Federal Reserve System

The Fed's Exit Strategy Could Be Graceful
December 18, 2009

There's been much hullabaloo over the Fed's ability to quickly remove the hundreds of billions of dollars it has pumped into the financial system after the economy recovers, but before the increased money supply sparks inflation. I and others have argued against panic, pointing to the Fed's new ability to pay interest on reserves as way to divorce money from monetary policy. And now a new study from New York Fed economists Morten Bech and Elizabeth Klee gives some quantitative support for this view: ...the results in this paper suggest that a graceful exit is indeed possible.

Worth Reading
December 17, 2009

Bernanke explains (unconvincingly) why the Fed won't consider an inflation target. Bob McTeer on why we should've been more optimistic about TARP. Paul Smalera takes a shot at refuting Matt Tiabbi's latest. On the limits of Paul Samuelson's theories. The WSJ obviously hasn't been reading my posts on walkaways. Does publicizing suicides cause more people to end their lives?

Should Bernanke Be Time's Person of the Year?
December 17, 2009

Before I answer that question, let me recommend Mike Grunwald's excellent cover story for the Person of the Year issue. It's a great introduction to Bernanke for readers who aren't economics or finance nerds, but you'll find it compelling even if you are such a person. I especially agree with Grunwald's verdict on Bernanke as crisis-manager: None of this was pretty, and reasonable people can disagree about the judgment calls. The Fed is supposed to lend only against safe collateral; the Bear and AIG deals clearly crossed the Rubicon into risk.

Worth Reading
December 16, 2009

Bernanke first Fed chair to be named Time's Person of the Year. Luigi Zingales wants targeted Tobin tax on short-term debt. Andrew Gelman rips into Steve Levitt's statistical thinking. Citigroup given huge tax break in deal to exit TARP. Does economics need peer-reviewed journals? Nearsightedness is 66 percent higher now than in the early 70's.

Worth Reading
December 14, 2009

Former Fed staffer criticizes both Greenspan and Volcker. Links roundup on Paul Samuelson's death. Fama and French on whether stocks are more volatile in the long run. Columbia Prof. Charlie Calomiris's bank is taken over by the Feds. Why elder care involves women taking care of other women.

UPDATED, 12.12: Wall St. Reform Bill Passes the House
December 11, 2009

Looks like it passed with almost everything intact--consumer protection agency, resolution authority, systemic risk provisions, etc. The only thing that looks slightly ominous to my eyes is the derivatives piece.

...Or Is Goldman Still Getting the Last Laugh?
December 11, 2009

Justin Fox is unimpressed with the latest Goldman bonus manuever, in which the top 30 Goldman execs would get their bonuses in so-called "shares at risk" rather than cash, and the shares could be clawed back if the execs turn out to have placed some costly bets: Yawn. Bonuses for top management at Goldman were already paid out mostly in stock. Goldman already used clawbacks to make sure it wasn't paying for ephemeral performance. Personally, I like the idea of a corporation that pays out half its revenue as employee compensation. If only more companies did that!

Worth Reading
December 09, 2009

Will payroll tax overtake personal income tax for first time? Treasury extends TARP through next October. Might payday loans actually improve well-being? Post-Dubai World shock waves reach Union Square, NY. Colbert sends up the Fed.

Would a Weaker Dollar Lead to a Stronger Economy?
December 08, 2009

When it comes to the value of the dollar, there are clear trade offs between American export competitiveness and import prices. How these opposing forces balance out nationally and across regions is the subject of a great deal of debate but surprisingly little empirical work. Paul Krugman, in a recent post, predicts advantageous outcomes if the dollar depreciates but cites no convincing evidence. Dani Rodrik’s recent paper, which is the most solid and relevant econometric work I’ve seen on the subject, finds that an under-valued currency increases economic growth.

Pricing the Advantage of Being "Too Big to Fail"
December 07, 2009

How much is it worth to banks to grow in size and complexity in order to become systemically important? Getting a handle on this number could be important if we decide to tax bank size in order to deal with the too-big-to-fail (TBTF) problem. In a new Philadelphia Fed paper, Elijah Brewer and Julapa Jagtiani propose a clever approach to putting a value on the TBTF premium: If there is a significant value in achieving TBTF size, to capture expanded safety net access, banking organizations should be willing to pay more for those acquisitions that would enable them to reach such a size.