Tue, Aug 27, 2013 - Page 15 News List

Fed officials rebuff coordination calls

GLOBAL PERSPECTIVE:With Fed Chairman Ben Bernanke not in attendance, the Kansas City Fed’s annual symposium focused its attention on international matters

Bloomberg

European Central Bank officials Ewald Nowotny and Panicos Demetriades split over whether renewed growth in the euro area meant there was still room for lower rates there.

Bean pushed back against the idea of taking into account foreign effects when setting policy.

“While I can accept the logic of this, I am afraid I do not think we know nearly enough about the magnitude — or even sign — of these spillovers to make this a viable option,” Bean told the conference.

“The best we can probably aspire to is directing monetary policies to achieving domestic price stability in a sensible manner and seeking to communicate our policy intentions as clearly as possible,” he said.

Former Bank of Israel governor Stanley Fischer said emerging markets may ultimately welcome the pivot away from excess liquidity.

“Dealing with those inflows of capital is a real problem because it can cause the exchange rate to appreciate,” he said. “A lot of countries, after a period of transition, will be very happy with the shift” to more normal capital flows.”

Academic papers presented at the event put the onus on emerging markets to insulate themselves.

Helene Rey, a professor of economics at London Business School, said emerging markets should use tools such as stress tests and leverage ratios to smooth disruptions caused by capital flows rather than blame larger countries.

Former Bank of France deputy governor Jean-Pierre Landau said policymakers should pursue regulation rather than coordination to temper the risks posed when investment flows easily into an out of economies.

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