Who is Ben Bernanke?
Although Bernanke had not shown much do distance himself from the Bushies policy-wise. Before he got involved with Bush, I would never have guessed that he was anything but a middle of the roader. Anyway, in terms of economic analysis, he seems to be laying the groundwork for an interesting rethinking of the economy. The following two Wall Street Journal articles offer two examples:
Ip, Greg. 2007. “Policy Makers at Fed Rethink Inflation’s Roots: Low Unemployment Now Is Believed to Play a Less Important Role.” Wall Street Journal (26 February): p. A 1.
“For decades, a simple rule has governed how the Federal Reserve views the nation’s economy: When unemployment falls too low, inflation goes up, and vice versa. But Fed officials have rethought that notion. They believe it takes a far bigger change in unemployment to affect inflation today than it did 25 years ago. Now, when inflation fluctuates, they are far more likely to blame temporary factors, such as changes in oil prices or rents, than a change in the jobless rate.”
“The new view “has profound implications,” says former Fed economist Brian Sack, now at Macroeconomic Advisers, a St. Louis-based forecasting firm. That doesn’t mean unemployment can be ignored. But it does mean that in the short run, a period of high or low joblessness would be less likely to alter the Fed’s view of inflation and trigger an immediate change in interest rates. A shift in public expectations of inflation, however, would carry more weight in the Fed’s calculations.”
“”Among the feet-on-the-ground Fed inflation forecasters, who do this for a living, there’s been a lot of concern for the last 10 years about whether there’s … less of a relationship between output and future inflation,” says Harvard University economist James Stock. “The accumulation of evidence occurs at a snail’s pace. The evidence now is a lot stronger.” Mr. Stock and fellow economist Mark Watson at Princeton University presented evidence to a Fed conference in late 2005 that inflation’s long-term trend has varied little since 1984, and that most fluctuations were the result of temporary disturbances, such as a change in energy prices.”
Ip, Greg. 2007. “Bernanke Talks on Inflation, Globalization.” Wall Street Journal (3 March): p. A 4.
“Globalization hasn’t had a significant impact on reducing inflation in the U.S. and may have raised it, Federal Reserve Chairman Ben Bernanke said. Nor has globalization weakened the Fed’s control over interest rates, Mr. Bernanke said in remarks prepared for delivery Friday night to the Stanford Institute for Economic Policy Research in California.”
“Former Fed Chairman Alan Greenspan Monday said the integration of many countries since the fall of the Soviet Union into the world economy has “brought world unit labor costs down, brought inflation down and interest rates down.” But he also said that as that impact fades, long-term rates could rise by one to two percentage points world-wide in the next three to five years. Mr. Bernanke, however, said increased trade with China has reduced U.S. inflation, now running at about 2%, by only about 0.1 percentage point. And he noted that while these emerging economies have added to the global supply of manufactured goods, they are also adding to the demand for oil and other commodities.”