A short, spicy and refreshing post by John Taylor, the famous economist of the well-known Taylor rule, about monetary policies and the Jackson Hole conference.
Please consider ‘A Less Weird Time at Jackson Hole?’.
Taylor ironizes about the rock star status of today’s central bankers and the importance of communication in their strategic framework.
Which strategy by the way? (emphasis ours)
“Paul Volcker chaired the Fed in 1982. He went to Jackson Hole, but he was not on the program to give the opening address, and no one was speculating on what he might say. No other Fed governors were there, nor governors of any other central bank. In contrast, this year many central bankers will be there, including from emerging markets. Only four reporters came in 1982 — William Eaton (LA Times), Jonathan Fuerbringer (New York Times), Ken Bacon (Wall Street Journal) and John Berry (Washington Post). This year there will be scores. And there were no television people to interview central bankers in 1982 (with the awesome Grand Teton as backdrop).It was clear to everyone in 1982 that Volcker had a policy strategy in place, so he didn’t need to use Jackson Hole to announce new interventions or tools. The strategy was to focus on price stability and thereby get inflation down, which would then restore economic growth and reduce unemployment. Some at the meeting, such as Nobel Laureate James Tobin, didn’t like Volcker’s strategy, but others did”
Another governance failure
Could it be that the ‘forward guidance bubble’ of unconventional monetary policies, which relies on communication, is about to burst ?
Taylor seems to have a clear take:
“I hope there is also a discussion of less weird policy, and in particular about the normalization of policy and the benefits of normalization. In fact, with so many central bankers from around the world at Jackson Hole, it will be an opportunity to discuss the global benefits of recent proposals to return to a rulesbased international monetary system along the lines that Paul Volcker has argued for.”
And its ‘unintended’ consequences
The ‘benefits of normalization’ … We couldn’t agree more.
– Normalization is already taking place
– Its benefits are difficult to accept as they imply some sort of recognition of policy mistakes
– Forward guidance has played a central role in unconventional monetary policies …
– … as a cheap and powerful way to ‘remote control’ financial markets.
– Jackson Hole could either be seen as another ‘forward guidance’ communication event
– or an opportunity to reconsider the legitimacy and the global benefits of the current monetary experience.
Taylor is right: this Jackson Hole could be a great governance exercise.
Unless the rock star music goes on …