Countries and Deep Patternings: China

China’s High-Level Equilibrium Trap as a Concept

The Pattern of the Chinese Past
Mark Elvin
Paperback: 348 pages
Publisher: Stanford University Press; 1st edition (June 1, 1973)

The 1973 classic work in Sinology, Mark Elvin’s The Pattern of the Chinese Past gives the student an “exemplum” in the kind of scholarship that might be called “pattern-seeking.” Without such attempts, all of history becomes formless and shapeless and an endless parade of “routs and rallies,” and “crimes and follies and misfortunes” (in Edward Gibbon’s catchphrase).

Professor Elvin renders Chinese history through an economic perspective instead of using the common dynastic classification by attempting to answer three questions:

  1. What contributed to the continuity of the Chinese empire?
  2. Why was the Chinese economy the most advanced in the world from the Song dynasty (960-1279) up until the latter half of the Qing dynasty (mid-1800s)?
  3. Why did China fail to maintain her technological advantage after the mid-fourteenth century while advancing economically?

In the first section of the book, the author elucidates the staying power of the Chinese empire was due to the following factors. The economics of defense in relation to the size of empire and the power of its neighbors never became an extreme burden that it rendered the state impotent for any consecutively long period of time. It was always able to reformulate itself after a short disunity or rule by a foreign power of the whole, which only happened twice within a two thousand year period (Mongol and Manchu rule). Two other factors that contributed to the continuity of the Chinese state include a relatively isolated existence from the rest of the Eurasian landmass and the important placed on cultural unity, beginning with the first emperor’s destruction of local records in order to quell local loyalties (pp. 21-22). Both of these factors had been built up over time through a revolution in communication and transportation.

The second section of the book analyses the causes of the economic revolution that occurred between the 8th and 12th centuries and the technological growth that accompanied it. The transformation of agriculture, especially in the south, was the major impetus that fueled the economic growth of this period. This revolution in agriculture had four aspects.

  1. The preparation of soil became more effective as a result of improved or new tools and the extensive use of manure and lime as fertilizer.
  2. Seed improvements allowed for double cropping.
  3. Improvements in hydraulic techniques and irrigation networks.
  4. Specialization in crops other than basic food grains (p.118).

Improvements in transportation and communications were almost as important as agriculture in growing the economy. Water transport saw big gains and led to the golden age of geographic studies and cartography, with envoys traveling as far away as Africa. Money and credit matured during this time helping to expand the economy. Paper money made its first appearance in 1024. Improvements in science, medicine, and technology also occurred during this period. However, despite all these advancements, “this period was the climax and also the end of many preceding centuries of scientific and technical progress” (p. 179). Although the Chinese economy continued to advance from the 14th century on, albeit on a smaller scale, it was not accompanied by improvements in technology.

The last section deals with this phenomenon, describing the distinctive characteristics of this late traditional period (1300-1800), and then proceeding to point out why technological advancements did not keep pace with the growth in the economy. This period sees a rise of small market towns in the sixteenth century and a decline in contact with the non-Chinese world around the middle of the fifteenth century. Also, by the eighteenth century serfdom disappeared, aiding population growth, which had reached 400 million by the mid-1800s. Elvin interestingly points out that the highly sophisticated metaphysics that evaded Chinese intellectual thought during the Ming and Qing dynasties negated any deep scientific inquiry (p. 233). In the attempt to explain the lack of technological advancement, Elvin disputes a number of conventional explanations. Contrary to popular belief, there was enough capital during this period to finance simple technological advances, also there was minimal political obstacles to economic growth.

In short, Elvin believes “that in late traditional China economic forces developed in such a way as to make profitable invention more and more difficult. With falling surplus in agriculture, and so falling per capita income and per capita demand, with cheapening labor but increasingly expensive resources and capital, with farming and transport technologies so good that no simple improvements could be made, rational strategy for peasants and merchants alike tended in the direction not so much of labor-saving machinery as of economizing on resources and fixed capital. Huge but nearly static markets created no bottlenecks in the production system that might have prompted creativity” (p. 314). This condition is what he terms as a “high-level equilibrium trap.” The term “trap” to describe the condition of late imperial China’s technological advancement in relation to the economy is similar to Escape from Predicament, Thomas Metzger’s analysis of the “predicament” that confronted Chinese intellectual thought from the Song through to the end of the Qing dynasty. Both explanations have at their core the idea of late imperial China not being able to generate real sustainable progress internally, stating that it was the Chinese response to the Western threat in the mid to late 1800s that finally brought the needed change.

Education and the World As “Rorschach Test”

The Rorschach test is a projective psychological test in which subjects’ perceptions of inkblots are recorded and then analyzed using psychological interpretation, complex algorithms, or both. Some psychologists use this test to examine a person’s personality characteristics and emotional functioning.

It is also called “an Inkblot test.”

We use this test as a metaphor that suggests that people see what they want to see and choose to see.

Here’s an example based on the Verdi opera La Forza del Destino. The black intellectual leader, William E.B. Du Bois, sees it as a veiled racial story where Professor Niall Ferguson of Stanford/Harvard tells the story of how he emerged from a performance of the opera on the very day that Britain devalued the pound sterling in 1992.

Black Wednesday refers to September 16, 1992, when a collapse in the pound sterling forced Britain to withdraw from the European Exchange Rate Mechanism (European Monetary System).

Thus the opera, La Forza del Destino is both a Verdi opera and a kind of “raw material” for personal and private interpretation with Du Bois seeing racism and Ferguson seeing national or financial fate.

La Forza del Destino or The Power of Fate, (often translated The Force of Destiny) is an Italian opera by Giuseppe Verdi. The libretto was written by Francesco Maria Piave based on a Spanish drama, Don Álvaro o la fuerza del sino (1835), by Ángel de Saavedra, 3rd Duke of Rivas, with a scene adapted from Friedrich Schiller’s Wallensteins Lager. It was first performed in the Bolshoi Kamenny Theatre of Saint Petersburg, Russia, on 10 November, 1862 O.S. (N.S. 22 November).

(Wikipedia)

Synopsis—Act 1

The mansion of Leonora’s family, in Seville.

Don Alvaro is a young nobleman from South America (presumably Peru) who is part Indian and who has settled in Seville where he is not very well regarded.

He falls in love with Donna Leonora, the daughter of the Marquis of Calatrava, but Calatrava is determined that she shall marry only a man of the highest birth. Despite knowing her father’s aversion to Alvaro, Leonora is deeply in love with him, and she determines to give up her home and country in order to elope with him. In this endeavor, she is aided by her confidante, Curra. (Me pellegrina ed orfana—“Exiled and orphaned far from my childhood home”).

When Alvaro arrives to fetch Leonora, she hesitates: she wants to elope with him, but part of her wants to stay with her father; she eventually pulls herself together, ready for their elopement. However, the Marquis unexpectedly enters and discovers Leonora and Alvaro together. He threatens Alvaro with death, and in order to remove any suspicion as to Leonora’s purity, Alvaro surrenders himself. As he flings down his pistol, it goes off, mortally wounding the Marquis, who dies cursing his daughter.

This is the racial aspect on which W.E.B. Du Bois focuses.

Niall Ferguson, by contrast, sees a different “Rorschach inkblot” and hones in on the financial policy story which went like this:

Soros’ Quantum Fund began a massive sell-off of pounds on Tuesday, 15 September 1992. The Exchange Rate Mechanism stated that the Bank of England was required to accept any offers to sell pounds. However, the Bank of England only accepted orders during the trading day. When the markets opened in London the next morning, the Bank of England began their attempt to prop up their currency as per the decision made by Norman Lamont and Robin Leigh-Pemberton, the then Chancellor of the Exchequer and Governor of the Bank of England respectively. They began buying orders to the amount of 300 million pounds twice before 8:30 AM to little effect.

The Bank of England’s intervention was ineffective because Soros’ Quantum Fund was dumping pounds far faster. The Bank of England continued to buy and Quantum continued to sell until Lamont told Prime Minister John Major that their pound purchasing was failing to produce results.

At 10:30 AM on 16 September, the British government announced a rise in the base interest rate from an already high 10 to 12 percent to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15 percent, dealers kept selling pounds, convinced that the government would not stick with its promise. By 7:00 that evening, Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12 percent; however, on the next day the interest rate was back on 10%.

It was later revealed that the decision to withdraw had been agreed at an emergency meeting during the day between Norman Lamont, Prime Minister John Major, Foreign Secretary Douglas Hurd, President of the Board of Trade Michael Heseltine, and Home Secretary Kenneth Clarke (the latter three all being staunch pro-Europeans as well as senior Cabinet Ministers), and that the interest rate hike to 15% had only been a temporary measure to prevent a rout in the pound that afternoon.”

For W.E.B. Du Bois, the story within the story of the Verdi opera is the color-line that governs the world, while Ferguson sees the story as a “dramatic” instance of financial and economic force or working out of trends that becomes a destiny.

Hence people see what they choose to see and interpreting and seeing are wrapped up in each other.

Students should assimilate this aspect of the world.

Note: one source of the Du Bois interpretation of the opera comes from the University of Chicago book, Travels in the Reich: 1933-1945 (edited by Oliver Lubrich, 2012) which has a chapter on Du Bois in Germany in the thirties where he plunges into music and opera and highlights this Verdi one.

European Central Bank’s Macroprudential Bulletin

The European Central Bank’s Macroprudential Bulletin provides insight into the work they are currently doing in the field of macroprudential policy. Their goal is to raise awareness of macroprudential policy issues in the euro area by making their ongoing work and thinking in this field more transparent, and to encourage broader discussion on these key issues.

January 2022, Issue 16

Reforming money market funds

Money market funds perform a key function for the financial system by linking the short-term funding and cash-management needs of various market participants. Proposals to reform the regulation of these funds and enhance the sector’s resilience are assessed in this issue of the Macroprudential Bulletin.

Assessing possible reform proposals

At the onset of the coronavirus pandemic, money market funds proved particularly vulnerable when faced with severe market disruption. This article looks at specific policies to address the liquidity risk of these funds and ensure they can deal with large and unexpected outflows under similar periods of stress.

[Archived PDF of full article]

The impact of a public debt quota on money market funds

Public debt assets tend to be easier to draw down and sell during market stress than private sector debt. Having a minimum public debt quota for private debt money market funds could increase their shock-absorbing capacity. What are the costs and benefits of such a proposal?

[Archived PDF of full article]

India-Watching

ICRIER Working Paper № 407

India’s Platform Economy and Emerging Regulatory Challenges

by Rajat Kathuria, Mansi Kedia and Kaushambi Bagchi

Abstract

The phenomenal rise of the platform economy has reshaped how economies operate across the world. The importance of digital platforms has never been more evident than in combatting the ongoing coronavirus (COVID-19) pandemic. Even with the threat of a global recession looming large, technology companies are witnessing a surge in demand for their services. Platforms distinguish themselves from traditional markets by demonstrating speed and scale of innovation and fostering efficient and productive interaction between buyers and sellers. Enterprises using platform-based business models have expanded beyond social media, travel and entertainment to sectors like financial services, healthcare, logistics and transportation. With the objective of building evidence for policy-making in this sector, this study undertakes an in-depth analysis of the impact generated by the platform economy in India, by estimating consumer surplus from the use of platforms, analyzing its impact on traditional businesses either by transformation or disruption. The estimated consumer surplus is Rs. 438.75 per individual per month, amounting to a collective annual surplus of Rs. 3620 billion for India. At current exchange rates this would amount to $47 billion. 

The growth of platforms has also been accompanied by global concern against their anti-competitive practices, the spread of fake news and harmful content, political bias, etc. The paper discusses regulatory changes and areas of concern for market competition, labour and employment, fake news and misinformation, consumer protection, counterfeit goods and data privacy in India.

[Read full article, archived PDF]

[Executive summary, archived PDF]

Economy Watching: Philadelphia Fed

from the Federal Reserve Bank of Philadelphia:

Fed President Patrick Harker Says It Will “Soon” Be Time to Taper Asset Purchases

Philadelphia Fed President Patrick Harker told a virtual audience at the Prosperity Caucus in Washington, D.C., that the asset purchases once necessary during the acute phase of the COVID-19 pandemic are no longer effective as a tool for supporting the economy. He also said the U.S. economy created millions of jobs in recent months, but “we just can’t fill them.”

Economic Outlook: Growth Despite Constraints

Good evening! Thanks so much for having me. I understand that when this group meets in person there is usually pizza involved — so I intend to collect on that debt next time we do this in the flesh.

I plan to offer a few remarks about the state of the national economy and the path of Federal Reserve policy. Then we can move to our Q&A, which I’m really looking forward to.

But before I do that, I need to give you the standard Fed disclaimer: The views I express today are my own and do not necessarily reflect those of anyone else on the Federal Open Market Committee (FOMC) or in the Federal Reserve System.

Fed Structure

I know this group encompasses a very diverse crowd — we have everyone from House staffers to Senate staffers here. So, just in case anyone doesn’t know, I want to begin by giving you a very brief explanation of what, exactly, a regional Federal Reserve Bank is. Our nation’s central bank, after all, is quite unusual — unique, even — in its design.

The configuration of the Federal Reserve System — a central bank with a decentralized structure — owes its existence to the 1913 Federal Reserve Act. It is something of a testament to old-fashioned American compromise and reflects the unique demands of the United States and our economy.

The System consists of a Board of Governors, which sits in Washington, and 12 regional Banks around the country.

The Board seats seven governors, including the Chair. Each regional Bank has its own president and board of directors, which is made up of business, banking, and community leaders from the area. Fundamentally, this provides the Fed with a perspective — within each District — of the sectors and issues that make the region tick. Mine is the Third District, which encompasses eastern Pennsylvania, South Jersey, and the state of Delaware. We’re the smallest District geographically, but I like to think we punch above our weight.

The FOMC, which is responsible for monetary policy, is composed of the Fed’s governors and regional Bank presidents. Regional Bank presidents don’t always get to vote. Most of us rotate into a voting position every three years, but the governors always vote, as does the president of the New York Fed. New York, owing to the presence of Wall Street, enjoys something of a “first among equals” status within the System.

While the rest of us don’t always vote, we do always represent our Districts and play a part in the discussion. If you were at a normal FOMC meeting, you probably wouldn’t be able to tell a voting member until the end of the meeting when it’s time to raise hands. Everybody contributes.

The Fed’s decentralized nature is, in my view, a unique strength. We’re making national policy, but we’re doing it for an enormous country, and the averages of economic data can obscure realities on the ground. Conditions look very different in Philadelphia, Dover, or Washington than they do in Dallas, Salt Lake City, or Honolulu. This System gives a voice to a range of localities and sectors. It also allows us to focus on regional issues within each Bank’s District.

The United States has a unique set of needs. It’s easy to forget that we’re an outlier because we’re such a massive country: Only Russia and Canada are bigger geographically, only China and India have larger populations, and no one country has a bigger economy, at least for now. And that economy is vast, spreading across sectors and natural resources in a way that is not typical of other nations.

So, it makes sense that we have a System that feeds back information from around the country.

The State of the Economy

And what that information is telling us is that, for the past 18 months, the economy has moved in tandem with the waxing and waning of the COVID-19 pandemic. During periods when case rates and hospitalizations have declined, the economy has surged as American consumers have voted with their wallets. When COVID-19 risks abate, more Americans dine out at restaurants, check in to hotels, and fill up airplanes. Those are important categories of spending in a country where consumption makes up about 70 percent of total economic activity. In the second quarter of this year, for instance, GDP grew at a very healthy annualized rate of around 6.7 percent as case rates plummeted.

And, of course, the opposite occurs during periods when the virus spikes. When the Delta variant of COVID-19 erupted, fomenting the country’s fourth major wave of the pandemic, things started moving sideways. Consumer confidence tanked, and large industries like hospitality and leisure stagnated at best. So for this quarter, we can expect growth to come in at an annualized rate of around 3 percent, a sharp slowdown from earlier this year. 

But there are reasons to be sanguine that the country’s recovery from this wave of COVID-19 may prove more durable than in the past and that we can avoid a fifth wave. And that is because more than half of the country is fully vaccinated. Getting more shots into arms will save lives and aid the recovery by reducing the size and severity of future spikes. The Delta variant has also concentrated minds: It seems to have not only persuaded more Americans to get shots on their own, but it also pushed more corporations and institutions to mandate their employees to get vaccinated. That is cause for optimism.

Filling me with less optimism is the persistent constraints the economy is operating under.

The COVID-19 pandemic has revealed how fragile many of our supply chains are. We’re now experiencing shortages of crucial parts like computer chips, which has hobbled not only the production of cars and trucks, but also comparatively smaller durable goods like home appliances. My recent experience attempting to purchase a printer — there were essentially none at my local electronics store — testifies to that. And good luck trying to find a new washing machine or dishwasher.

These supply chain constraints are rippling through the entire economy. Manufacturers in our region have reported having to curtail production because of difficulties securing raw materials. We’re also seeing low inventory of everything from shoes to backpacks to even chicken wings, which is a particularly troubling development as the NFL season is picking up. Unfortunately, there are indications that these constraints could persist for a couple of more years.

There’s another input lacking in supply as well, further constraining the economy: labor. It isn’t true, as was widely reported, that the economy only created 194,000 jobs in September. In reality, the U.S. economy has created many millions of jobs in recent months — we just can’t fill them. Indeed, job openings are at record highs, hitting nearly 10.5 million at the end of August. Simultaneously, more people are quitting their jobs, and the rate at which open positions are being filled is continuing to slow.

It seems that a combination of factors — trouble accessing childcare or eldercare, lingering fears about the virus, the rise in equities and home values spurring people to retire, and perhaps a general revaluation of life choices — is persuading a lot of Americans to stay on the sidelines even as the economy has reopened. And notably, the elimination of extra federal unemployment benefits has not — at least not yet — appeared to nudge people back into the workforce. I do expect that will change eventually and especially as other forbearance programs run out.

So, where does all of this leave us? For 2021, I would expect GDP growth to come in around 5.5 percent, which is a downward revision from before Delta took hold. Growth will then moderate to about 3.5 percent in 2022, and 2.5 percent in 2023. Inflation, meanwhile, should come in around 4 percent for 2021, though I do see upside risk here. After that, our modal forecast — that is, the average of all of our forecasts — calls for inflation of a bit over 2 percent for 2022 and right at 2 percent in 2023.

Fed Policy

In terms of monetary policy, I am in the camp that believes it will soon be time to begin slowly and methodically — frankly, boringly — taper our $120 billion in monthly purchases of Treasury bills and mortgage-backed securities. This comes down to the efficacy of these purchases as a tool.

They were necessary to keep markets functioning during the acute phase of the crisis. But to the extent that we are still dealing with a labor force issue, the problem lies on the supply side, not with demand. You can’t go into a restaurant or drive down a commercial strip without noticing a sea of “Help Wanted” signs. Asset purchases aren’t doing much — or anything — to ameliorate that.

After we taper our asset purchases, we can begin to think about raising the federal funds rate. But I wouldn’t expect any hikes to interest rates until late next year or early 2023, unless the inflation picture changes dramatically.

Conclusion

Given the strong headwinds facing the economy, it is a testament to its underlying strength that growth continues at a relatively robust pace. That is a tribute, as always, to the ingenuity and tenacity of our people, especially in the face of huge challenges.

Thank you very much again for having me. And now let’s move on to questions.

Climate Policy: Loss and Damage from Climate Change

(from Social Watch and Global Policy Watch’s UN Monitor)

Loss and Damage from Climate Change: How Much Should Rich Countries Pay?

(Download UN Monitor #10 [archived PDF])

“The wealthy countries must begin providing public climate finance at the scale necessary to support not only adaptation but loss and damage as well, and they must do so in accordance with their responsibility and capacity to act.” This is the main message of a technical report titled “Can Climate Change-Fueled Loss and Damage Ever Be Fair?” launched on the eve of the UN Climate Change Conference (COP25) to be held in Madrid from 2 to 13 December.

The U.S. and the EU owe more than half the cost of repairing future damage says the report, authored by Civil Society Review, an independent group that produces figures on what a “fair share” among countries of the global effort to tackle climate change should look like.

“The poorer countries are bearing the overwhelming majority of the human and social costs of climate change. Consider only one tragic incident—the Cyclones Idai and Kenneth—which caused more than $3 billion in economic damages in Mozambique alone, roughly 20% of its GDP, with lasting implications, not to mention the loss of lives and livelihoods” argues the report. “Given ongoing and deepening climate impacts, to ensure justice and fairness, COP25 must as an urgent matter operationalize loss and damage financing via a facility designed to receive and disburse resources at scale to developing countries.”

The UN Framework Convention on Climate Change (UNFCCC) has defined loss and damage to include harms resulting from sudden-onset events (climate disasters, such as cyclones) as well as slow-onset processes (such as sea level rise). Loss and damage can occur in human systems (such as livelihoods) as well as natural systems (such as biodiversity).

Eight weeks after Hurricane Dorian—the most intense tropical cyclone to ever strike the Bahamas—Prime Minister of Barbados, Mia Amor Mottley, spoke at the United Nations Secretary General’s Climate Action Summit. She said: “For us, our best practice traditionally was to share the risk before disaster strikes, and just over a decade ago we established the Caribbean Catastrophic Risk Insurance Facility. But, the devastation of Hurricane Dorian marks a new chapter for us. Because, as the international community will find out, the CCRIF will not meet the needs of climate refugees or, indeed, will it be sufficient to meet the needs of rebuilding. No longer can we, therefore, consider this as an appropriate mechanism…There will be a growing crisis of affordability of insurance.”

An April 2019 report from ActionAid revealed the insurance and other market based mechanisms fail to meet human rights criteria for responding to loss and damage associated with climate change. The impact of extreme natural disasters is equivalent to an annual global USD$520 billion loss, and forces approximately 26 million people into poverty each year.

Michelle Bachelet, UN High Commissioner for Human Rights, recently warned that the climate crisis is the greatest ever threat to human rights. It threatens the rights to life, health, housing and a clean and safe environment. The UN Human Rights Council has recognized that climate change “poses an immediate and far reaching threat to people and communities around the world and has implications for the full enjoyment of human rights.” In the Paris Agreement, parties to the UN Framework Convention on Climate Change (UNFCCC) acknowledged that they should—when taking action to address climate change—respect, promote and consider their respective obligations with regard to human rights. This includes the right to health, the rights of indigenous peoples, local communities, migrants, children, persons with disabilities and people in vulnerable situations and the right to development, as well as gender equality, the empowerment of women and intergenerational equity. Tackling loss and damage will require a human-rights centered approach that promotes justice and equity.

Across and within countries, the highest per capita carbon emissions are attributable to the wealthiest people, this because individual emissions generally parallel disparities of income and wealth. While the world’s richest 10% cause 50% of emissions, they also claim 52% of the world’s wealth. The world’s poorest 50% contribute approximately 10% of global emissions and receive about 8% of global income. Wealth increases adaptive capacity. All this means that those most responsible for climate change are relatively insulated from its impacts.

Between 1850 and 2002, countries in the Global North emitted three times as many greenhouse gas (GHG) emissions as did the countries in the Global South, where approximately 85% of the global population resides. The average CO2 emissions (metric tons per capita) of citizens in countries most vulnerable to climate change impacts, for example, Mozambique (0.3), Malawi, (0.1), and Zimbabwe (0.9), pale in comparison to the average emissions of a person in the U.S. (15.5), Canada (15.3), Australia (15.8), or UK (6).

In the 1980s, oil companies like Exxon and Shell carried out internal assessments of the carbon dioxide released by fossil fuels, and forecast the planetary consequences of these emissions, including the inundation of entire low-lying countries, the disappearance of specific ecosystems or habitat destruction, destructive floods, the inundation of low-lying farmland, and widespread water stress.

Nevertheless, the same companies and countries have pursued high reliance on GHG emissions, often at the expense of communities where fossil fuels are found (where oil spills, pollution, land grabs, and displacement is widespread) and certainly at the expense of public understanding, even as climate change harms and risks increased. Chevron, Exxon, BP and Shell together are behind more than 10% of the world’s carbon emissions since 1966. They originated in the Global North and its governments continue to provide them with financial subsidies and tax breaks.

Responsibility for, and capacity to act on, mitigation, adaptation and loss and damage varies tremendously across nations and among classes. It must also be recognized that the Nationally Determined Contributions (climate action plans or NDCs) that have thus far been proposed by the world’s nations are not even close to being sufficient, putting us on track for approximately 4°C of warming. They are also altogether out of proportion to national capacity and responsibility, with the developing countries generally proposing to do their fair shares, and developed countries proposed far too little.

Unfortunately, as Kevin Anderson (Professor of Energy and Climate Change at the University of Manchester and a former Director of the Tyndall Centre for Climate Change Research) has said: “a 4°C future is incompatible with an organized global community, is likely to be beyond ‘adaptation,’ is devastating to the majority of ecosystems, and has a high probability of not being stable.”

Equity analysis

The report assess countries’ NDCs against the demands of a 1.5°C pathway using two ‘fair share’ benchmarks, as in the previous reports of the Civil Society Equity Review coalition. These ‘fair share’ benchmarks are grounded in the principle-based claims that countries should act in accordance with their responsibility for causing the climate problem and their capacity to help solve it. These principles are both well-established within the climate negotiations and built into both the UNFCCC and the Paris Agreement.

To be consistent with the UNFCCC’s equity principles—the wealthier countries must urgently and dramatically deepen their own emissions reduction efforts, contribute to mitigation, adaptation and addressing loss and damage initiatives in developing countries; and support additional sustainable actions outside their own borders that enable climate-compatible sustainable development in developing countries.

For example, consider the European Union, whose fair share of the global emission reduction effort in 2030 is roughly about 22% of the global total, or about 8 Gigatons of CO2 equivalent (GtCO2eq). Since its total emissions are less than 5 GtCO2eq, the EU would have to reduce its emissions by approximately 160% per cent below 1990 levels by 2030 if it were to meet its fair share entirely through domestic reductions. It is not physically possible to reduce emissions by more than 100% domestically. So, the only way in which the EU can meet its fair share is by funding mitigation, adaptation and loss and damage efforts in developing countries.

Today’s mitigation commitments are insufficient to prevent unmanageable climate change, and—coming on top of historic emissions—they are setting in motion devastating changes to our climate and natural environment. These impacts are already prevalent, even with our current global average surface temperature rise of about 1°C. Impacts include droughts, firestorms, shifting seasons, sea-level rise, salt-water intrusion, glacial retreat, the spread of vector borne diseases, and devastation from cyclones and other extreme weather events. Some of these impacts can be minimized through adaptation measures designed to increase resilience to inevitable impacts.

These measures include, for example, renewing mangroves to prevent erosion and reduce flooding caused by storms, regulating new construction so that buildings can withstand tomorrow’s severe weather, using scarce water resources efficiently, building flood defenses, and setting aside land corridors to help species migrate. It is also crucial with such solutions that forest dwelling and indigenous peoples be given enforceable land rights, for not only are such rights matters of basic justice, they are also pragmatic recognitions of the fact that indigenous peoples have successfully protected key ecosystems.

Tackling underlying social injustices and inequalities—including through technological and financial transfers, as well as though capacity building—would also contribute to increasing resilience. Other climate impacts, however, are unavoidable, unmanageable or unpredictable, leading to a huge degree of loss and damage. Experts estimate the financial damage also will reach at least USD$300-700 billion by 2030, but the loss of locally sustained livelihoods, relationships and connections to ancestral lands are incalculable.

Failure to reduce GHG emissions now—through energy efficiency, waste reduction, renewable energy generation, reduced consumption, sustainable agriculture and transport—will only deepen impacts in the future. Avoidable impacts require urgent adaptation measures. At the same time, unavoidable and unmanageable change impacts—such as loss of homes, livelihoods, crops, heat and water stress, displacement, and infrastructure damage—need adequate responses through well-resourced disaster response plans and social protection policies.

For loss and damage financing, developed countries have a considerable responsibility and capacity to pay for harms that are already occurring. Of course, many harms will be irreparable in financial terms. However, where monetary contributions can help restore the livelihoods or homes of individuals exposed to climate change impacts, they must be paid. Just as the EU’s fair share of the global mitigation effort is approximately 22% in 2030, it could be held accountable for that same share of the financial support for such incidents of loss and damage in that year.

The table below provides an illustrative quantification of this simple application of fair shares to loss and damage estimates, and how they change if we compute the contribution to global climate change from the start of the industrial revolution in 1850 or from 1950.

Table 1: Countries’ Share of Global Responsibility and Capacity in 2019, the time of Cyclones Idai and Kenneth, as illustrative application of a fair share approach to Loss and Damage funding requirements.

Country/Group of CountriesFair Share (%) 1950 Medium BenchmarkFair Share (%) 1850 High Benchmark
USA30.4%40.7%
European Union23.9%23.2%
Japan6.8%7.8%
Rest of OECD7.4%8.8%
China10.4%7.2%
India0.5%0.04%
Rest of the World20.6%12.3%
Total100%100%

The advantage of setting out responsibility and capacity to act in such numerical terms is to drive equitable and robust action today. Responsible and capable countries must—of course—ensure that those most able to pay towards loss and damage repairs are called upon to do so through domestic legislation that ensures correlated progressive responsibility. However, it should also motivate mitigation action to ensure that harms are not deepened in the future.

In the Equity analysis used here, capacity—a nation’s financial ability to contribute to solving the climate problem—can be captured by a quantitative benchmark defined in a more or less progressive way, making the definition of national capacity dependent on national income distribution. This means a country’s capacity is calculated in a manner that can explicitly account for the income of the wealthy more strongly than that of the poor, and can exclude the incomes of the poorest altogether. Similarly, responsibility—a nation’s contribution to the planetary GHG burden—can be based on cumulative GHG emissions since a range of historical start years, and can consider the emissions arising from luxury consumption more strongly than emissions from the fulfillment of basic needs, and can altogether exclude the survival emissions of the poorest. Of course, the ‘right’ level of progressivity, like the ‘right’ start year, are matters for deliberation and debate.1

The report acknowledges “the difficulties in estimating financial loss and damage and the limited data we currently have,” but it recommends nevertheless “a minimal goal of providing at least USD$300 billion per year by 2030 of financing for loss and damage through the UNFCCC’s Warsaw International Mechanism for Loss and Damage (WIM).” Given that this corresponds to a conservative estimate of damage costs, the report further recommends “the formalization of a global obligation to revise this figure upward as observed and forecast damages increase.”

The new finance facility should provide “public climate financing and new and innovative sources of financing, in addition to budget contributions from rich countries, that can truly generate additional resources (such as air and maritime levies, Climate Damages Tax on oil, gas and coal extraction, a Financial Transaction Tax) at a progressive scale to reach at least USD$300 billion by 2030.” This means aiming for at least USD$150 billion by 2025 and ratcheting up commitments on an annual basis. Ambition targets should be revised based on the level of quantified and quantifiable harms experienced.

Further, developing countries who face climate emergencies should benefit from immediate debt relief–in the form of an interest-free moratorium on debt payments. This would open up resources currently earmarked for debt repayments to immediate emergency relief and reconstruction.

Finally, a financial architecture needs to be set up that ensures funding reaches the marginalized communities in developing countries, and that such communities have decision making say over reconstruction plans. Funds should reach communities in an efficient and effective manner, taking into account existing institutions as appropriate.

Currently, the Paris Rulebook allows countries to count non-grant instruments as climate finance, including commercial loans, equity, guarantees and insurance. Under these rules, the United States could give a USD$50 million commercial loan to Malawi for a climate mitigation project. This loan would have to be repaid at market interest rates—a net profit for the U.S.—so its grant-equivalence is $0. But under the Paris Rulebook, the U.S. could report the loan’s face value ($50 million) as climate finance. This is not acceptable. COP25 must ensure that the WIM has robust outcomes and sufficient authority to deliver a fair and ambitious outcome for the poorest and most vulnerable in relation to loss & damage.

Note
  1. For more details, including how progressivity is calculated and a description of the standard data sets upon which those calculations are based, see the reference project page.  For an interactive experience and a finer set of controls, see the Climate Equity Reference Calculator. (return to text)

Download UN Monitor #10 [archived PDF]

World-Watching: Chinese Tech Groups Shaping UN Facial Recognition and Surveillance Standards

(from the Financial Times)

Chinese technology companies are shaping new facial recognition and surveillance standards at the UN, according to leaked documents obtained by the Financial Times, as they try to open up new markets in the developing world for their cutting-edge technologies.

Companies such as ZTE, Dahua and China Telecom are among those proposing new international standardsspecifications aimed at creating universally consistent technology — in the UN’s International Telecommunication Union.

Read the full article [archived PDF]

Federal Reserve Review of Monetary Policy Strategy, Tools, and Communications: Some Preliminary Views

(Speech by Governor Lael Brainard, at the Presentation of the 2019 William F. Butler Award New York Association for Business Economics, New York, New York)

It is a pleasure to be here with you. It is an honor to join the 45 outstanding economic researchers and practitioners who are past recipients of the William F. Butler Award. I want to express my deep appreciation to the New York Association for Business Economics (NYABE) and NYABE President Julia Coronado.

I will offer my preliminary views on the Federal Reserve’s review of its monetary policy strategy, tools, and communications after first touching briefly on the economic outlook. These remarks represent my own views. The framework review is ongoing and will extend into 2020, and no conclusions have been reached at this time.1

Outlook and Policy

There are good reasons to expect the economy to grow at a pace modestly above potential over the next year or so, supported by strong consumers and a healthy job market, despite persistent uncertainty about trade conflict and disappointing foreign growth. Recent data provide some reassurance that consumer spending continues to expand at a healthy pace despite some slowing in retail sales. Consumer sentiment remains solid, and the employment picture is positive. Housing seems to have turned a corner and is poised for growth following several weak quarters.

Business investment remains downbeat, restrained by weak growth abroad and trade conflict. But there is little sign so far that the softness in trade, manufacturing, and business investment is affecting consumer spending, and the effect on services has been limited.

Employment remains strong. The employment-to-population ratio for prime-age adults has moved up to its pre-recession peak, and the three-month moving average of the unemployment rate is near a 50-year low.2 Monthly job gains remain above the pace needed to absorb new entrants into the labor force despite some slowing since last year. And initial claims for unemployment insurance—a useful real-time indicator historically—remain very low despite some modest increases.

Data on inflation have come in about as I expected, on balance, in recent months. Inflation remains below the Federal Reserve’s 2 percent symmetric objective, which has been true for most of the past seven years. The price index for core personal consumption expenditures (PCE), which excludes food and energy prices and is a better indicator of future inflation than overall PCE prices, increased 1.7 percent over the 12 months through September.

Foreign growth remains subdued. While there are signs that the decline in euro-area manufacturing is stabilizing, the latest indicators on economic activity in China remain sluggish, and the news in Japan and in many emerging markets has been disappointing. Overall, it appears third-quarter foreign growth was weak, and the latest indicators point to little improvement in the fourth quarter.

More broadly, the balance of risks remains to the downside, although there has been some improvement in risk sentiment in recent weeks. The risk of a disorderly Brexit in the near future has declined significantly, and there is some hope that a U.S.China trade truce could avert additional tariffs. While risks remain, financial market indicators suggest market participants see a diminution in such risks, and probabilities of recessions from models using market data have declined.

The baseline is for continued moderate expansion, a strong labor market, and inflation moving gradually to our symmetric 2 percent objective. The Federal Open Market Committee (FOMC) has taken significant action to provide insurance against the risks associated with trade conflict and weak foreign growth against a backdrop of muted inflation. Since July, the Committee has lowered the target range for the federal funds rate by ¾ percentage point, to the current range of 1½ to 1¾ percent. It will take some time for the full effect of this accommodation to work its way through economic activity, the labor market, and inflation. I will be watching the data carefully for signs of a material change to the outlook that could prompt me to reassess the appropriate path of policy.

Review

The Federal Reserve is conducting a review of our monetary policy strategy, tools, and communications to make sure we are well positioned to advance our statutory goals of maximum employment and price stability.3 Three key features of today’s new normal call for a reassessment of our monetary policy strategy: the neutral rate is very low here and abroad, trend inflation is running below target, and the sensitivity of price inflation to resource utilization is very low.4

First, trend inflation is below target.5 Underlying trend inflation appears to be running a few tenths below the Committee’s symmetric 2 percent objective, according to various statistical filters. This raises the risk that households and businesses could come to expect inflation to run persistently below our target and change their behavior in a way that reinforces that expectation. Indeed, with inflation having fallen short of 2 percent for most of the past seven years, inflation expectations may have declined, as suggested by some survey-based measures of long-run inflation expectations and by market-based measures of inflation compensation.

Second, the sensitivity of price inflation to resource utilization is very low. This is what economists mean when they say that the Phillips curve is flat. A flat Phillips curve has the important advantage of allowing employment to continue expanding for longer without generating inflationary pressures, thereby providing greater opportunities to more people. But it also makes it harder to achieve our 2 percent inflation objective on a sustained basis when inflation expectations have drifted below 2 percent.

Third, the long-run neutral rate of interest is very low, which means that we are likely to see more frequent and prolonged episodes when the federal funds rate is stuck at its effective lower bound (ELB).6 The neutral rate is the level of the federal funds rate that would keep the economy at full employment and 2 percent inflation if no tailwinds or headwinds were buffeting the economy. A variety of forces have likely contributed to a decline in the neutral rate, including demographic trends in many large economies, some slowing in the rate of productivity growth, and increases in the demand for safe assets. When looking at the Federal Reserve’s Summary of Economic Projections (SEP), it is striking that the Committee’s median projection of the longer-run federal funds rate has moved down from 4¼ percent to 2½ percent over the past seven years.7 A similar decline can be seen among private forecasts.8 This decline means the conventional policy buffer is likely to be only about half of the 4½ to 5 percentage points by which the FOMC has typically cut the federal funds rate to counter recessionary pressures over the past five decades.

This large loss of policy space will tend to increase the frequency or length of periods when the policy rate is pinned at the ELB, unemployment is elevated, and inflation is below target.9 In turn, the experience of frequent or extended periods of low inflation at the ELB risks eroding inflation expectations and further compressing the conventional policy space. The risk is a downward spiral where conventional policy space gets compressed even further, the ELB binds even more frequently, and it becomes increasingly difficult to move inflation expectations and inflation back up to target. While consumers and businesses might see very low inflation as having benefits at the individual level, at the aggregate level, inflation that is too low can make it very challenging for monetary policy to cut the short-term nominal interest rate sufficiently to cushion the economy effectively.10

The experience of Japan and of the euro area more recently suggests that this risk is real. Indeed, the fact that Japan and the euro area are struggling with this challenging triad further complicates our task, because there are important potential spillovers from monetary policy in other major economies to our own economy through exchange rate and yield curve channels.11

In light of the likelihood of more frequent episodes at the ELB, our monetary policy review should advance two goals. First, monetary policy should achieve average inflation outcomes of 2 percent over time to re-anchor inflation expectations at our target. Second, we need to expand policy space to buffer the economy from adverse developments at the ELB.

Achieving the Inflation Target

The apparent slippage in trend inflation below our target calls for some adjustments to our monetary policy strategy and communications. In this context and as part of our review, my colleagues and I have been discussing how to better anchor inflation expectations firmly at our objective. In particular, it may be helpful to specify that policy aims to achieve inflation outcomes that average 2 percent over time or over the cycle. Given the persistent shortfall of inflation from its target over recent years, this would imply supporting inflation a bit above 2 percent for some time to compensate for the period of underperformance.

One class of strategies that has been proposed to address this issue are formal “makeup” rules that seek to compensate for past inflation deviations from target. For instance, under price-level targeting, policy seeks to stabilize the price level around a constant growth path that is consistent with the inflation objective.12 Under average inflation targeting, policy seeks to return the average of inflation to the target over some specified period.13

To be successful, formal makeup strategies require that financial market participants, households, and businesses understand in advance and believe, to some degree, that policy will compensate for past misses. I suspect policymakers would find communications to be quite challenging with rigid forms of makeup strategies, because of what have been called time-inconsistency problems. For example, if inflation has been running well below—or above—target for a sustained period, when the time arrives to maintain inflation commensurately above—or below—2 percent for the same amount of time, economic conditions will typically be inconsistent with implementing the promised action. Analysis also suggests it could take many years with a formal average inflation targeting framework to return inflation to target following an ELB episode, although this depends on difficult-to-assess modeling assumptions and the particulars of the strategy.14

Thus, while formal average inflation targeting rules have some attractive properties in theory, they could be challenging to implement in practice. I prefer a more flexible approach that would anchor inflation expectations at 2 percent by achieving inflation outcomes that average 2 percent over time or over the cycle. For instance, following five years when the public has observed inflation outcomes in the range of 1½ to 2 percent, to avoid a decline in expectations, the Committee would target inflation outcomes in a range of, say, 2 to 2½ percent for the subsequent five years to achieve inflation outcomes of 2 percent on average overall. Flexible inflation averaging could bring some of the benefits of a formal average inflation targeting rule, but it would be simpler to communicate. By committing to achieve inflation outcomes that average 2 percent over time, the Committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation.15

Policy at the ELB

Second, the Committee is examining what monetary policy tools are likely to be effective in providing accommodation when the federal funds rate is at the ELB.16 In my view, the review should make clear that the Committee will actively employ its full toolkit so that the ELB is not an impediment to providing accommodation in the face of significant economic disruptions.

The importance and challenge of providing accommodation when the policy rate reaches the ELB should not be understated. In my own experience on the international response to the financial crisis, I was struck that the ELB proved to be a severe impediment to the provision of policy accommodation initially. Once conventional policy reached the ELB, the long delays necessitated for policymakers in nearly every jurisdiction to develop consensus and take action on unconventional policy sapped confidence, tightened financial conditions, and weakened recovery. Economic conditions in the euro area and elsewhere suffered for longer than necessary in part because of the lengthy process of building agreement to act decisively with a broader set of tools.

Despite delays and uncertainties, the balance of evidence suggests forward guidance and balance sheet policies were effective in easing financial conditions and providing accommodation following the global financial crisis.17 Accordingly, these tools should remain part of the Committee’s toolkit. However, the quantitative asset purchase policies that were used following the crisis proved to be lumpy both to initiate at the ELB and to calibrate over the course of the recovery. This lumpiness tends to create discontinuities in the provision of accommodation that can be costly. To the extent that the public is uncertain about the conditions that might trigger asset purchases and how long the purchases would be sustained, it undercuts the efficacy of the policy. Similarly, significant frictions associated with the normalization process can arise as the end of the asset purchase program approaches.

For these reasons, I have been interested in exploring approaches that expand the space for targeting interest rates in a more continuous fashion as an extension of our conventional policy space and in a way that reinforces forward guidance on the policy rate.18 In particular, there may be advantages to an approach that caps interest rates on Treasury securities at the short-to-medium range of the maturity spectrum—yield curve caps—in tandem with forward guidance that conditions liftoff from the ELB on employment and inflation outcomes.

To be specific, once the policy rate declines to the ELB, this approach would smoothly move to capping interest rates on the short-to-medium segment of the yield curve. The yield curve ceilings would transmit additional accommodation through the longer rates that are relevant for households and businesses in a manner that is more continuous than quantitative asset purchases. Moreover, if the horizon on the interest rate caps is set so as to reinforce forward guidance on the policy rate, doing so would augment the credibility of the yield curve caps and thereby diminish concerns about an open-ended balance sheet commitment. In addition, once the targeted outcome is achieved, and the caps expire, any securities that were acquired under the program would roll off organically, unwinding the policy smoothly and predictably. This is important, as it could potentially avoid some of the tantrum dynamics that have led to premature steepening at the long end of the yield curve in several jurisdictions.

Forward guidance on the policy rate will also be important in providing accommodation at the ELB. As we saw in the United States at the end of 2015 and again toward the second half of 2016, there tends to be strong pressure to “normalize” or lift off from the ELB preemptively based on historical relationships between inflation and employment. A better alternative would have been to delay liftoff until we had achieved our targets. Indeed, recent research suggests that forward guidance that commits to delay the liftoff from the ELB until full employment and 2 percent inflation have been achieved on a sustained basis—say over the course of a year—could improve performance on our dual-mandate goals.19

To reinforce this commitment, the forward guidance on the policy rate could be implemented in tandem with yield curve caps. For example, as the federal funds rate approaches the ELB, the Committee could commit to refrain from lifting off the ELB until full employment and 2 percent inflation are sustained for a year. Based on its assessment of how long this is likely take, the Committee would then commit to capping rates out the yield curve for a period consistent with the expected horizon of the outcome-based forward guidance. If the outlook shifts materially, the Committee could reassess how long it will take to get inflation back to 2 percent and adjust policy accordingly. One benefit of this approach is that the forward guidance and the yield curve ceilings would reinforce each other.

The combination of a commitment to condition liftoff on the sustained achievement of our employment and inflation objectives with yield curve caps targeted at the same horizon has the potential to work well in many circumstances. For very severe recessions, such as the financial crisis, such an approach could be augmented with purchases of 10-year Treasury securities to provide further accommodation at the long end of the yield curve. Presumably, the requisite scale of such purchases—when combined with medium-term yield curve ceilings and forward guidance on the policy rate—would be relatively smaller than if the longer-term asset purchases were used alone.

Monetary Policy and Financial Stability

Before closing, it is important to recall another important lesson of the financial crisis: The stability of the financial system is important to the achievement of the statutory goals of full employment and 2 percent inflation. In that regard, the changes in the macroeconomic environment that underlie our monetary policy review may have some implications for financial stability. Historically, when the Phillips curve was steeper, inflation tended to rise as the economy heated up, which prompted the Federal Reserve to raise interest rates. In turn, the interest rate increases would have the effect of tightening financial conditions more broadly. With a flat Phillips curve, inflation does not rise as much as resource utilization tightens, and interest rates are less likely to rise to restrictive levels. The resulting lower-for-longer interest rates, along with sustained high rates of resource utilization, are conducive to increasing risk appetite, which could prompt reach-for-yield behavior and incentives to take on additional debt, leading to financial imbalances as an expansion extends.

To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial stability risks to become more tightly linked to the business cycle, it would be preferable to use tools other than tightening monetary policy to temper the financial cycle. In particular, active use of macroprudential tools such as the countercyclical buffer is vital to enable monetary policy to stay focused on achieving maximum employment and average inflation of 2 percent on a sustained basis.

Conclusion

The Federal Reserve’s commitment to adapt our monetary policy strategy to changing circumstances has enabled us to support the U.S. economy throughout the expansion, which is now in its 11th year. In light of the decline in the neutral rate, low trend inflation, and low sensitivity of inflation to slack as well as the consequent greater frequency of the policy rate being at the effective lower bound, this is an important time to review our monetary policy strategy, tools, and communications in order to improve the achievement of our statutory goals. I have offered some preliminary thoughts on how we could bolster inflation expectations by achieving inflation outcomes of 2 percent on average over time and, when policy is constrained by the ELB, how we could combine forward guidance on the policy rate with caps on the short-to-medium segment of the yield curve to buffer the economy against adverse developments.


  1. I am grateful to Ivan Vidangos of the Federal Reserve Board for assistance in preparing this text. These remarks represent my own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market Committee. (return to text)
  2. Claudia Sahm shows that a ½ percentage point increase in the three-month moving average of the unemployment rate relative to the previous year’s low is a good real-time recession indicator. See Claudia Sahm (2019), “Direct Stimulus Payments to Individuals” [archived PDF], Policy Proposal, The Hamilton Project at the Brookings Institution (Washington: THP, May 16). (return to text)
  3. Information about the review of monetary policy strategy, tools, and communications is available on the Board’s website. Also see Richard H. Clarida (2019), “The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices” [archived PDF], speech delivered at the 2019 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, February 22; and Jerome H. Powell (2019), “Monetary Policy: Normalization and the Road Ahead” [archived PDF] speech delivered at the 2019 SIEPR Economic Summit, Stanford Institute of Economic Policy Research, Stanford, Calif., March 8. (return to text)
  4. See Lael Brainard (2016), “The ‘New Normal’ and What It Means for Monetary Policy” [archived PDF] speech delivered at the Chicago Council on Global Affairs, Chicago, September 12. (return to text)
  5. See Lael Brainard (2017), “Understanding the Disconnect between Employment and Inflation with a Low Neutral Rate” [archived PDF], speech delivered at the Economic Club of New York, September 5; and James H. Stock and Mark W. Watson (2007), “Why Has U.S. Inflation Become Harder to Forecast?” [archived PDF], Journal of Money, Credit and Banking, vol. 39 (s1, February), pp. 3–33. (return to text)
  6. See Lael Brainard (2015), “Normalizing Monetary Policy When the Neutral Interest Rate Is Low” [archived PDF] speech delivered at the Stanford Institute for Economic Policy Research, Stanford, Calif., December 1. (return to text)
  7. The projection materials for the Federal Reserve’s SEP are available on the Board’s website. (return to text)
  8. For example, the Blue Chip Consensus long-run projection for the three-month Treasury bill has declined from 3.6 percent in October 2012 to 2.4 percent in October 2019. See Wolters Kluwer (2019), Blue Chip Economic Indicators, vol. 44 (October 10); and Wolters Kluwer (2012), Blue Chip Economic Indicators, vol. 37 (October 10). (return to text)
  9. See Michael Kiley and John Roberts (2017), “Monetary Policy in a Low Interest Rate World” [archived PDF], Brookings Papers on Economic Activity, Spring, pp. 317–72; Eric Swanson (2018), “The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates” [archived PDF] NBER Working Paper Series 25123 (Cambridge, Mass.: National Bureau of Economic Research, October); and Hess Chung, Etienne Gagnon, Taisuke Nakata, Matthias Paustian, Bernd Schlusche, James Trevino, Diego Vilán, and Wei Zheng (2019), “Monetary Policy Options at the Effective Lower Bound: Assessing the Federal Reserve’s Current Policy Toolkit” [archived PDF], Finance and Economics Discussion Series 2019-003 (Washington: Board of Governors of the Federal Reserve System, January). (return to text)
  10. The important observation that some consumers and businesses see low inflation as having benefits emerged from listening to a diverse range of perspectives, including representatives of consumer, labor, business, community, and other groups during the Fed Listens events; for details, see this page. (return to text)
  11. See Lael Brainard (2017), “Cross-Border Spillovers of Balance Sheet Normalization” [archived PDF] speech delivered at the National Bureau of Economic Research’s Monetary Economics Summer Institute, Cambridge, Mass., July 13. (return to text)
  12. See, for example, James Bullard (2018), “A Primer on Price Level Targeting in the U.S.” [archived PDF], a presentation before the CFA Society of St. Louis, St. Louis, Mo., January 10. (return to text)
  13. See, for example, Lars Svensson (2019), “Monetary Policy Strategies for the Federal Reserve” [archived PDF] presented at “Conference on Monetary Policy Strategy, Tools and Communication Practices,” sponsored by the Federal Reserve Bank of Chicago, Chicago, June 5. (return to text)
  14. See Board of Governors of the Federal Reserve System (2019), “Minutes of the Federal Open Market Committee, September 17–18, 2019,” press release, October 9; and David Reifschneider and David Wilcox (2019), “Average Inflation Targeting Would Be a Weak Tool for the Fed to Deal with Recession and Chronic Low Inflation” [archived PDF] Policy Brief PB19-16 (Washington: Peterson Institute for International Economics, November). (return to text)
  15. See Janice C. Eberly, James H. Stock, and Jonathan H. Wright (2019), “The Federal Reserve’s Current Framework for Monetary Policy: A Review and Assessment” [archived PDF] paper presented at “Conference on Monetary Policy Strategy, Tools and Communication Practices,” sponsored by the Federal Reserve Bank of Chicago, Chicago, June 4. (return to text)
  16. See Board of Governors of the Federal Reserve System (2019), “Minutes of the Federal Open Market Committee, July 31–August 1, 2018” [archived PDF] press release, August 1; and Board of Governors (2019), “Minutes of the Federal Open Market Committee, October 29–30, 2019” [archived PDF] press release, October 30. (return to text)
  17. For details on purchases of securities by the Federal Reserve, see this page. For a discussion of forward guidance, see this page. See, for example, Simon Gilchrist and Egon Zakrajšek (2013), “The Impact of the Federal Reserve’s Large-Scale Asset Purchase Programs on Corporate Credit Risk,” Journal of Money, Credit and Banking, vol. 45, (s2, December), pp. 29–57; Simon Gilchrist, David López-Salido, and Egon Zakrajšek (2015), “Monetary Policy and Real Borrowing Costs at the Zero Lower Bound,” American Economic Journal: Macroeconomics, vol. 7 (January), pp. 77–109; Jing Cynthia Wu and Fan Dora Xia (2016), “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound,” Journal of Money, Credit and Banking, vol. 48 (March–April), pp. 253–91; and Stefania D’Amico and Iryna Kaminska (2019), “Credit Easing versus Quantitative Easing: Evidence from Corporate and Government Bond Purchase Programs” [archived PDF], Bank of England Staff Working Paper Series 825 (London: Bank of England, September). (return to text)
  18. See Board of Governors of the Federal Reserve System (2010), “Strategies for Targeting Interest Rates Out the Yield Curve,” memorandum to the Federal Open Market Committee, October 13, available at this page; and Ben Bernanke (2016), “What Tools Does The Fed Have Left? Part 2: Targeting Longer-Term Interest Rates” [archived PDF] blog post, Brookings Institution, March 24. (return to text)
  19. See Ben Bernanke, Michael Kiley, and John Roberts (2019), “Monetary Policy Strategies for a Low-Rate Environment” [archived PDF], Finance and Economics Discussion Series 2019-009 (Washington: Board of Governors of the Federal Reserve System) and Chung and others, “Monetary Policy Options at the Effective Lower Bound,” in note 9. (return to text)