iii) use of macroprudential policies to maintain financial stability. Each of these policy tools has spawned a vigorous debate on its appropriateness and effectiveness. Let me briefly refer to the contours of those debates.
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The euro area's debt hangover
The ongoing difficulties in Greece – combined with the ECB’s dramatic actions to ward off deflation – are distracting attention from what may be the euro area’s biggest and most pervasive problem: debt.
You wouldn’t know it from the record low level of government bond yields, but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. And, gross government debt (as measured by Eurostat) is close to or exceeds this threshold in Belgium, France, Greece, Ireland, Italy, Portugal and Spain...
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Interview with Adair Turner
Interview with Adair Turner
Senior Fellow, Institute for New Economic Thinking; former Chairman, U.K. Financial Services Authority; and former Chairman, Financial Stability Board Standing Committee on Supervisory and Regulatory Cooperation.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Chairman Turner: Yes. A lot. The pre-crisis orthodoxy defined central banks to a very significant extent as having one primary objective – low and stable inflation (with some countries in addition including a broad employment mandate) – and one policy tool, the policy interest rate. I think that this definition involving a very small set of objectives and one policy tool was fundamentally mistaken...
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The mythic quest for early warnings
Economists and policymakers are on a quest. They are looking for the elixir that will protect their economies from financial crises. Their strategy is to find an indicator that provides an early warning of collapse, and then respond with preventative measures.
We think the approach of waiting for warnings is seriously flawed. The necessary information may never be in our grasp. And even if it were, our ability to respond rapidly and effectively is far from clear. Rather than treating the symptoms of illness after they start to develop, we believe the better strategy is early immunization: the more resilient the financial system, the less reliance we will have on faulty or nonexistent warnings...
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Zero matters
The invention of the number zero transformed mathematics and laid the foundations for modern science. Zero is the additive identity (any number plus zero equals itself). It separates the positive and negative numbers. For a celebration of zero, see here.
Zero matters in economics, too.
Zero growth separates cyclical expansions and contractions. We need zeroes to measure the trillions of dollars of GDP, and even more zeroes to measure hyperinflations (during the record Hungarian inflation of 1945-46, the quantity of currency in circulation grew to a number with 27 zeroes). Most importantly, zero (or slightly less) marks the lower bound on nominal interest rates and a downward barrier for wage changes...
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Interview with Otmar Issing
Interview with Otmar Issing
President, Center for Financial Studies, Goethe University; former member of the Executive Board of the European Central Bank; former member of the Executive Board of the Deutsche Bundesbank.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Professor Issing: I would like to start by going back to the beginning of the ECB in 1998. The Maastricht Treaty gives the ECB the freedom to design its own instruments. There are almost no restrictions. By contrast, in the Bundesbank, everything was regulated in detail; what was not explicitly allowed in the law, the Bundesbank couldn’t do. At the ECB, things are very different. The treaty contains only general statements that the instruments had to be consistent with an open market economy.
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Is 2% still the solution?
The debate over the appropriate level for a central bank’s inflation objective reminds us of a 40-year-old Sherlock Holmes movie called “The Seven-Per-Cent Solution.” Convinced that Holmes’ addiction to cocaine (the solution in the title) had made him delusional, Watson took the master sleuth to Vienna to be treated by Sigmund Freud.
Has the 2% solution for inflation targeting in advanced economies made central bankers similarly delusional? Are they stubbornly attached to an outdated target? That argument gained ground in recent years as policymakers in Europe, Japan, and the United States struggled to stimulate weak economies and stabilize prices with policy interest rates stuck at the zero bound...
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