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(Needless to say, I do not necessarily agree with them or endorse them.)
Category Archives: Monetary policy
Sveriges Riksbank raises rates again; Svensson dissents again
Yesterday, Sveriges Riksbank (central bank of Sweden) announced that it raised the main policy rate to 1.5%. This is the fifth consecutive 25 basis point increase since last summer. It also marks the twelfth time in a row that Executive Board Member, and Deputy Governor of the Bank, Lars Svensson dissents by voting for a looser stance (in this case he advocated an unchanged rate). The last time he agreed with an interest rate decision was in February 2009. The Inflation-Targeting Riksbank makes all this information publicly available on their web site (see the voting records here). This high degree of transparency is not uncommon among inflation targeting central banks, … Continue reading
No Weber after Trichet: Politics 1, Treaty 0
Jean-Claude Trichet steps down as President of the European Central Bank this October. So much is certain, if things go according to the statutes of the ECB. Things do not necessarily go according to the statutes, but it seems a certain bet that Trichet will step down as planned. A question of much concern is who will succeed him? There has been much speculation that the next President would have to come from Germany. (A common conclusion derived from the hypothesis that the Germans and French battle over ECB leadership and influence, with the first President Duisenberg, a Dutch promising to step down after a half term, being a compromise … Continue reading
Posted in Economists, Monetary policy
Tagged Axel Weber, Central bank governance, Central bank independence, European Central Bank, European Union, Jean Claude Trichet, Treaty on European Union
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Simple Policy Rules or Simple Consumption Rules? A Semi-serious Comparison Based on Brain Usage
Let me start this post with a warning. As indicated by the title, it will involve semi-serious thoughts, which in this case is equivalent to semi-humorous thoughts. So the contents are intended as a sort of economists’ joke (which may not be funny to that many, if any, besides me). Also, in order to understand the fun, it will require some knowledge about graduate dynamic macroeconomics, more specifically the continuous-time Ramsey-Kass-Koopmans model. With this warning, I proceed. In recent macroeconomic literature on monetary and fiscal stabilization policies, researchers often characterize the optimal stabilization policy in a conventional public-finance fashion. Then, many argue that such a policy is too complicated to … Continue reading
Posted in Macroeconomics, Monetary policy
Tagged economists' joke, Lars Svensson, policy rules, Ramsey model, Taylor rule
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A Credible Anti-Inflationary Central Bank Ignores Inflation
Today, the European Central Bank decided to keep its policy rate unchanged. I am not particularly surprised. In recent empirical work, Morten Aastrup and I estimate what determines the ECB’s interest-rate changes. It turns out that inflation or expectations thereof play no role. Instead, changes in economic activity as measured by Euro-area unemployment is an important determinant. Americans who cling to the idea that good monetary policymaking is characterized by an adherence to a variant of John B. Taylor’s rule that carries his name, may find this surprising. However, consistent with modern New-Keynesian theory (cf. Michael Woodford’s Interest and Prices, Princeton University Press, 2003), a credible anti-inflationary central bank can … Continue reading
Posted in Macroeconomics, Monetary policy
Tagged Euro, European Central Bank, John B. Taylor, Michael Woodford, Taylor rule
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