Independence, Transparency and Accuntability

Ben Bernanke

Economic Policy: Lessons from History

At the 43rd Annual Alexander Hamilton Awards Dinner, where was honoring with the Hamilton Award, Ben Bernanke drew four relevant lessons from the financial collapse of the 1930s:

1) Economic prosperity depends on financial stability

2) Policymakers must respond forcefully, creatively, and decisively to severe financial crises - e.g. SCAP

3) International crises require and international response

4) History is never perfect guide – "History does not repeat itself, but it can rhyme"

Bernanke vs. Taylor

Too low for too long fight

From Bernanke's AEA Speech

"[…] The alternative Taylor rule (that replaces the current rate of inflation on the right-hand side with a forecast of inflation over the current and subsequent three quarters) prescribes a path for policy that is much closer to that followed throughout the decade, including recent years. In other words, when one takes into account that policymakers should and do respond differently to temporary and longer-lasting changes in inflation, monetary policy following the 2001 recession appears to have been reasonably appropriate, at least in relation to a simple policy rule."

Taylor’s disagreement

"[…] The speech was largly an attempt to refute the now commonly held view that the Fed held interest rates too low for too long in 2002-2005. I was in Atlanta and though I could not go to the speech I read it afterwards and expressed by disagreement first in a Bloomberg interview with Steve Matthews and later in a CNBC interview with Larry Kudlow and will follow up with more details; note that a working paper prepared by seven Fed Board staff was released just before the speech. Others have raised questions about the speech from a variety perspectives […] "

Why TIME chose Ben Bernanke

How the FED works

"The right reform for the Fed"

En The Washington Post Ben Bernanke apunta "The right reform for the Fed" - Now more than ever - [...] needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.

Adicionalmente:

"Working with other agencies, we have toughened our rules and oversight. We will be requiring banks to hold more capital and liquidity and to structure compensation packages in ways that limit excessive risk-taking. We are taking more explicit account of risks to the financial system as a whole."

"We are also supplementing bank examination staffs with teams of economists, financial market specialists and other experts. This combination of expertise, a unique strength of the Fed, helped bring credibility and clarity to the "stress tests" of the banking system conducted in the spring. These tests were led by the Fed and marked a turning point in public confidence in the banking system."

"There is a strong case for a continued role for the Federal Reserve in bank supervision. Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks, as demonstrated by the success of the stress tests."

Source: The Washington Post

Bernanke's Outlook for the Economy

"On the Outlook for the Economy and Policy" by Ben Bernanke

"How the economy will evolve in 2010 and beyond is less certain. On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup--including a reduced pace of inventory liquidation and limited-time policies such as the 'cash for clunker' program--are likely to provide only temporary support to the economy. On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad."

"My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds--in particular, constrained bank lending and a weak job market--likely will prevent the expansion from being as robust as we would hope."