3-Jackson Hole 2005
United states of America has political and economic influence all over the world.With 33 crore people out of 759 cr world population(around 5%) its GDP is more than 20% of worlds GDP(Nominal not PPP). US Defence budget a year is almost equal to all other countries defence budgets put together. US spending on health care is more than India's annual GDP.
In a Nation's economic well-being two things play important role. Fiscal policy, Govt decides, deals with how Govt gets its money and spends. Second one is monetary policy, controlled by central bankers.Given the size of economy , policies in US not only affect US, but rest of the world as well, in the globalised world.
Federal reserve which controls the monetary policy in US.Alan Greenspan was Fed Chairman for 18 years in US . A raise in interest rate, or a cut, could not only affect US but the entire worlds economy. During Clinton regime , US economy had a robust growth. When there is a good growth, the unemployment rate will fall. It was known that below certain unemployment rate, inflation rate will tend to rise. It is termed as NAIRU (Non accelerating Inflation rate of unemployment).When US unemployment fell below NAIRU rate (5.5%) for US, many economists suggested to raise interest rate to prevent inflation spike in mid 90s.
Greenspan resisted from doing so , citing the New Economy, where computers and internet enhancing productivity. When demand is more than supply prices rise. But now technology and globalisation have augmented supply.
His insight was proven correct.Inflation didn't pickup in US , even when unemployment was low. US had a good growth on low interest rate. Greenspan attained demigod status.
In 2005, at JacksonHole, top economists participated in a symposium that was meant to commemorate Greenspan's tenure as Fed Chairman as he was about to retire. At that time, Greenspan believed that financial innovation had helped the financial system to become more resilient to the economic shocks. In that symposium an economist, who was previous IMF chief and professor in Chicago booth school, presented a paper, raising doubts about it.He was of the view that the financial innovations at that point of time had only spread the risks to many banks and many financial industry practices increased the risks.
Another economist who was former IMF Chief ,Harvard President and served as US Treasury secretary during Clinton years, rejected the criticism. He called him Luddite and having anti market regulatory views.
3 years passed. US had the world had a full blown crisis as predicted and almost all countries witnessed a global slowdown.
Larry Summers, the second economist, ran for US Fed Chairperson post and dropped out for political reasons.Janet Yellen has become Fed Chairperson
Raghuram Govind Rajan, who presented the paper with dissident views, became Chief economic advisor to erstwhile UPA Govt and is serving as RBI Governor .
Here is the link of the paper he presented .
In a Nation's economic well-being two things play important role. Fiscal policy, Govt decides, deals with how Govt gets its money and spends. Second one is monetary policy, controlled by central bankers.Given the size of economy , policies in US not only affect US, but rest of the world as well, in the globalised world.
Federal reserve which controls the monetary policy in US.Alan Greenspan was Fed Chairman for 18 years in US . A raise in interest rate, or a cut, could not only affect US but the entire worlds economy. During Clinton regime , US economy had a robust growth. When there is a good growth, the unemployment rate will fall. It was known that below certain unemployment rate, inflation rate will tend to rise. It is termed as NAIRU (Non accelerating Inflation rate of unemployment).When US unemployment fell below NAIRU rate (5.5%) for US, many economists suggested to raise interest rate to prevent inflation spike in mid 90s.
Greenspan resisted from doing so , citing the New Economy, where computers and internet enhancing productivity. When demand is more than supply prices rise. But now technology and globalisation have augmented supply.
His insight was proven correct.Inflation didn't pickup in US , even when unemployment was low. US had a good growth on low interest rate. Greenspan attained demigod status.
In 2005, at JacksonHole, top economists participated in a symposium that was meant to commemorate Greenspan's tenure as Fed Chairman as he was about to retire. At that time, Greenspan believed that financial innovation had helped the financial system to become more resilient to the economic shocks. In that symposium an economist, who was previous IMF chief and professor in Chicago booth school, presented a paper, raising doubts about it.He was of the view that the financial innovations at that point of time had only spread the risks to many banks and many financial industry practices increased the risks.
Another economist who was former IMF Chief ,Harvard President and served as US Treasury secretary during Clinton years, rejected the criticism. He called him Luddite and having anti market regulatory views.
3 years passed. US had the world had a full blown crisis as predicted and almost all countries witnessed a global slowdown.
Larry Summers, the second economist, ran for US Fed Chairperson post and dropped out for political reasons.Janet Yellen has become Fed Chairperson
Raghuram Govind Rajan, who presented the paper with dissident views, became Chief economic advisor to erstwhile UPA Govt and is serving as RBI Governor .
Here is the link of the paper he presented .
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