Tags: Nordhaus | Bernanke | Fed | speech

Bernanke Gives Valedictory Speech — Part I

By    |   Tuesday, 07 Jan 2014 06:36 AM

On Jan. 3, outgoing Federal Reserve Chairman Ben Bernanke made a lengthy, sometimes tedious, address to the American Economic Association titled "The Federal Reserve: Looking Back, Looking Forward."

The speech was based on his reflections on the changing role of the Fed to an appreciative audience of his fellow economists as he prepares to leave office at the end of this month. The occasion was the annual meeting of the association, held not in Las Vegas but in Philadelphia, which was home to the predecessors of the Fed, the First and Second Banks of the United States.

In his introduction, which itself was fairly long, William Nordhaus, the famed Yale economist and climate change exponent, noted that the meeting had brought 11,000 or 12,000 economists to Philadelphia, along with a snowstorm and an entourage from the NFL preparing for the Eagles' playoff loss the following day.

Nordhaus mentioned several scholarly articles Bernanke has written that probably proved useful at the Fed — on the credit channel during the Great Depression, the potential of inflation targeting and the one he said his students liked most, "The Global Savings Glut."

He quoted from a speech Bernanke had delivered last year to the graduating class at Princeton: "Economics is a highly sophisticated field of thought. It is superb at explaining to policymakers exactly why the choices they made are wrong. About the future it is not so helpful."

Turning to the 2008 episode of the ongoing financial crisis, Nordhaus called it "a rare confluence of political and economic shocks, a category 5 financial hurricane." Staying with that analogy, Nordhaus lauded Bernanke for steering the proverbial ship of the economy through the storm.

Nordhaus asserted that because there were no tools on the shelf ready to employ in such a circumstance, Bernanke had to be very creative and talented, and the nation was fortunate he was at the helm.

Bernanke himself said that the tools he fashioned were based on established principles of central banking expounded, during the 19th century by the legendary Walter Bagehot, who held that the central bank "should lend early and freely to solvent institutions."

While the speech sometimes seemed like a stapled compilation of "Quotations from Chairman Ben" over the past several years, no audience would be more patient and sympathetic than the most distinguished economists in America.

The speech was followed by comments from two prominent economists, Kenneth Rogoff of Harvard and Anil Kashyap of the University of Chicago's Booth School.

The theme of Bernanke's speech was the accomplishments of the Fed during his tenure and things that remain to be done, covering four areas: 1) the Fed's commitment to transparency and accountability, 2) financial stability and financial reform, 3) monetary policy and 4) prospects for the U.S. and global economies.

The question of how policy failures by the Fed and Treasury contributed to, or even caused, the crisis was not within the scope of this speech. The next two articles will cover the Bernanke speech, and the last article in the series will deal with the expert comments and offer some concluding remarks.

(Archived video can be found here; text of the speech can be found here.)

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Robert-Feinberg
On Jan. 3, outgoing Federal Reserve Chairman Ben Bernanke made a lengthy, sometimes tedious, address to the American Economic Association titled "The Federal Reserve: Looking Back, Looking Forward."
Nordhaus,Bernanke,Fed,speech
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2014-36-07
Tuesday, 07 Jan 2014 06:36 AM
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