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e21 Presents the Shadow Open Market Committee Symposium, March 25, 2011

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e21 Presents the Shadow Open Market Committee Symposium, March 25, 2011

March 24, 2011

e21 Presents…

the SHADOW OPEN MARKET COMMITTEE (SOMC) symposium:
Beyond the Short Run:
A Framework for Long Run Monetary Policy
with keynote speaker Charles Plosser,
President of the Federal Reserve Bank of Philadelphia

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

The Prospects for Inflation Ahead
by Michael D. Bordo, Rutgers University
Most observers today argue that since core inflation is considerably below the implicit inflation target of 2%, and unemployment and the output gap are still too high, that inflation is not an important worry for policy makers. Yet commodity prices are rising and headline inflation is also rising. It will likely take a long time for headline inflation to feed into core inflation through the conventional mark up channels but once it does it will be hard to dislodge as the experience of the Great Inflation taught us.

Monetary Policy and the Behavior of Banks: Lessons from the 1930s for the 2010s
by Charles W. Calomiris, Columbia Business School
The Fed continues to reassure its critics that it will be able to identify changes in the economy quickly enough to prevent an inflationary surge. But critics are skeptical for good reason. There is cause for concern that the Fed may be slow to detect a sudden shift in the money multiplier. That concern – which is informed by an understanding of the micro-foundations of the money multiplier, as illustrated by the history of the 1930s – is the subject of this article.

Are Delays to the Foreclosure Process a Good Thing?
by Charles W. Calomiris, Columbia Business School, and Eric Higgins, Kansas State University
There are demonstrable advantages to the economy – via increased investment, consumption, and credit supply – from resolving uncertainties in the housing market and encouraging housing prices to “find their bottom.” The resolution of those uncertainties, particularly at the current phase of the business cycle, would likely have a large net positive effect on the economy, even after taking into account the short-term negative effects on house prices on consumption.

Congressional Oversight of the Federal Reserve
by Marvin Goodfriend, Carnegie Mellon University and National Bureau of Economic Research
Congress cannot reasonably and reliably hold the Fed accountable for exceeding its authority or for a dereliction of duty after the fact without clarifying Fed responsibilities before the fact. Markets are left guessing what the Fed will do in particular circumstances, increasing uncertainty and impeding long-term business planning to invest and create jobs.

The Dueling Mandate
by Gregory D. Hess, Claremont McKenna College
I propose that the Federal Reserve consider declaring victory and simply announce what it believes – that price stability is its first priority, as price stability is the necessary precursor for sustaining long term maximum employment. This interpretation of the dual mandate can be accomplished, I believe, without legislation.

Evaluating QEII: A Rationale to Exit
by Mickey D. Levy, Bank of America
Fortunately, QEII has not jarred market expectations; mark that up to the lingering low inflation – a typical cyclical pattern following recession. Now, with economic performance clearly improving and inflation rising, the risks of this unprecedented monetary expansion are increasing. Consequently, the Fed must set out an exit strategy, including a framework for managing reserves and normalizing interest rates.

Monetary Standards and the U.S. Constitution
by Bennett T. McCallum, Carnegie Mellon University
With the arrival of Representative Ron Paul as Chairman of the House Committee on Banking, the interest in considering a meaningful monetary standard for the United States has presumably increased by a substantial amount. It is important, then, to consider whether the Gold Standard, which Rep. Paul has championed over many years, is itself the best available monetary standard to adopt as a guard against inflation (and deflation).



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