In a June 23 commentary, University of Chicago economist Casey Mulligan argues that inflation would better for the economy than raising taxes.
Also on June 23, Harvard economist Martin Feldstein published a commentary arguing that neither inflation nor deflation are likely in the next few years, but he is puzzled as to why long-term Treasury rates are so low in the face of massive expected government borrowing.
In a June 22 note, Morgan Stanley economist Richard Berner examined Federal Reserve policy going forward. He is predicting a faster and more aggressive switch to a tighter monetary policy than the conventional view among economists.
In a June 14 speech, Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, explained an important evolution in bank operations with implications for monetary policy. Because securitized financial instruments had become such an important part of interbank lending, the illiquidity of this market in the wake of the financial crisis threatened to freeze the entire banking sector. Government bonds were needed to replace securitized loans so that normal interbank operations could continue.
Also on June 14, Federal Reserve Bank of San Francisco economist Glenn Rudebusch published an analysis of the Federal Reserve’s exit strategy from a policy of near zero interest rates. One problem he identifies is that interest rates are really not low enough to stimulate recovery. The so-called Taylor rule would require a negative nominal federal funds rate of minus five percent. But since nominal (market) rates cannot fall below zero, in effect the fed funds rate is five percent too high. Therefore, it may be many years before it would be appropriate for the Fed to raise the funds rate.
A June 2 paper by George Mason Law School professor Todd Zywicki took a critical look at efforts to cap fees on credit cards. He emphasizes the complexity of the market and possible unintended effects. Zywicki cites the case of Australia where caps on fees led to higher interest rates and reduced credit availability.
In the June issue of Finance & Development, Cornell University economist Eswar Prasad argues that increasing globalization is forcing central banks in advanced economies to operate more like those in emerging economies.
Also on May 19, the Federal Reserve Bank of St. Louis published an essay on monetization of the debt by the Federal Reserve. It argues that whether the Fed is engaging in monetization depends more on its motives than its actions.
The Congressional Budget Office issued a study in May examining the budgetary and subsidy cost to the Federal Reserve of actions taken during the financial crisis. CBO director Doug Elmendorf summarized the findings on May 24.
Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).
Previous posts:
June 28: Focus on China
June 25: Weekly Roundup
June 24: Focus on Global Imbalances
June 23: Focus on Sin Taxes
