Why Did the Chinese President Condemn US Monetary Policy at Davos and the BRIC Conference

When we start looking at the political posturing around the world, we see world leaders and their advisors making serious mistakes. The President of China made a huge mistake when he condemned the United States of America at the Davos World Economic Forum. Now, it is true that there were many people upset with the Credit Default Swaps, and to the Mortgage Bundles that helped bring down the global economy.

Still, the president of China owes the United States a great sense of gratitude. If it were not for the US middle class consumer, China could not have experienced the 10% GDP growth year-over-year that they have for the last two decades. In fact, China would not have the third of fourth largest GDP of any nation on this planet if it weren’t for the United States buying all of their exports.

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Revive Lincoln’s Monetary Policy – An Open Letter to President Obama

Dear President Obama:

The world was transfixed on that remarkable day in January when, to poetry, song, and dance, you gazed upon Abraham Lincoln’s likeness at the Lincoln Memorial and searched for wisdom to navigate these difficult times. Indeed, you have so many things in common with that venerable President that one might imagine you were his reincarnation in different dress. You are both thin and wiry, brilliant speakers, appearing on the national stage at pivotal times. Fertile imaginations could envision you coming back dressed in that African heritage you freed, to help heal the great scar of slavery and prove once and for all the proposition that all men are created equal and can achieve great things if given a fighting chance.

As Wordsworth said, however, our birth is but a sleep and a forgetting; and if that is true, you may have forgotten a more subtle form of slavery from which Lincoln tried less successfully to free his countrymen. You may have forgotten it because it has been omitted from our popular history books, leaving Americans ill-equipped to interpret the lessons of our own past. This letter is therefore meant to remind you.

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Uncertainty and monetary policy rules in the United States

“Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape” (Greenspan 2003).

Uncertainty is a central issue in monetary policy, as the quote from Alan Greenspan above illustrates. Empirical models, however, rarely take account of this, effectively assuming that policymakers ignore uncertainty. The evident focus of policymakers on uncertainty suggests that this assumption is invalid and therefore that empirical models of monetary policy must account for uncertainty. This article considers the effects of uncertainty about the true state of the economy on monetary policy, estimating a monetary policy rule that allows for this.

Our empirical model combines elements of Svensson’s (1997) model of inflation forecast targeting with models drawn from the theoretical literature on optimal monetary policy when there is uncertainty about the true state of the economy, most prominently Svensson and Woodford (2003, 2004) and Swanson (2004). In existing models of monetary policy under certainty, monetary policy affects inflation and the output gap directly, so it is optimal for policymakers to use these variables in forming monetary policy. This is the basis for the Taylor rule (Taylor 1993) model of monetary policy and its subsequent refinements (e.g., Woodford 2003).

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