Author Archives: Menzie Chinn

Guest Contribution: Monetary Policy and Asset Bubbles in 2010

By Joseph E. Gagnon

 

Today, we’re fortunate to have Joe Gagnon, senior fellow at the Peterson Institute for International Economics, as a guest contributor.

In his speech at the American Economic Association yesterday, Ben Bernanke said that monetary policy played at most a small role in the U.S. housing bubble and that financial regulatory policy is the appropriate tool for preventing harmful asset price bubbles in the future. I agree with these conclusions, but I suspect that many do not, even within the world of central banking.

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The Prospects for Global Imbalances: A View from the IMF

Following up on recent posts ([1], [2], [3], [4], [5] [6]) Here’s another take on the prospects for resolving global imbalances, from Olivier Blanchard and Gian Maria Milesi Ferretti, “Global Imbalances: In Midstream?” Staff Position Note 09/29 (Dec. 22, 2009):

IV.B. Lower Global Imbalances in the Future

What will happen in the future depends on how long the factors we just listed will be in play [oil price decline, asset price busts, increase in home bias, the hit to durable consumption and investment goods demand].

Below is reproduced the IMF World Economic Outlook‘s October 2009 forecast for current account balances.

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How High Do Income Elasticities Have to Be to Explain the Recent Import Drop-off?

There’s been a debate over the cause of the trade flow drop-off, with varying explanations being offered. Broadly speaking, the explanations are (1) trade credit and credit crunch more broadly, (2) enhanced vertical specialization implying higher income elasticities, and (3) compositional effects (the trade dependent sectors were those most highly affected in the latest recession). Without necessarily offering definitive evidence one way or the other, I wanted to quantify the extent to which income elasticities had to be higher in order to rationalize the movements observed in US data.

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