John Taylor’s rule for setting interest rates provides a framework for studying the global monetary policy generated by individual countries pursing their own policy goals. The study reflects the global nature of monetary policy by modeling an aggregate short-term interest rate as a function of measures of worldwide inflation and the GDP gap. Multiple specifications are estimated to correspond to past studies of the U.S. relationships between these variables. The authors find that Taylor rule is a useful tool for characterizing the global monetary environment as his equation provides a good fit to the data in every specification explored by the authors. However, the international response to inflation is slightly less robust despite claims of inflation targeting by the bulk of the larger economies in the sample. (JEL F33)

Introduction

As each country pursues its monetary agenda, what is the nature of the resulting global monetary policy? Applying John Taylor’s rule for setting interest rates helps to answer this critical policy question. The “Taylor Rule” presents the Federal funds rate as a simple linear function of the inflation rate and the GDP gap [Taylor, 1993]. Researchers have taken his simple rule, which prescribes policy, and used multiple regression techniques to estimate what weights the monetary authorities actually use in setting interest rates. They find that the rule’s recommendations have come very close to the actual policies pursued by the Fed in the recent past [Taylor, 1993; Judd and Rudebusch, 1998]. Earlier monetary regimes followed far different paths [Spencer and Huston, 2002].

The formulation of monetary policy has become increasingly complicated. The relaxation of restrictions on the flow of money among countries has made the monetary policies of individual countries more interdependent. Thus, the three variables in Taylor’s Rule are now less under the control of individual countries. For example, when capital flows are unfettered, interest rates around the world tend to move together [van der Ploeg, 1995]. As a result, efforts to unilaterally change U.S. policy rates become more difficult. Inflation, too, can be a shared experience as monetary expansion in one country spills over into other countries [Hamada, 1985]. (1) The GDP gap is also affected by the policies of other countries. For example, U.S. monetary policy clearly affects the GDP gaps of its major trading partners.

The study presented here reflects the global nature of monetary policy by modeling an aggregate short-term interest rate as a function of measures of worldwide inflation and the GDP gap. The results facilitate judgments about the implicit monetary policies of the world. That is, as each country pursues its own monetary agenda, what is the nature of the aggregate monetary policy that is produced? This is a critical question for monetary policy making. Since a country’s actions have spillover effects for other countries, it is not clear that uncoordinated monetary policies produce optimal worldwide results.

Replicating U.S. studies at the international level demonstrates that the Taylor Rule is a useful tool for characterizing the global monetary environment as his equation provides a good fit to the data in those specifications explored by the authors. At the world level, however, the aggregate of central banks reacts less to inflation than does the Federal Reserve. The inflation target may have become more important to central banks, in total, in the 1990s but the evidence is not strong.

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.

With the United States in recession, China has noted that their exports have fallen over 35% by their estimates, although global economic analysts, and even the factors considered when reporting the Baltic index show it to be more like 50%.

Meanwhile, China has claimed that they have achieved 7 to 8% growth in 2009; that simply isn’t so, they are making up numbers, but since they own the media, they can control what is said. But you can’t fool all the investors all of the time, and a 25% hit in the Shanghai index shows a completely different story.

Did the Chinese president shoot himself in the foot by condemning US monetary policy at both the Davos World Economic Forum and the BRIC Conference? If you will recall at the Brazil-Russia-India-China meeting, the Chinese president stood with the leaders of those other nations and suggested that perhaps, we need a different global currency than the US dollar.

That is completely outrageous, as if the Russian Ruble, or the Chinese Yuan could be a replacement currency, and even if they knew currency was created, who in the WTO would trust using it, not me. If China is upset with US monetary policy, then perhaps China should change some of its policies for free trade, and the way it float currency.

China has taken advantage of the United States trading policies and caused problems for their greatest trading partner. If anyone is to be blamed for what has happened, it really would be China. If the Chinese do not stop talking trash about the United States, then the US consumer will turn on China and boycott all of their products.

Nothing could be worse for the future of China that, because if those peasants don’t get some work soon they are going to starve, then they will riot, and then they will overthrow the government of China. Historically that’s what happens, and just because we live in the 21st century does not mean it cannot happen today.

The United States and China are friends, and the Chinese government needs to start acting as if it is a friend. That is if they want to continue their GDP growth and ever reach Super World Power Status. Please consider all this. Not long ago, I mentioned this to Guang Wu, the author of a new book; “China: Has the Last Opportunity Passed by!?” and he said there are many challenges that lie ahead for their great nation, and nothing was set in stone, and all issues should be discussed.

Wealth management can be exemplified through self-governing advisors or huge corporate entities such as Citigold of Citibank and the other extensions regarding services relating to retail banking designed for focusing on customers dealing with retail worthy of high nets. Customers of such type are likely to be categorized as ‘upper retail’ or ‘mass affluent’ clients owing to net worth of theirs, potential products owned by them from bank, assets of their under management, and many other segmentation methods.

Banks create exclusive services, branches, and other advantages for retaining or attracting the customers who can earn more profits in comparison with the customers detailing with retail banking. It should, however, be noted that clients of wealth management cannot be termed as ‘Private Banking’ clients as they do not justify the criteria of services of banking provided by private banks.

Background

The term ‘Wealth Management’ traces its origin in the 90s in the United States through Insurance Companies, banks, and Broker Dealers. The evolution of wealth management traces to high-net worth monetary consulting for people who happen to be topmost clients of any of the firms, to high level private banking which makes provisions for different kinds of investment, bank products, and insurance. With the passing of Glass-Steagall Act in the year 1999, monetary firms have been able to make arrangements for all the 3 services from a single office.

With emergence of wealth management in the form of professional service, along with career opportunity, educational programs like AAFM, i.e. American academy of Financial Management certified by CWM and Chartered Wealth Manager plan are arranging for modified wealth management training to individuals and corporations alike. Wealth Management is used to serve the affluent community, along with Chartered Monetary analysts, certified managers of wealth, Public Accountants, government-licensed lawyers, insurance professionals, etc.

Criteria for various countries

In the US, only CPAs and lawyers possess the license provided by government for providing advice related to tax or legal matters on complicated wealth management, tax law, estate planning, retirement, or even other legal matters like divorce or business management.

In Australia, the rules regarding wealth management are such that only those advisers who qualify under PS 146, i.e. Policy Statement no.146, outlined under Financial Services Reform Act of the year 2001, administered and governed by ASIC, i.e. Australian Securities Investments Commission are entitled to provide advice regarding financial products to the retail clients.

Job profile

People engaged in the wealth management generally work for brokerage firms, investment banks, accounting firms, law firms, trust departments, consumer banks, or portfolio management and investment firms. Smaller ones like registered advisors might also provide broad array regarding services pertaining to family and office.

Products dealt with in wealth management include stock trading and stocks, investments linked with equity, derivatives and products relating to structured investment, foreign exchange, unit trusts and mutual funds, investments and management of property, etc. Alternative investments with respect to wealth management include art, wine, precious metals, etc.