the SHADOW OPEN MARKET COMMITTEE (SOMC) symposium:
Addressing Global Imbalances
with keynote speaker Axel Weber,
President of Deutsche Bundesbank
and Member of the Governing Council of the ECB
Position papers addressing global monetary and fiscal policy and banking regulations will be presented by SOMC members Michael Bordo, Charles Calomiris, Gregory Hess, Marvin Goodfriend, Mickey Levy and Bennett McCallum. Audience participation will be encouraged. Read about the event and RSVP via Eventbrite.
Excerpts from Position Papers
Guidelines for Global Economic Policymaking
by Gregory Hess, Claremont McKenna College
Economic policy is at a crossroads. Extraordinary actions were taken in extraordinary times. The worst feared outcomes have been avoided. While we have not yet won the war and we are not yet ready to declare “mission accomplished,” policymakers must be prepared to make sure that we don’t lose the peace. Indeed, laying the groundwork for winning the peace is the most crucial public policy issue for successfully bringing to a close the Great Recession.
Managing Monetary Policy at the Zero Interest Rate Bound
by Marvin Goodfriend, Carnegie Mellon University and National Bureau of Economic Research
The Federal Reserve’s near zero interest rate policy and $2 trillion dollar balance
sheet have done much to stabilize economic and financial conditions in the United
States. Yet the recovery from the Great Recession is slow. Net private job creation
remains too low to absorb the secular growth in the labor force, let alone what is
needed to return to work those who lost their jobs in the Great Recession.
Measures of underlying inflation have trended lower in recent quarters. Ongoing
disinflation and the likelihood that labor markets will remain weak for some time
suggest that inflation could fall further. The risk is that inflation expectations are
dragged down, raising real interest rates and tightening interest rate policy.
With five year market-based inflation expectations running near 1 ½ %, deflation
does not yet present a clear and present danger.
Targets for Monetary Policy: Inflation, Exchange Rates, and Others
by Bennett McCallum, Carnegie Mellon University
It is well known that most leading central banks have been, over much of the past
15-20 years, conducting monetary policy according to some variant of inflation targeting,
implying that maintenance of a low and stable overall inflation rate is (in principle) the
predominate objective. Prior to the financial crisis of 2008, this approach was much
favored by academic monetary economists, as well as central bank officials and
economists. The intensity of the crisis and our continuing slow pace of recovery have
served, however, to diminish support for inflation targeting (IT). Quite recently, as a
possibly related matter, there has been an explosion of news items concerning the
management of exchange rates, those of China and Japan being especially prominent, and
with concern raised by the possibility of widespread trade wars of the “beggar thy
neighbor” type, somewhat like those that contributed greatly to the disastrous severity of
the Great Depression of the 1930s.
A Three-Part Program for Housing Finance Reform
by Charles Calomiris, Columbia University
During the 1990s and 2000s leverage tolerances
on US government-guaranteed mortgages rose
steadily and dramatically at FHA, Fannie Mae and
Freddie Mac. The average loan-to-value (LTV) ratio
of FHA mortgages rose to 96 per cent, and a third of
Fannie and Freddie’s purchases leading up to their
insolvencies had LTVs of greater than 95 per cent.
Appropriate Roles of Monetary and Fiscal Policies
by Mickey Levy, Bank of America
The financial crisis and recession are over. Global
economies are rebounding at a healthy albeit uneven
pace. The US is recovering slowly. Inflation is low in
the US and Europe, and the probability of deflation is
low, while Japan continues to struggle with mild but
persistent deflation. Inflation pressures are mounting
in fast-growing emerging nations.
Does the Euro Need a Fiscal Union?
by Michael Bordo, Rutgers University
The creation of the euro in 1999 was a bold
experiment and now runs the risk of failure. Creating
a multinational monetary union with a single central
bank and without a fiscal union has a lot to do with the
present predicament of the eurozone. The lessons
from the history of successful national monetary
unions should be heeded (Bordo and Jonung 2000).
Federal nations like the United States, Canada,
Australia, Germany and Switzerland are examples
of monetary unions combined with fiscal unions that
have been successful for long periods. However
not all monetary unions with fiscal unions have
been successful. Two obvious cases of failure are
Argentina and Brazil (until quite recently) (Bordo,
Jonung and Markiewicz 2010).
Beyond Basel and the Dodd-Frank Bill
by Charles Calomiris, Columbia University
Recently, the U.S. government passed a major
financial regulatory overhaul known as the Dodd-
Frank bill. Soon thereafter, the Basel Committee
revised its capital standards to boost minimum tier
one equity requirements for banks over time.
The stated purpose of the US's Dodd-Frank financial
regulatory reform bill, and the Basel reforms, was to
fix the problems that came to light during the recent
financial crisis. Do these reforms address those
problems? Three factors were particularly important
in contributing to the subprime financial crisis.