Venkatachalam Shunmugam, 08 August 2010

If the base rate rises, all things being equal, the exchange rate is expected to rise and bond prices to fall. This column argues that, during a financial crisis, such relationships between asset classes go haywire. When this happens, it says governments (including central banks) must provide strong signals to the market and make sure that they pick up the right signals from the market themselves.

Francesco Giavazzi, Alberto Giovannini, 19 July 2010

Should the crisis spur central banks to change how they conduct monetary policy? This column argues that strict inflation targeting, which ignores financial fragility, can produce interest rates that push the economy into a “low-interest-rate trap” and increase the likelihood of a financial crisis.

Nathan Porter, TengTeng Xu, 23 December 2009

China’s financial liberalisation remains incomplete. The behaviour of short-term market-determined interest rates is influenced by regulated rates. This column says that China should further liberalise its retail interest rates to allow all interest rates to better reflect liquidity conditions and the scarcity of capital.

Scott Sumner, 10 September 2009

Do most macroeconomists hold views of this crisis that are entirely at variance with modern monetary economics? This column says that tight monetary policy caused the crisis. Economists seem not to believe what they teach about the fallacy of identifying tight money with high interest rates and easy money with low interest rates.

Arvind Subramanian, 10 November 2008

The Indian variant of the credit crunch is different. This column outlines potential means of expanding India’s credit supply. Simply cutting interest rates will not suffice.

Charles Goodhart, 24 June 2008

Central banks cannot achieve price and financial stability with one instrument (interest rates). A counter-cyclical regulatory system is needed to dampen asset booms and to smooth busting bubbles. To use such macro-prudential instruments effectively, regulators need courage, quantitative triggers, and independence; they will be criticised by lenders, borrowers and politicians in both booms and busts.

Guillermo Calvo, 20 June 2008

Here, one of the world’s leading macroeconomists argues that the explosion of commodity prices is the result of a very real global financial storm associated with excess liquidity in several non-G7 countries and nourished by the low interest rates set by G7 central banks. The commodity price explosion is a harbinger of future inflation.

Momtchil Pojarliev, Richard Levich, 16 February 2008

Professional currency trading managers earn large fees. This column summarises research evaluating their performance and identifies a select group of traders whose achievements may warrant their wages.

Michael Woodford, 17 January 2008

Central banks have experimented with ‘forward guidance’ – sending signals about the future path of interest rate policy more than just one decision ahead – as a way of stabilizing medium-to-longer run expectations. Here is a discussion of the phenomenon and some ideas on how the Fed could improve its signalling.

Tommaso Monacelli, 14 December 2007

The ECB’s decision to leave interest rates unchanged lacks transparency and appears inconsistent with the specific policy framework that the ECB itself has decided to embrace. In the current period of great uncertainty, transparency would pay large dividends.

Gilles Saint-Paul, 06 December 2007

Many observers call for US interest rate cuts to avoid a recession, but this is likely to perpetuate the current imbalances in the US economy. The US probably needs a recession to get the required correction in house prices and consumer spending. The Fed should signal its intention to hang tough and start thinking about how big a fall in GDP it will tolerate before intervening.

Charles Goodhart, 24 September 2007

Recent research suggests that the additional predictive power of the yield curve – beyond the information in other macroeconomic variables – often appeared during periods of uncertainty about the underlying monetary regime. This is true, for example, of the US during the Volcker disinflation episode.

Axel Leijonhufvud, 25 June 2007

An expansionary monetary policy and an historical conjuncture that happens to produce no inflation will lead to asset price inflation and deterioration of credit. At some stage, central banks will have to mop the liquidity or see inflation do it for them.

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