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Stiglitz on the failures of policy

Stiglitz on the failures of policy
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First Published: Fri, Mar 25 2011. 11 04 PM IST
Updated: Fri, Mar 25 2011. 11 04 PM IST
Mumbai: Economists at the Federal Reserve of New York started a blog this week that could pose serious competition to “Macroblog”, a popular one on the macro-economy by the Federal Reserve Bank of Atlanta.
The International Monetary Fund (IMF) has also scaled up its blog-related activities and the iMFdirect blog has in recent weeks featured some of the brightest macro-economists sharing their thoughts on key takeaways from the Fund’s conference on macro and growth policies in the wake of the 2008 crisis.
We look at some posts from these blogs and more.
Liberty street economics
An interesting post on the Federal Reserve of New York’s blog uncovers the historical attempts at analysing financial crises. The post says: Most people know that financial crises are nothing new. But many of us may not know that attempts to represent them graphically have also been around. L. Merle Hostetler, former director of research of the Cleveland Fed, created a graphic presentation of American financial history from 1861 through 1938. Read more at: http://tinyurl.com/46qkcox
iMFDirect
Nobel Laureate Joseph Stiglitz sums up the conclusion of the IMF’s conference:
The most remarkable aspect of the recent conference at the IMF was the broad consensus that the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed. They failed to predict the crisis; standard models even said bubbles couldn’t exist—markets were efficient. Even after the bubble broke, they said the effects would be contained. Even after it was clear that the effects were not “contained”, they provided limited guidance on how the economy should respond.
Maintaining low and stable inflation did not ensure real economic stability. The crisis was “man-made”. While in standard models, shocks were exogenous, here, they were endogenous. Read more at: http://tinyurl.com/6l8vhtc
Meanwhile, in another post, Jose Vinals, the financial counsellor and director of the monetary and capital markets department at the IMF, writes that government bonds might never be seen in the same light again. Jose Vinals writes: The risk-free nature of government bonds, one of the cornerstones of the global financial system, has come into question as the global crisis unfolds.
One thing is now very clear: government bonds are no longer the risk-free assets they once were. This carries far-reaching implications for policy makers, central bankers, debt managers, and how the demand and supply sides of government bond markets function.
pramit.b@livemint.com
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First Published: Fri, Mar 25 2011. 11 04 PM IST