Category Archives: Federal Reserve

Why Bernanke should be reconfirmed

Econbrowser readers are well aware that there are a number of issues on which I have concerns about some of the decisions the Fed has made, such as
dropping the ball on regulation ([1],
[2]),
keeping interest rates too low for too long over 2003-2005 ([1],
[2]),
taking some real risks with the Fed’s new balance sheet ([1],
[2],

[3]
), and
pretending the Fed had nothing to do with the commodity price boom of 2008 ([1],
[2]). Notwithstanding, there is no question in my mind that Bernanke should be reconfirmed as Chair of the Federal Reserve Board. Here’s why.

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Links for 2010-01-13

Stuart Staniford, who earlier had been persuaded that global oil production might have already peaked, now comments on the potential for increased production from Iraq to push the peak up to a decade down the road.

King Banaian on disturbing developments in Argentina and Venezuela.

Economists comment on the role of the Fed in the housing bubble. Two in particular worth emphasizing:

Marvin Goodfriend: Interest rate policy was appropriately stimulative in the 2002-3 period. But rates should have been raised less mechanically and more aggressively in 2004-5 on grounds of the usual macroeconomic conditions…. A somewhat tighter stance of interest rate policy then could have cut off the last year or so of the house price appreciation and prevented the worst part of the subsequent adjustment.

Mark Gertler: If we could go back in history and make one policy change, I’d go after sub-prime lending. Absent non-prime lending, the likely outcome of the housing correction of 2007 would have been a mild recession like 2000-2001, and not the debacle we experienced.

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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