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May 12, 2009
Global Indicators and Macroeconomics
By Cindy Ivanac-Lillig
I recently wrote a short blog entitled, “Students of Global Finance,” in which I asked if the economic indicators the Fed and other central banks use are still relevant and whether or not this financial crisis has shown them to be insufficient. A reader responded to the entry and briefly discussed adding indicators that would relate to more broad/global credit levels as well as asset price levels.
There is an interesting commentary out today from a former deputy governor of the Bank of England, John Grieve, entitled, “Central Banks Need to Avoid Fighting the Last War.” The article basically states that monetary policy orthodoxy – that focusing on output gaps and price stability will lead to macroeconomic stability – not only has been insufficient but has been proven ineffective during this crisis. Mr. Grieve states, “Neither inflation nor the estimated output gaps in Europe and the U.S. in 2006-2007 suggested we were on the verge of economic meltdown.” Read Mr. Grieve’s comments.
What do all think? Do you agree with Mr. Grieve? Have modern macro models scored an ‘F’ and therefore not worth saving or do they just need to be tweaked?
Posted by Cindy at May 12, 2009 8:45 PM
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