Tags: bernanke | taylor | economy | bubbles

Taylor: Bernanke Policy Will Blow More Bubbles

Friday, 15 Jan 2010 08:18 AM

Federal Reserve Chairman Ben Bernanke wants to prevent future bubbles with new regulations, says Stanford economist John Taylor, and the result is likely to be a new boom-bust cycle.

"Clearly the Fed missed excessive risks on and off the balance sheets of the banks that it supervises and regulates," Taylor writes in The Wall Street Journal.

"That policy needs to be corrected ... it is wishful thinking that some new and untried macro-prudential systemic risk regulation will prevent bubbles."

In his recent speech to the American Economic Association, Bernanke focused most of his time on a well-known policy benchmark based on Taylor’s own research known as the Taylor rule that

“This rule calls for central banks to increase interest rates by a certain amount when price inflation rises and to decrease interest rates by a certain amount when the economy goes into a recession,” Taylor explains.

“By this measure the interest rate was too low for too long, reducing borrowing costs and accelerating the housing boom,” he notes.

“You do not have to rely on the Taylor rule to see that monetary policy was too loose.”

U.S. Federal Reserve monetary policy is unlikely to be pushed off course by December's surprising job losses, a senior Fed official said, Reuters reports.

St. Louis Federal Reserve Bank President James Bullard told reporters after a speech at the Global Interdependence Center the December jobs report showing 85,000 jobs were shed and unemployment steady at 10 percent would not change the Fed's policy.

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Federal Reserve Chairman Ben Bernanke wants to prevent future bubbles with new regulations, says Stanford economist John Taylor, and the result is likely to be a new boom-bust cycle. Clearly the Fed missed excessive risks on and off the balance sheets of the banks that it...
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2010-18-15
Friday, 15 Jan 2010 08:18 AM
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