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Wednesday, August 31, 2005


Edward Hugh

Mark, you are clearly giving a lot of thought and consideration to all this. One of the funny things I note is the fact that from over in Europe Greenspan looks pretty good, whereas people in the US want to believe in Trichet. I have a short piece on this and I think I'll put it up as a post. In the bloomberg article this quote from Trichet caught my eye:

``This model has served us extraordinarily well,' said Trichet, 62, in an interview. A clearly defined monetary strategy ``reduces uncertainty about the central bank's ultimate motives, provides a stronger anchor for inflation expectations and makes it easier for the market to map the expected path of the policy rate.''

The issue really boils down to whether or not it is so desireable to reduce uncertainty to such an extent, given that the central bankers themselves may be uncertain about the evolution of the variables to which they are responding. I really admired Greenspan most when he kept people guessing. This made it difficult for the markets to front run him. This was Greenspan at his best. I think during the deflation scare period the accommodative policy was thoroughly justified, and I suspect many of his critics don't understand just what a headache deflation would have been. Fortunately he over estimated the extent of the danger, but this is only known post hoc.

Since we got into the 'measured increase cycle' he has been a lot more predictable, and this is where the magic has gone. The markets now can front run him, until and unless there has to be an abrupt change, then we will really see in the way people handle this just how successful predictability has been.

Edward Hugh

On the other hand there is the simple pragmatic detail that as a newborn institution with a relatively short history learning may need time, and the difference in emphasis may be related to this.

Incidentally you may find this paper, given at a recent ECB conference, interesting:


Pandora Braclets

I like how the charms professor is a bearded little elf with snowy white hair & in all the other movies is ala charlie chaplin?

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