Home' Trinidad and Tobago Guardian : August 26th 2013 Contents economy was picking up steam. A stronger United
States should spell stronger demand for exports
from emerging economies, including Brazil.
Landau argued that central banks in advanced
economies had cooperated successfully during the
2007-2009 financial crisis, when they coordinated
on interest rates cuts and set up currency swap
lines. As a result, they could do so again in the
future with an eye toward moderating the spillovers
from their actions.
But, he acknowledged it would be difficult to
get agreement to subordinate national priorities
in advance, a point echoed by others. "How much
should domestic monetary policy restrain itself for
the stability of global (conditions)?" asked Allan
Meltzer, a Fed historian and professor at Carnegie
Mellon University. "That s a fundamental problem
for monetary policy."
Lockhart said the Fed had a legal obligation to
focus on domestic US goals, but allowed that there
could be circumstances when the international
impact of its actions could be taken into account.
"If a policy maker in the United States believed
that the global consequences of taking a domestic
action would spill back over into the U.S. economy
in a very negative way, that clearly is within the
scope of consideration," he said in the interview.
There was also discussion about the need for
emerging market nations to develop tools to control
credit flows. Without such tools, these countries
could lose the ability to control domestic financial
conditions with monetary policy.
But Terrence Checki of the New York Fed cau-
tioned that monetary policy may not be the best
way to deal with financial excesses, and others
said domestic priorities should not be subordinated
to international obligations.
Don Kohn, a former Fed Vice Chairman and a
candidate for the top job when Fed Chair Ben
Bernanke s term ends in January, countered the
claim that monetary policy might be too loose
globally, citing elevated jobless rates in rich coun-
"One of the ways that monetary policy of the
United States was transmitted was by resistance
to exchange rate appreciation in other countries,"
he said, voicing a familiar Fed argument that emerg-
ing economies could better absorb easy U.S. policy
if they allowed their own exchange rates to fluctuate.
Monday, August 26, 2013 www.guardian.co.tt Guardian
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Global financial stability is at risk as
central banks draw back from ultra-easy
policies that have flooded the world with
cash, because emerging markets lack
defenses to prevent potentially huge cap-
ital outflows, top officials were warned
Central bankers from around the world,
devoting the second day at their annual
Jackson Hole policy retreat to the threats
posed by global liquidity, heard two aca-
demic papers on the challenges, sparking
a debate on actions and on coordination.
Bank of Japan Governor Haruhiko Kuro-
da told the audience, which included top
officials from advanced as well as emerging
economies, that the bold measures he had
championed to spur his nation s moribund
economy were bearing fruit.
"The bank s (policy) has already started
to exert its intended effects," Kuroda said.
The Bank of Japan has embarked on an
aggressive bond-buying campaign to lift
inflation in his country to two per cent.
Easy money policies used to depress
interest rates in Japan, Europe and the
United States had sparked a flood of capital
into emerging markets as investors sought
higher returns. Now, however, the US Fed-
eral Reserve has said it plans to reduce
its bond-buying stimulus by year end,
with an eye toward drawing it to a close
Federal Reserve Bank of Atlanta Pres-
ident Dennis Lockhart made clear that
tapering could begin next month, provided
the economic news between now and then
was not dramatically bad.
"I can get comfortable with September,
providing we don t get any really worri-
some signals out of the economy between
now and the 18th of September," he told
Reuters in an interview, referring to the
Fed s next meeting, which is on September
Concerns over Fed tapering has sparked
an exodus of cash from emerging markets,
including India and Brazil, whose curren-
cies and stock markets suffered steep loss-
es this week.
"Amplifications, feedback loops and
sensitivity to risk perceptions will com-
plicate the task of exit and necessitate
very close and constant dialogue and
cooperation between central banks," Jean-
Pierre Landau, a former deputy governor
of the Bank of France, warned in his pres-
Turkish Central Bank Governor Erdem
Basci attended the conference, but his
Brazilian counterpart, Alexandre Tombini,
canceled in order to stay home and deal
with the crisis.
Tombini was replaced in Jackson Hole
by his deputy, Luiz Pereira, who argued
that a tapering of the Fed s bond purchases
might actually be a net benefit for emerg-
ing economies if it signaled that the US
Central bankers debate risks
of withdrawing global liquidity
Bank of Japan Governor Haruhiko Kuroda.
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