Friday, August 31, 2012

Do something, anything!

As the financial world holds its breath and waits for Ben Bernanke's Jackson Hole speech, I offer for consideration this BIS research paper entitled The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross-Country Analysis, Here is the abstract [emphasis added]:
This paper assesses the macroeconomic effects of unconventional monetary policies by estimating a panel VAR with monthly data from eight advanced economies over a sample spanning the period since the onset of the global financial crisis. It finds that an exogenous increase in central bank balance sheets at the zero lower bound leads to a temporary rise in economic activity and consumer prices. The estimated output effects turn out to be qualitatively similar to the ones found in the literature on the effects of conventional monetary policy, while the impact on the price level is weaker and less persistent. Individual country results suggest that there are no major differences in the macroeconomic effects of unconventional monetary policies across countries, despite the heterogeneity of the measures that were taken.

Translation: The Fed may not necessarily be out of bullets. It just has to do something "unconventional" to expand its balance sheet. The effects were the same "despite the heterogeneity of the measures that were taken."

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

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1 comment:

Anonymous said...

Cam:the statement that the Fed must do something "unconventional" to positively impact employment is in stark contrast to a recent St.Louis Fed paper that noted:

"Little difference in economic performance during the past two decades…is consistent with the theoretical and empirical evidence that monetary policy has no permanent effect on real variables."


"The Efficacy of Monetary Policy: A Tale From Two Decades"

Their paper suggests the Fed is simply wasting money trying to effect the real economy. Cycnically I beleive the objective is not to help the economy but the financial institutions. But I'm a cynic.