Central bank communication is a work in progress everywhere, but particularly so in the euro area. Unlike the Fed, the Bank of England, and the Bank of Japan, which all publish minutes of their policy meetings with a lag of a few weeks, current ECB rules anticipate releasing summary records of Governing Council meetings only 30 years after they occur.Read More
Commentary
Everyone is talking about “big data” – the use of massive quantities of information to analyze everything from the weather to the concentration of matter in the universe. For several years, economists have been getting into the big data act, too. One example is nowcasting – using vast arrays of electronic data to assess the current state of the economy ("now”) rather than waiting for official data and its inevitable delays.
Read MoreExcept for places like Argentina, Venezuela and Sudan, inflation is remarkably low. In fact, virtually no advanced economy in the world has inflation that is even 5%. In the euro area, the harmonized index of consumer prices is rising at roughly 0.7%. And, in the United States, the consumer price index rose by 1.1% over the past 12 months.
Read MoreLast week’s publication of Michael Lewis’ Flash Boys has focused new attention on high-frequency trading (HFT). Fortunately, economic research has illuminated many issues associated with HFT, and recent work has proposed remedies that could limit the costs while retaining key benefits of HFT.
Read MoreThe Group of Seven is very upset with Russia for its treatment of Ukraine and its annexation of Crimea. So far, Europe and the United States are responding with various economic sanctions.
Sanctions can impose substantial pain on a country, cutting it off from the global economic and financial system. Such isolation would matter for Russia, which is a reasonably open economy. For example, its goods and services imports and exports are 22% and 29% of GDP, respectively.
Read MoreCentral bankers around the world agree that they should concern themselves with financial stability. They know that accommodative monetary policy aimed at bolstering growth and employment acts in part by encouraging borrowing, driving up asset prices and boosting risk taking. They also know it can go too far. And, when it does, credit booms turn into busts. Asset prices rise and then crash. Credit spreads narrow and then balloon. The result is defaults by households, firms, and intermediaries. On all of this everyone agrees.
Read MoreThe principles for designing a safe financial infrastructure are a bit like those for making a safe bridge or building. Safety-minded engineers should design the most critical components as simply and reliably as possible. They should use shock absorbers to reduce the frequency of failures, and establish backup mechanisms to limit their consequences.
Read MoreEveryone knows that leverage is a key driver of financial fragility. Since the crisis that began in 2007, regulators around the world have focused on limiting leverage to contain systemic risk, prompting many banks to raise capital and shrink their balance sheets.
Read MoreMany people criticize the way in which bank capital regulation is done. They know that banks can and do game complicated regulatory rules, a form of regulatory arbitrage. One focus of their criticism is risk weighting – the idea that banks should hold capital commensurate with the riskiness of their assets. The more risky the loans and securities a bank holds, the bigger the capital buffers should be to ensure that banks and the banking system are robust.
Read MoreOver the past few years, there has been frequent talk about the need for international coordination of monetary policies. In particular, central bankers outside the United States have urged the Federal Reserve to consider the impact of its policies on emerging market economies.
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