Saying What You Do and Doing What You Say

On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say;

Chapter 2- Why Inflation Targeting?
Chapter 3- IT Framework Design Parameters

Quote of the Day

The central banker from Hell?

Your critics blame your monetary policies for Zimbabwe's economic problems.

I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.

Related;
John Robertson comments on Dr Gideon Gono’s book ‘Casino Economy: Extra-ordinary Measures for Extra- ordinary Challenges.’

EU Financial Stability actors

OECD Economic Surveys: Euro Area 2009

John Taylor podcasts

Are Central Bankers To Blame?

Taylor Says U.S. Response Made Financial Crisis Worse

Crisis Management with John Taylor

History Lesson: Evolution of Checks

The Evolution of the Check as a Means of Payment: A Historical Survey;

This article traces the historical evolution of the check, focusing on its relation to complementary and competing payment technologies.

Originating in the eastern Mediterranean during the first millennium as a convenient form of payment between local merchants, checks became more versatile through the development of negotiability in sixteenth-century Europe. The suppression of banknotes in eighteenth-century England further promoted the use of checks. In the United States, nineteenth-century legislation discouraged other payment methods and eventually led to a nationwide check payment system. In the twentieth century, under the Federal Reserve's leadership, checks expanded rapidly and became the nation's default payment method.

The authors discuss some persistent historical themes surrounding checks: checks' ease of use, which provides advantages over other payment methods but creates risk to businesses and banks; checks' sophistication, which evolved through centuries of legal precedent and operational experimentation; and checks' high costs relative to other forms of payment.

Checks' traditional dominance of the U.S. payment system, the authors conclude, resulted from historical happenstances. These events gave the check relative advantages that are only now being overcome by electronic payment technologies.

Three Questions

1. In assessing risk in financial models, how effective are current modeling methodologies in incorporating model error or model uncertainty? Specifically, have these models appropriately captured the implications for underlying statistical relationships of the impacts of aggregate shocks?
2. Do we have adequate tools and methodologies to stress test these models? This is particularly challenging in the area of consumer credit portfolios and their dependence on expected loss distributions.
3. How should we evaluate the trade-off, if any, between undertaking policy interventions aimed at combating short-run financial instability and the potential financial market distortions and moral hazard that could result from those interventions?

-Importance of Financial Econometrics for Financial Innovation and Financial Stability

Bernanke Quote of the Day

I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

-On Milton Friedman's Ninetieth Birthday

Podcast of the Day

Goodhart Recommends `Aggressive' Bank of England Policy

Quote of the Day

“They say that the only way to get to paradise without dying is to be governor of a central bank. This has not been true in Iceland.”-David Oddsson, governor of Central Bank of Iceland

-Lessons from Iceland; Cracks in the crust

Podcast of the Day- Tim Harford

Presenter Tim Harford considers the risks of eating Irish sausages contaminated with dioxin; why the latest retail sales figures are not as bad as the retailers' make them sound; the quirks of British street numbering; and he witnesses the most important numbers in the world being calculated: the London Interbank Offered Rate - LIBOR.

Download the podcast

A very rich Fed

Assets on the Fed’s balance sheet have more than doubled over the past year, reaching $2.14 trillion on Dec. 3, and may increase more as the Fed buys up to $600 billion of housing- finance debt and securities...

“The creation of excess reserves is the least desirable form of central bank balance-sheet expansion during periods when bank balance sheets are a critical to bottleneck to financial flows,” said Lou Crandall, chief economist at Wrightson ICAP LLC. “You have your choice then: Either the Fed can issue liabilities to the general public, or you can issue Treasury liabilities. The preferred option is Treasuries.”

-Fed Explored Starting Sales of Bonds as Balance Sheet Grows

A book by the worst central banker in the world?

'Zimbabwe's Casino Economy: Extraordinary Measures for Extraordinary Challenges', Gideon Gono

via Todd Moss;

Gideon Gono, certainly the worst central banker in the world, not only crows about his adept handling of the economy, but adds:

'Just as I was being dragged to the UN Security Council to be put on the sanctions list, I was offered a job by the World Bank as senior vice president," Dr. Gono told guests who attended the official launch of the book. “This was with the full blessings of none other than George W. Bush himself and the U.S. Secretary of State, Condoleezza Rice.” In response to the offer, Dr. Gono said he wrote a letter to the World Bank, asking how the bank, controlled by the U.S. and its European allies, would offer him a job when he was on its targeted sanctions list. Dr Gono said the WB promised it would remove him from the list and "see what to do with his friends already on the sanctions list.

Recently from the Fund

From Crisis to IMF-Supported Program: Does democracy impede the speed required by financial markets?

What Attracts Tourists to Paradise?

A Small Quarterly Projection Model of the US Economy

A Small Quarterly Multi-Country Projection Model with Financial-Real Linkages and Oil Prices

A Small Quarterly Multi-Country Projection Model

Estimating Potential Output and the Output Gap in Slovakia

Analyzing Determinants of Inflation When There Are Data Limitation:The Case of Sierra Leone

Are Governments Obliged to Bail Out their Central Banks?

Assorted Financial Crisis Podcasts

Bill Poole Calls Fed Move to Buy Commercial Paper `Positive'

Michael Mussa Says Panic in Markets `Is the Clear Problem'

Stanford's Hall Calls U.S. Slowdown `Modern Recession'

Lazear Says U.S. Taking `Aggressive' Approach to Crisis

Brookings's Baily Says Crisis Will Take `Several Years' to Pass

Paul Krugman Sees U.S. Economy's Downturn `Accelerating'

Brandeis's Mann Says U.S. Needs to Recapitalize Banks

Varvares Says NABE Sees Better Housing Market in 2009

Skidelsky Says Governments Must Lead in Market Crisis

Roubini Sees `Silent' Run on Banks, Urges `Triage'

Central banks ‘key’ to stop recession

Crisis on Wall St.
A panel of Princeton economists chaired by Hyun Shin, Professor of Economics and associate chair of the Department of Economics. Panelists: Markus Brunnermeier, Professor of Economics; Harrison Hong, Professor in Finance; Paul Krugman, professor of economics and international affairs; Alan Blinder, Professor of Economics and Public Affairs and co‐director of the Center for Economic Policy Studies.

Loan interview of the 21st century

Quote of the Day

A Central Banker should stand up to fear-mongering. Even when it comes from a Treasury Secretary.

-An Open Letter to Ben Bernanke

Nothing new for Argentina

Argentina’s overdue loans from the Paris Club nations, principally Japan and Germany, have represented a serious obstacle to its medium-term growth potential. While the country was in arrears, the export-promotion agencies of many foreign governments were banned from providing subsidised credit for sales or investments in Argentina. Now, it will be eligible for such loans, substantially lowering financing and insurance costs for infrastructure projects and imports of capital goods. In particular, the move should expedite the construction of a high-speed rail line linking the country’s three largest cities, a costly project of questionable necessity strongly backed by Ms Fernández. “We haven’t been getting big investments of hundreds of millions of dollars because they need international financing,” says Beatriz Nofal, the president of the government’s investment-promotion agency. “Now they’ll start coming.”

But the mechanism Ms Fernández has chosen for repaying the debts is reinforcing widely held concerns about Argentina’s economic management. Just as her husband did when repaying the government’s debt with the IMF in 2005, Ms Fernández has rustled up the cash by helping herself to 15% of the central bank’s foreign-currency reserves. In addition to highlighting the bank’s tenuous independence, this decision implies a steep opportunity cost: Argentina could easily have paid the debt in instalments rather than in one lump sum. Doing so might have spared the country the need to borrow ever-greater sums from the Venezuelan government, which now charges a daunting 15% interest rate.

But according to the Paris Club’s rules, securing any such restructuring with the group would require the blessing of the IMF, which has long been the Kirchners’ favourite political scapegoat. And in turn, to obtain the Fund’s approval, Argentina would probably have had to reveal how it calculates its official inflation figure, which is manipulated so that it hovers at around a third of the true rate. Ms Fernández remains unwilling to reveal precisely how her officials doctor Argentina’s economic statistics.

If Ms Fernández hoped that her decision would calm investors’ nerves, she appears to have been mistaken: the spread between the interest rates on Argentina’s bonds and US Treasury notes actually increased on the day she made the announcement. The markets remain jittery because Argentina’s unpaid obligations to the Paris Club were in fact among the least of its worries. The government still refuses to negotiate with the private holders of $20 billion of its bonds who held out against the country’s harsh debt restructuring in 2005, a decision that prevents it from borrowing on the international capital markets. It continues to impose strict price controls and hand out lavish energy and transport subsidies. And it suffers from a yawning credibility gap, due to lies about the inflation rate

-Satisfying the creditors