The End of Gradualism?

Back in 2004, on the heels of the Fed’s tightening cycle, Ben Bernanke gave a speech in defense of “gradualism”—the idea that, under normal circumstances, economies are better served when central banks adjust their policy rates gradually, moving in a series of moderate steps in the same direction.


With monetary authorities around the world preparing for their exit, there are fears in some circles that a new Armageddon is in sight. Volatility could shoot up, it is argued, as investors try to figure out the impact of a synchronous global tightening on their respective asset classes—let alone the difference between, say, the effective fed funds rate and the interest on excess reserves!

Stopping the Leakages in China

I’m increasingly convinced that there’s a bunch of algorithms out there with instructions to trade as soon as the word “hike” appears on a Bloomberg headline. Doesn’t matter who hikes or what they hike—milliseconds later, the market reaction is all but predictable: Stocks down, dollar up, commodities down, Treasuries sell off.

Bringing Stability to the Stability and Growth Pact

With the financial crisis bringing formerly unglamorous professions into the spotlight (economists, accountants), a new one has come to claim its share: Statistics!

Last week, a report by the European Commission (the EU’s executive arm) on the egregious shortcomings of Greek budget statistics sent Greece’s sovereign CDS spreads to levels only below those of Dubai, Vennie and Argentina!

The Letter and the Spirit of Monetary Policy

If there was one major disappointment with Bernanke’s speech at the AEA meetings last weekend it was his choice to fight insular battles will equally insular arguments.

Part of the reason was tactics of course. Inane criticisms arguably deserve a commensurate response. So when you have somebody like (Stanford economist) John Taylor on a self-appointed mission to prove that his own Taylor rule can explain absolutely anything—from the Great Inflation, to the Greenspan put, to (coming soon!) life on other planets—, using the “enemy’s” own weapon to neutralize him is a cunning strategy.

Ben and his Avatar

I can’t help noting the coincidence of Bernanke’s nomination as both “Man of the Year” and “The Definition of Moral Hazard” in the same week as the release of Avatar… And while Ben has probably settled on which “body” he belongs to, representatives of the voting public have yet to make up their mind.

Greece Should Seek a Precautionary Standby…Now!

Eurozone bond markets have for years now been operating under the assumption of a new “impossible trinity” (1/): That you can’t have a single currency, a (virtually) independent fiscal policy and a no-bailout clause all at the same time.

This assumption has continued to prevail even after the recent budgetary shenanigans in Greece (and fiscal slippages also elsewhere in the eurozone), judging from the latest pricing of Greek sovereign CDS.

Monetary Policy Make-over

I’m about to take a break for a couple of months, maybe three, to accommodate my summer vacation, a work trip to Asia and a personal project I’ve just begun. But before I say “au revoir”, I wanted to leave you with the following thought… There is something inherently counterintuitive, if not absurd, in the […]