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My bottom line is that monetary policy should react to rising prices for houses or other assets only insofar as they affect the central bank's goal variables - output, employment, and inflation.
The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level.
While monetary policy can contribute to growth by supporting a durable expansion in a context of price stability, it cannot reliably affect the long-run sustainable level of the economy's growth.
Low interest rates are usually attributed to low inflation, weak economic growth and super easy monetary policy. But there's another deep-seated factor that doesn't get much attention: demographics.
Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials.
Audit the Fed is a bill that would politicize monetary policy, would bring short-term political pressures to bear on the Fed. In terms of openness about our financial accounts, we are extensively audited.
Well, I think as long as people are talking about stimulus, I think the Fed will be thinking about cutting rates because monetary policy is the better way to go because you can turn it on and turn it off.
Monetary policy is like juggling six balls... it is not 'interest rate up, interest rate down.' There is the exchange rate, there are long term yields, there are short term yields, there is credit growth.
When there's downward pressure on growth, one choice is to adjust economic policy, increase deficits, relax monetary policy. That might have a short-term benefit, but may not be beneficial for the future.
The Global Financial Crisis and Great Recession posed daunting new challenges for central banks around the world and spurred innovations in the design, implementation, and communication of monetary policy.
Stronger productivity growth would tend to raise the average level of interest rates and, therefore, would provide the Federal Reserve with greater scope to ease monetary policy in the event of a recession.
My preference is for the Federal Reserve to be the systemic risk regulator, because the responsibility for identifying and limiting potential problems is a natural complement to its role in monetary policy.
As financial markets continue to broaden and deepen, the behavior of asset prices will play an important role in the formulation of monetary policy going forward, perhaps a more important role than in the past.
Europe unified its monetary policy through the euro before it unified politically, therefore sustaining member countries' abilities to pursue the kind of independent fiscal policies that can strain a joint currency.
The phrase 'perception is reality' is overused generally. But perception can be reality in monetary policy. The bond market doesn't act merely on what it sees. It acts on what it expects of the Fed or the government.
I think that is a very important milestone in our economic history that the monetary policy is now determined through a committee process where there are both independent committee members and representation from the RBI.
That means following a very restrictive fiscal and monetary policy which will squeeze the monopolies and cut their subsidies. On the micro level we will allow other economic agents, both domestic and foreign, to compete with them.
We need to keep in mind the well-established fact that the full effects of monetary policy are felt only after long lags. This means that policy makers cannot wait until they have achieved their objectives to begin adjusting policy.
The Federal Reserve's monetary policy objective is to foster maximum employment and price stability. In this regard, a key challenge is to assess just how far the economy now stands from the attainment of its maximum employment goal.
By the beginning of the 20th century, the debate about monetary policy and the nation's financial system had been going on for over a century. Increasingly, the shortcomings of the existing system were causing too much harm to ignore.
Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels.
I think that sharing information about our economies, the way that the central banks do in Basel and other forums, is quite useful. But it's sharing information. It's not coordinating policy. It's not coordinating a single monetary policy.
If the public understands the central bank's views on the economy and monetary policy, then households and businesses will take those views into account in making their spending and investment plans; policy will be more effective as a result.
Funnily enough, the Federal Reserve produced comics about monetary policy, and there is a good comic book guide to microeconomics and macroeconomics out there. But it is not really appropriate for younger readers; it is really aimed at economics students.
Monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model but, instead, reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.
The Fed's organization reflects a long-standing desire in American history to ensure that power over our nation's monetary policy and financial system is not concentrated in a few hands, whether in Washington or in high finance or in any single group or constituency.
The fallacy of monetary policy in the U.S. is to believe this money will go to the man on the street. It won't. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols... Very happy. Very good for the Fed. Congratulations, Mr. Bernanke.
Corporate totalitarianism means total control by corporate interests. If they want a war, they get a war. If they want GMOs, they get GMOs. If they want fracking, they get fracking. If they want big banks to control our monetary policy, big banks control our monetary policy.
Transparency concerning the Federal Reserve's conduct of monetary policy is desirable because better public understanding enhances the effectiveness of policy. More important, however, is that transparent communications reflect the Federal Reserve's commitment to accountability within our democratic system of government.
If European monetary policy is run according to German interests, huge structural imbalances will accumulate. The Germans will then either have to pay to correct those imbalances or agree that the euro should not be run primarily according to German interests. If they are unwilling to do either of those things, the euro can't survive.
Economics should be defined in terms of what it is about. It should be about how people produce things, how people exchange them, how people earn income, how they pay taxes, how the government provides infrastructure with tax revenue, and how it conducts monetary policy. The subject has to be defined in terms of the object of inquiry.
The major economic policy challenges facing the nation today - pick your favorites among the usual suspects of low public and household savings, concerns about educational quality and achievement, high and rising income inequality, the large imbalances between our social insurance commitments and resources - are not about monetary policy.
Hank Paulson, obviously, had spent his career on Wall Street, had a deep knowledge of the Street, and also was a very forceful personality, had a very good relationship with the president, and was in a very different place, for example, than Ben Bernanke, who is an academic, quiet guy: spent most of his time thinking about monetary policy.
In 1977, when I started my first job at the Federal Reserve Board as a staff economist in the Division of International Finance, it was an article of faith in central banking that secrecy about monetary policy decisions was the best policy: Central banks, as a rule, did not discuss these decisions, let alone their future policy intentions.