Post by account_disabled on Feb 22, 2024 6:05:00 GMT -5
Complaining that central bankers are squeezing borrowers is a bit like complaining that weight-loss drugs make your face look haggard. Looking pinched is part of the process. Officials at the Federal Reserve, the Bank of England and the European Central Bank certainly show no signs of regret as they near the end of their tightening cycles. Even if they have gone too far and end up crushing the economy, central bank tradition is that any short-term pain should eventually go away. A comforting thought, but increasingly questioned. It is widely believed that while monetary policymakers can turn an economy up or down in the short term, over longer periods they are virtually powerless. As expectations adjust, trying to boost the economy with easy money will end in tears and inflation.
You can't permanently enrich a country simply by handing out more banknotes," explained Bank of England Deputy Governor Ben Broadbent last October. If you want real effects, you have to Pakistan Phone Number change real things. For decades, economists have delved into this central assumption. In the 2010s, slow productivity growth revived suspicions that authorities were being naïve about their own power. Luca Fornaro of the Barcelona School of Economics and Martin Wolf of the University of St Gallen theorized this year that higher interest rates discouraged innovation and curbed potential growth, by raising the cost of capital and curbing expected demand.
Showing that something is possible in a model is easier than proving it with data. This is particularly true when there is not much data and what is available is riddled with uncertainty. Central bankers change interest rates in response to changes in the macroeconomy. How, then, can we be sure that the weak growth a decade later is really caused by monetary policy and not by what it was reacting against? A couple of recent articles have been successful. The first is by three economists attached to the Federal Reserve Bank of San Francisco and studies countries that historically fixed their exchange rates. In fact, these economies absorb monetary policy shocks from abroad. That means one can be more confident that any subsequent changes will be independent of developments in the country.
You can't permanently enrich a country simply by handing out more banknotes," explained Bank of England Deputy Governor Ben Broadbent last October. If you want real effects, you have to Pakistan Phone Number change real things. For decades, economists have delved into this central assumption. In the 2010s, slow productivity growth revived suspicions that authorities were being naïve about their own power. Luca Fornaro of the Barcelona School of Economics and Martin Wolf of the University of St Gallen theorized this year that higher interest rates discouraged innovation and curbed potential growth, by raising the cost of capital and curbing expected demand.
Showing that something is possible in a model is easier than proving it with data. This is particularly true when there is not much data and what is available is riddled with uncertainty. Central bankers change interest rates in response to changes in the macroeconomy. How, then, can we be sure that the weak growth a decade later is really caused by monetary policy and not by what it was reacting against? A couple of recent articles have been successful. The first is by three economists attached to the Federal Reserve Bank of San Francisco and studies countries that historically fixed their exchange rates. In fact, these economies absorb monetary policy shocks from abroad. That means one can be more confident that any subsequent changes will be independent of developments in the country.