Piece by Christopher Joye

There is good piece in The Australian today by Christopher Joye Central Banks arent immune to mistakes.


He makes three points.

First, that the Reserve Bank has consistently under-estimated the severity of the global crisis – by focusing unduly on inflationary pressures stemming from exogenous forces such as commodity prices, food shortages, record low rental vacancy rates and financing costs.

Second, the Bank dismissed any suggestion that if trading banks reallocated capital towards risk weighted home loan market, it would inevitably cause business credit to fall off a cliff which it has.

Thirdly, in a period of high asset prices, the Bank might seek to engage in pre-emptive strikes against asset prices (i.e. raise interest rates), so as to dampen the profound cycles in financial behavior. Joye presents a powerful contrary argument put by Ben Bernanke, Chairman of the US Federal Reserve, and Charles Bean, deputy governor of Bank of England. They both propose regulatory policies.

As is evident from all my recent contributions to Club Troppo, I broadly concur with these three suggestions.

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