1 00:00:02,720 --> 00:00:15,759 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:18,720 --> 00:00:22,120 Speaker 2: Hello and welcome to another episode of the All Thoughts podcast. 3 00:00:22,239 --> 00:00:23,600 Speaker 2: I'm Tracy Alloway. 4 00:00:23,320 --> 00:00:25,040 Speaker 3: And I'm Jill Wisenthal Joe. 5 00:00:25,040 --> 00:00:28,639 Speaker 2: We are here in Jackson Hole for the Economic Symposium 6 00:00:28,680 --> 00:00:32,320 Speaker 2: held by the Kansas Fed Kansas City Fed every year, 7 00:00:32,880 --> 00:00:36,920 Speaker 2: and every year they choose a theme for the conference. 8 00:00:37,320 --> 00:00:40,000 Speaker 2: So last year I think it was structural shifts in 9 00:00:40,040 --> 00:00:45,320 Speaker 2: the global economy, something fairly generic. Actually, this year it 10 00:00:45,479 --> 00:00:49,080 Speaker 2: is all about the transmission of monetary policy. 11 00:00:48,920 --> 00:00:51,559 Speaker 3: That's right, and there are some pretty big questions. So 12 00:00:51,600 --> 00:00:54,400 Speaker 3: it's like, we all have this idea that you slow 13 00:00:54,440 --> 00:00:57,880 Speaker 3: the economy or you fight inflation by hiking interest rates 14 00:00:58,440 --> 00:01:01,040 Speaker 3: and then your lower interest rates for yourustom but how 15 00:01:01,040 --> 00:01:05,319 Speaker 3: does that like actually work? And this cycle has raised 16 00:01:05,400 --> 00:01:08,680 Speaker 3: a lot of questions, in particular because things that you 17 00:01:08,760 --> 00:01:10,840 Speaker 3: might have expected to see, such as a sharp rise 18 00:01:10,880 --> 00:01:14,200 Speaker 3: in the unemployment rate amid the fall in the rate 19 00:01:14,240 --> 00:01:16,960 Speaker 3: of inflation, hasn't really happened. So I think there's a 20 00:01:17,000 --> 00:01:20,360 Speaker 3: lot of ambiguity still about like what is the process 21 00:01:20,600 --> 00:01:24,520 Speaker 3: via which monetary policy, which is both interest rate policy 22 00:01:24,560 --> 00:01:27,240 Speaker 3: and it gets balance sheet policy. What is the process 23 00:01:27,280 --> 00:01:30,440 Speaker 3: through which these decisions actually transmit to the real economy. 24 00:01:30,080 --> 00:01:32,440 Speaker 2: Right, And we're going back to the debate that was 25 00:01:32,480 --> 00:01:35,240 Speaker 2: popular maybe a year or two ago, which was, if 26 00:01:35,240 --> 00:01:39,679 Speaker 2: you have major disruptions in the economy, like with shipping 27 00:01:39,920 --> 00:01:43,960 Speaker 2: or whatever, and prices increase because of that, is increasing 28 00:01:44,040 --> 00:01:48,240 Speaker 2: interest rates actually going to do anything about those particular constraints. 29 00:01:48,720 --> 00:01:51,800 Speaker 2: But then, just beyond those discussions, which we've been having 30 00:01:51,840 --> 00:01:53,960 Speaker 2: for a long time and we now seem to be 31 00:01:54,040 --> 00:01:57,520 Speaker 2: having in reverse, there are also a lot of things 32 00:01:57,520 --> 00:01:59,640 Speaker 2: that central banks have done over the past couple of 33 00:01:59,680 --> 00:02:02,240 Speaker 2: years that are unusual in one way or another. I 34 00:02:02,280 --> 00:02:06,040 Speaker 2: think today we probably you know, twenty twenty was four 35 00:02:06,120 --> 00:02:08,799 Speaker 2: years ago now, and so we've learned to live with them. 36 00:02:08,840 --> 00:02:12,200 Speaker 2: But if you think back, for instance, to the Fed's 37 00:02:12,240 --> 00:02:15,280 Speaker 2: treasury program in March of twenty twenty, right, like that 38 00:02:15,480 --> 00:02:19,160 Speaker 2: was a big deal and they rolled it out really quickly. 39 00:02:19,000 --> 00:02:21,639 Speaker 3: And they also bought a bunch of types of assets 40 00:02:21,760 --> 00:02:24,200 Speaker 3: or entered into a number of markets. I mean, you 41 00:02:24,240 --> 00:02:27,320 Speaker 3: know they're bond, yeah, corrabond, so other markets through which 42 00:02:27,520 --> 00:02:30,000 Speaker 3: the FED is most never touched in the past. The 43 00:02:30,080 --> 00:02:32,360 Speaker 3: other thing that's worth noting here in the preface to 44 00:02:32,400 --> 00:02:35,239 Speaker 3: this conversation is that for the vast majority of people 45 00:02:35,720 --> 00:02:38,320 Speaker 3: that are even vaguely aware of this thing called Jackson Hole. 46 00:02:38,760 --> 00:02:42,040 Speaker 3: It's to the extent that Chairman Jerome Powell give a speech, 47 00:02:42,440 --> 00:02:45,919 Speaker 3: But it is an academic economic conference and they're over 48 00:02:46,040 --> 00:02:49,000 Speaker 3: papers and presented. There is more here than just one 49 00:02:49,040 --> 00:02:49,959 Speaker 3: speech from one guy. 50 00:02:50,120 --> 00:02:53,440 Speaker 2: No, absolutely, there is a series of presentations and papers 51 00:02:53,520 --> 00:02:55,880 Speaker 2: that are presented. And I am very happy to say 52 00:02:56,080 --> 00:02:59,040 Speaker 2: that today we are going to be digging into this 53 00:02:59,160 --> 00:03:02,280 Speaker 2: question of transmission of monetary policy, and we are going 54 00:03:02,320 --> 00:03:06,200 Speaker 2: to be speaking with one of the panelists from the event, 55 00:03:06,280 --> 00:03:08,440 Speaker 2: and he's going to give us a sort of inside 56 00:03:08,480 --> 00:03:11,519 Speaker 2: look at how all of this works. And also, yeah, 57 00:03:11,639 --> 00:03:13,760 Speaker 2: so I am very excited. We have the perfect guest. 58 00:03:14,080 --> 00:03:16,080 Speaker 2: We are speaking with a Neil cashyapp. He is a 59 00:03:16,120 --> 00:03:20,840 Speaker 2: professor of economics and finance at the Chicago Booth School. 60 00:03:20,919 --> 00:03:21,720 Speaker 2: That's a very. 61 00:03:21,480 --> 00:03:23,880 Speaker 3: Ominous yeah, thunder. 62 00:03:25,680 --> 00:03:29,200 Speaker 2: Sound effect. There's a mountain storm rolling in right now. 63 00:03:29,360 --> 00:03:31,560 Speaker 2: And Neil, thank you so much for coming on all thoughts. 64 00:03:31,800 --> 00:03:37,160 Speaker 4: Thank you. Mother Nature is going to supply liquidity. 65 00:03:35,520 --> 00:03:39,160 Speaker 2: It seems like it. Okay, so how does this work? 66 00:03:39,200 --> 00:03:41,680 Speaker 2: How is it that you come to be at Jackson 67 00:03:41,760 --> 00:03:45,560 Speaker 2: Hole and you are asked to give a presentation on 68 00:03:45,960 --> 00:03:49,600 Speaker 2: You were on the Transmission of Monetary policy panel, but 69 00:03:50,440 --> 00:03:53,760 Speaker 2: the particular angle that you were taking or the paper 70 00:03:53,800 --> 00:03:58,000 Speaker 2: you were presenting was monetary policy implications of market maker 71 00:03:58,120 --> 00:04:02,040 Speaker 2: of last resort operations. So how does that come to 72 00:04:02,160 --> 00:04:04,720 Speaker 2: be as a sort of subject to topic for discussion. 73 00:04:05,200 --> 00:04:09,280 Speaker 4: Well, they start trying to put the program together sometime 74 00:04:09,320 --> 00:04:13,600 Speaker 4: around January and they contacted a bunch of people saying, 75 00:04:13,720 --> 00:04:15,800 Speaker 4: this year the theme is going to be X. You've 76 00:04:15,800 --> 00:04:19,039 Speaker 4: written on some issue adjacent to X. Would you be 77 00:04:19,080 --> 00:04:21,920 Speaker 4: interested in preparing a paper? So first thing it has 78 00:04:22,000 --> 00:04:23,440 Speaker 4: to happen is they got to ask you, but you 79 00:04:23,480 --> 00:04:25,280 Speaker 4: also have to have a room in your schedule to 80 00:04:25,320 --> 00:04:28,520 Speaker 4: actually produce something. Now, I was on a panel and 81 00:04:28,560 --> 00:04:32,560 Speaker 4: the panel was about the linkages between the financial system 82 00:04:32,600 --> 00:04:35,240 Speaker 4: and monetary policy transmissions, and that was our little bit 83 00:04:35,279 --> 00:04:38,880 Speaker 4: of it. There were two other papers today about government 84 00:04:38,960 --> 00:04:42,320 Speaker 4: debt markets and also about the Phillips curve. And so 85 00:04:42,760 --> 00:04:47,240 Speaker 4: the conference surrounds the topic of monetary policy transmission through 86 00:04:47,320 --> 00:04:51,440 Speaker 4: a bunch of cumulative papers that are written by different people, 87 00:04:52,000 --> 00:04:55,160 Speaker 4: and then each paper has a discussant discussian's usually also 88 00:04:55,200 --> 00:04:58,440 Speaker 4: written on the topic. So in our case, I got 89 00:04:58,480 --> 00:05:00,520 Speaker 4: a call just saying, you know, you, I've done a 90 00:05:00,560 --> 00:05:04,160 Speaker 4: lot on financial stability and monetary policies are something you 91 00:05:04,160 --> 00:05:05,960 Speaker 4: would be willing to talk about, And I said sure. 92 00:05:06,160 --> 00:05:09,120 Speaker 3: So when we think of monetary policy, we think of 93 00:05:09,600 --> 00:05:12,599 Speaker 3: interest rates, or we think of other tools besides moving 94 00:05:12,680 --> 00:05:15,560 Speaker 3: up and down rates that affect interest rates. So forward 95 00:05:15,600 --> 00:05:19,799 Speaker 3: guidance can be a type of interest rate policy QI 96 00:05:19,839 --> 00:05:23,520 Speaker 3: in a sense can be that as well. During March 97 00:05:23,560 --> 00:05:27,960 Speaker 3: twenty twenty, when the market basically broke, the FED intervened 98 00:05:28,240 --> 00:05:32,560 Speaker 3: massively to stabilize the treasury market in a way that 99 00:05:33,120 --> 00:05:36,560 Speaker 3: maybe mathematically in some sense looks like QWI, but it 100 00:05:36,600 --> 00:05:39,640 Speaker 3: was not QUI in the way that QI was done 101 00:05:39,680 --> 00:05:41,719 Speaker 3: like during the Great Financial Crisis, because it wasn't about 102 00:05:41,800 --> 00:05:44,640 Speaker 3: rate gun and so that came somewhat separate, but it 103 00:05:44,720 --> 00:05:47,360 Speaker 3: still was balance sheet operations in order to stabilize This 104 00:05:47,440 --> 00:05:50,160 Speaker 3: talk a little bit more basically about what your contribution 105 00:05:50,320 --> 00:05:51,719 Speaker 3: the panel was about. 106 00:05:51,480 --> 00:05:55,280 Speaker 4: Well, I pointed out that the Fed's process and explanation 107 00:05:55,360 --> 00:05:57,400 Speaker 4: for what they're doing kind of all pretty quickly. So 108 00:05:57,440 --> 00:05:58,960 Speaker 4: if you go back and look at what they said 109 00:05:58,960 --> 00:06:02,520 Speaker 4: on March fifteenth, they said, you know, we've got to 110 00:06:02,560 --> 00:06:06,720 Speaker 4: stabilize the markets. This is a financial stability intervention. We're 111 00:06:06,760 --> 00:06:09,040 Speaker 4: going to buy this stuff because we think that they're 112 00:06:09,400 --> 00:06:11,920 Speaker 4: kind of plumbing issues in the financial system that are 113 00:06:12,040 --> 00:06:14,440 Speaker 4: messing up the US treasury market, and that market's the 114 00:06:14,440 --> 00:06:18,359 Speaker 4: foundation of everything. By a week later, their next unscheduled meeting, 115 00:06:18,360 --> 00:06:21,160 Speaker 4: they said, and this is also going to support monetary policy. 116 00:06:21,960 --> 00:06:25,240 Speaker 4: By April. You know, now we're six weeks later, they've 117 00:06:25,279 --> 00:06:29,280 Speaker 4: got monetary policy and market functioning side by side completely there, 118 00:06:29,320 --> 00:06:31,680 Speaker 4: and then by the time you get to September, they've 119 00:06:31,760 --> 00:06:35,000 Speaker 4: dropped the financial stability rationale and now they're talking about 120 00:06:35,240 --> 00:06:38,600 Speaker 4: a monetary policy operation by coincidence buying exactly the same 121 00:06:38,600 --> 00:06:42,800 Speaker 4: amount of bonds. So what I said is, you know, 122 00:06:43,520 --> 00:06:46,000 Speaker 4: it worked out and it was certainly appropriate. I think 123 00:06:46,000 --> 00:06:48,080 Speaker 4: there are at least some people in the FED system 124 00:06:48,160 --> 00:06:50,920 Speaker 4: that we'll say, you know, we carried on then for 125 00:06:50,960 --> 00:06:55,080 Speaker 4: another eighteen months buying this stuff, and looking back, do 126 00:06:55,120 --> 00:06:58,200 Speaker 4: we wish we'd stop sooner? Maybe? So that was the 127 00:06:58,360 --> 00:06:59,919 Speaker 4: entry into this discussion. 128 00:07:00,160 --> 00:07:03,160 Speaker 3: Yeah, Tracy, I remember at the time feeling as though 129 00:07:03,160 --> 00:07:05,880 Speaker 3: the FED had sort of backdoored itself into QUEI starting 130 00:07:05,920 --> 00:07:09,000 Speaker 3: with this big asset purchase for pure plumbing reasons, but 131 00:07:09,040 --> 00:07:12,000 Speaker 3: then finding it hard to extricate in the same way 132 00:07:12,040 --> 00:07:14,960 Speaker 3: that like the original QI was in the sense. 133 00:07:14,680 --> 00:07:19,160 Speaker 2: Well also the mission creep from the plumbing of the 134 00:07:19,240 --> 00:07:21,640 Speaker 2: US treasury market, which I think we all agree is 135 00:07:21,760 --> 00:07:26,520 Speaker 2: very important for the overall global markets and also the economy. 136 00:07:27,120 --> 00:07:30,120 Speaker 2: But then they started buying corporate bonds as well, which 137 00:07:30,320 --> 00:07:34,120 Speaker 2: was a huge step change. I remember in the sort 138 00:07:34,160 --> 00:07:37,560 Speaker 2: of like early to mid twenty tens because I was 139 00:07:37,600 --> 00:07:39,680 Speaker 2: covering the corporate bond market at the FT and I 140 00:07:39,680 --> 00:07:42,160 Speaker 2: remember every once in a while I would say, like, oh, 141 00:07:42,240 --> 00:07:44,600 Speaker 2: people say that if this market blows up, the FED 142 00:07:44,680 --> 00:07:47,400 Speaker 2: might have to step in and buy corporate bonds. And 143 00:07:47,440 --> 00:07:49,760 Speaker 2: this was like a big deal. And then fast forward 144 00:07:49,800 --> 00:07:52,400 Speaker 2: to twenty twenty and it happens, and it you know, 145 00:07:52,480 --> 00:07:54,280 Speaker 2: there was so much else going on that it didn't 146 00:07:54,280 --> 00:07:56,680 Speaker 2: get as much attention as it should have in my opinion. 147 00:07:56,960 --> 00:08:00,560 Speaker 2: But anil the corporate bond purchase program, what did you 148 00:08:00,600 --> 00:08:02,760 Speaker 2: think about that and how that fit into. 149 00:08:02,680 --> 00:08:06,239 Speaker 4: Well that Actually, you know, they did buy that stuff, 150 00:08:06,440 --> 00:08:08,920 Speaker 4: but then they got rid of it pretty quickly. So 151 00:08:08,960 --> 00:08:11,480 Speaker 4: there's a little bit of a distinction between what happened 152 00:08:11,520 --> 00:08:13,880 Speaker 4: there and what happened with the treasuries where it kept going. 153 00:08:13,960 --> 00:08:16,080 Speaker 4: So they kept buying the MBS and treasuries for much 154 00:08:16,160 --> 00:08:20,040 Speaker 4: much longer. And what my paper was about was to 155 00:08:20,160 --> 00:08:23,040 Speaker 4: contrast what happened there with what happened in the fall 156 00:08:23,080 --> 00:08:25,960 Speaker 4: of twenty twenty two in the UK disclosure. I was 157 00:08:26,000 --> 00:08:28,040 Speaker 4: on the Financial Policy Committee of the Bank of England 158 00:08:28,040 --> 00:08:30,400 Speaker 4: at that time, so for the beginning of that at 159 00:08:30,480 --> 00:08:33,760 Speaker 4: least I had some first hand experience there, but I'm 160 00:08:33,800 --> 00:08:36,920 Speaker 4: not speaking for the Bank of England here, And that 161 00:08:37,000 --> 00:08:40,000 Speaker 4: program was conducted very quickly. There was thirteen days over 162 00:08:40,040 --> 00:08:42,360 Speaker 4: which they bought and they actually the thing people dind 163 00:08:42,400 --> 00:08:43,920 Speaker 4: not to know is that they sold it all in 164 00:08:43,960 --> 00:08:46,480 Speaker 4: twelve days. So they really got in and got out. 165 00:08:46,559 --> 00:08:47,240 Speaker 3: Oh yeah. 166 00:08:47,280 --> 00:08:49,760 Speaker 4: And they managed to pull that off when they were 167 00:08:49,800 --> 00:08:53,040 Speaker 4: buying for the Financial Stability Rationale at the same time 168 00:08:53,440 --> 00:08:56,880 Speaker 4: they were starting their QT. So here you've got these 169 00:08:56,880 --> 00:08:59,839 Speaker 4: two things. Wait, you're buying, you're selling, Which way do 170 00:08:59,840 --> 00:09:02,120 Speaker 4: you want and habit But they managed to pull it 171 00:09:02,160 --> 00:09:04,599 Speaker 4: off pretty gracefully. And so what I was trying to 172 00:09:04,640 --> 00:09:07,480 Speaker 4: suggest for the FED is maybe they should look at 173 00:09:07,520 --> 00:09:10,640 Speaker 4: their institutional structure and see if they want to do 174 00:09:10,679 --> 00:09:13,280 Speaker 4: a little bit of tinkering so that they would have 175 00:09:14,000 --> 00:09:16,840 Speaker 4: some sort of advisory group that would make the financial 176 00:09:16,840 --> 00:09:19,959 Speaker 4: stability call. That isn't exactly the same people as doing 177 00:09:20,040 --> 00:09:20,800 Speaker 4: monetary policy. 178 00:09:21,160 --> 00:09:24,280 Speaker 3: That's super interesting. I had forgotten that point, how quickly, 179 00:09:24,440 --> 00:09:27,240 Speaker 3: because I remember when the Bank of England stepped into 180 00:09:27,280 --> 00:09:29,880 Speaker 3: the market and people were like, oh, they've backtracked, they've 181 00:09:30,120 --> 00:09:32,000 Speaker 3: lost their heart, they're not going to do it. But 182 00:09:32,120 --> 00:09:35,720 Speaker 3: actually they really had continued the fight against inflation, and 183 00:09:35,760 --> 00:09:39,679 Speaker 3: that ended fairly quickly. See more about like from the 184 00:09:40,280 --> 00:09:44,920 Speaker 3: FED institutional perspective, why the FED has found it challenging 185 00:09:45,040 --> 00:09:48,600 Speaker 3: or did find it challenging in twenty twenty to sort 186 00:09:48,640 --> 00:09:52,599 Speaker 3: of delink asset purchases for the purpose of smoothing a 187 00:09:52,679 --> 00:09:57,400 Speaker 3: market versus asset purchases for the purpose of conducting monetary policy. 188 00:09:57,480 --> 00:10:00,040 Speaker 4: Well, so to be fair to them, I got this 189 00:10:00,320 --> 00:10:03,360 Speaker 4: question in the discussion. Somebody said, well, you know, what 190 00:10:03,400 --> 00:10:05,880 Speaker 4: difference does it make. They bought the stuff. It was 191 00:10:05,960 --> 00:10:07,839 Speaker 4: clear they were going to need to buy much more, 192 00:10:08,200 --> 00:10:11,760 Speaker 4: so you labeled it financial stability. Imagine that they had 193 00:10:11,840 --> 00:10:15,439 Speaker 4: stopped in April, and then the FEC a month later said, 194 00:10:15,480 --> 00:10:17,040 Speaker 4: now we're going to start buying and we're going to 195 00:10:17,200 --> 00:10:19,040 Speaker 4: buy the same amount, You really think it would be 196 00:10:19,040 --> 00:10:23,079 Speaker 4: that different. Maybe in that particular outcome it wouldn't have 197 00:10:23,120 --> 00:10:26,360 Speaker 4: been so different. But my point is more like, you 198 00:10:26,400 --> 00:10:29,520 Speaker 4: never know when the next plumbing problem is going to 199 00:10:29,520 --> 00:10:33,160 Speaker 4: show up and what the circumstances are. And I think 200 00:10:33,200 --> 00:10:35,760 Speaker 4: you would like the market to believe that if you 201 00:10:35,880 --> 00:10:39,199 Speaker 4: do face a Bank of England situation, that you've got, 202 00:10:39,520 --> 00:10:41,960 Speaker 4: you know, a recipe for dealing with it, and that 203 00:10:42,160 --> 00:10:46,000 Speaker 4: you thought it through and people can kind of understand 204 00:10:46,040 --> 00:10:48,400 Speaker 4: the way it's going to work. And to me, if 205 00:10:48,440 --> 00:10:51,840 Speaker 4: it's the exact same group of people who make all 206 00:10:51,920 --> 00:10:53,800 Speaker 4: the same decisions and you want to call this is 207 00:10:53,800 --> 00:10:57,959 Speaker 4: a financial stability, that's a monetary policy decision, I think 208 00:10:58,000 --> 00:11:01,480 Speaker 4: it just muddles the communications. And it also I think 209 00:11:01,520 --> 00:11:05,120 Speaker 4: for the financial stability decisions, there are experts in the 210 00:11:05,120 --> 00:11:08,600 Speaker 4: Federal Reserve system that you might want to consult and 211 00:11:08,960 --> 00:11:12,800 Speaker 4: actually give them a voice. Now, the way the FED works, 212 00:11:12,960 --> 00:11:16,040 Speaker 4: the FOMC owns every decision about the Fed's balance sheet. 213 00:11:16,440 --> 00:11:21,520 Speaker 4: So I recommended this Purchase Facility Committee a PFC, And 214 00:11:22,000 --> 00:11:25,000 Speaker 4: I don't think the PFC could legally order the FED 215 00:11:25,040 --> 00:11:26,800 Speaker 4: to do anything. They could make a recommendation in the 216 00:11:26,880 --> 00:11:29,200 Speaker 4: FMC could then ratify. But I still think there would 217 00:11:29,200 --> 00:11:33,559 Speaker 4: be some benefits to saying, well, our Technical Plumbing Committee, 218 00:11:33,600 --> 00:11:35,960 Speaker 4: you know, is looked at this, decided that there's a 219 00:11:36,000 --> 00:11:38,160 Speaker 4: problem and said why don't you go ahead and act 220 00:11:38,200 --> 00:11:42,080 Speaker 4: on this recommendation. And then presumably then the PFC would 221 00:11:42,280 --> 00:11:44,280 Speaker 4: a few months later say we think this is done. 222 00:11:44,400 --> 00:11:47,120 Speaker 4: You could end it and you can go ahead and 223 00:11:47,160 --> 00:11:51,440 Speaker 4: start selling. And ideally you would have announced the rules 224 00:11:51,520 --> 00:11:53,480 Speaker 4: under which you would sell, you know, or how are 225 00:11:53,480 --> 00:11:54,960 Speaker 4: you going to determine how much you're going to sell? 226 00:11:55,320 --> 00:11:58,120 Speaker 4: Who are you going to sell to? All these kinds 227 00:11:58,160 --> 00:12:01,200 Speaker 4: of things. But there's a bunch of technical issues that 228 00:12:01,280 --> 00:12:03,800 Speaker 4: need to get worked out. And again, if you want 229 00:12:03,840 --> 00:12:06,960 Speaker 4: to convince everybody this is separate, then having a whole 230 00:12:07,000 --> 00:12:09,880 Speaker 4: separate playbook that you point to I think would be valuable. 231 00:12:10,200 --> 00:12:12,600 Speaker 2: I have a Jackson Hole related question on this, but 232 00:12:12,800 --> 00:12:15,560 Speaker 2: you mentioned that someone asked you a similar question at 233 00:12:15,640 --> 00:12:19,559 Speaker 2: the event. What's reception like at these things? How do 234 00:12:19,640 --> 00:12:24,000 Speaker 2: you know if your presentation has been successful? Because something 235 00:12:24,080 --> 00:12:28,439 Speaker 2: like your paper, you're making constructive criticisms of a program, 236 00:12:28,480 --> 00:12:33,120 Speaker 2: but they are to some extent criticisms. Nonetheless, so what 237 00:12:33,120 --> 00:12:35,400 Speaker 2: do people say after you present? 238 00:12:35,880 --> 00:12:37,640 Speaker 4: Well, most of the people that are in that room 239 00:12:37,720 --> 00:12:39,839 Speaker 4: know each other. I've known a lot of these people 240 00:12:39,840 --> 00:12:42,160 Speaker 4: for a long time. Some of them will tell you 241 00:12:42,160 --> 00:12:43,840 Speaker 4: if they think you're full of it, they'll just say, 242 00:12:43,960 --> 00:12:46,920 Speaker 4: I don't you convince me at all. Had somebody tell 243 00:12:46,960 --> 00:12:49,720 Speaker 4: me that just fifteen minutes ago. But there are others 244 00:12:49,720 --> 00:12:51,800 Speaker 4: that said, hey, that's pretty good. I'd like to think 245 00:12:51,800 --> 00:12:53,839 Speaker 4: about that more. Let's stay in touch, you know kind 246 00:12:53,880 --> 00:12:56,640 Speaker 4: of thing. So you're never going to get unanimity in 247 00:12:56,679 --> 00:13:00,880 Speaker 4: a group that diverse, and I think you figure out 248 00:13:00,960 --> 00:13:04,880 Speaker 4: if what you were arguing in favor of actually changes 249 00:13:05,080 --> 00:13:07,240 Speaker 4: what they do. So if they bother to set up 250 00:13:07,240 --> 00:13:10,319 Speaker 4: a PFC or some other central bank, does I think 251 00:13:10,360 --> 00:13:13,200 Speaker 4: that would be fantastic and I think it could happen. 252 00:13:28,880 --> 00:13:31,400 Speaker 3: You know, you mentioned the Bank of England episode in 253 00:13:31,440 --> 00:13:34,920 Speaker 3: twenty twenty two. Similar questions arose in March twenty twenty 254 00:13:34,920 --> 00:13:37,840 Speaker 3: three when SVB blew up and there was once again 255 00:13:37,880 --> 00:13:41,680 Speaker 3: these questions, will the FED have to do something that, 256 00:13:41,800 --> 00:13:45,640 Speaker 3: at least on surface, is in contravention of the ongoing 257 00:13:45,679 --> 00:13:51,800 Speaker 3: fight then against inflation. I'm actually curious this distinction between 258 00:13:52,120 --> 00:13:56,400 Speaker 3: asset purchases for the conduct of monetary policy versus asset 259 00:13:56,440 --> 00:14:00,960 Speaker 3: purchases for the conduct of market stabilization. I would actually 260 00:14:00,960 --> 00:14:05,240 Speaker 3: be curious your story of what does asset purchases for 261 00:14:05,400 --> 00:14:08,319 Speaker 3: monetary policy to do? How does that transmit? How does 262 00:14:08,400 --> 00:14:09,160 Speaker 3: Q transmit? 263 00:14:09,200 --> 00:14:11,120 Speaker 4: Okay, so can I do it in two steps? So 264 00:14:11,240 --> 00:14:16,520 Speaker 4: let me first say, asset purchases for financial stability should 265 00:14:16,559 --> 00:14:19,520 Speaker 4: only be deployed when a lending facility won't work. Going 266 00:14:19,560 --> 00:14:23,400 Speaker 4: back to Badget, everybody understands central banks lend, you know, 267 00:14:23,520 --> 00:14:26,880 Speaker 4: and all of that. So the thing that's weird about 268 00:14:26,880 --> 00:14:31,200 Speaker 4: asset purchases is you're finally admitting, Okay, the lending facility 269 00:14:31,240 --> 00:14:33,760 Speaker 4: isn't enough. In March of twenty twenty three, the lending 270 00:14:33,800 --> 00:14:36,400 Speaker 4: facility work. They didn't actually have to buy anything. So 271 00:14:36,400 --> 00:14:39,360 Speaker 4: it's a little different, and I think making that distinction, 272 00:14:39,680 --> 00:14:42,000 Speaker 4: it's true your balance sheet grows for a little bit 273 00:14:42,160 --> 00:14:44,520 Speaker 4: when you do the lending, but I still think it's 274 00:14:44,520 --> 00:14:48,560 Speaker 4: worth for analytic clarity to separate those two. How does 275 00:14:48,640 --> 00:14:51,680 Speaker 4: QI work? Well, you could have five conferences on that. 276 00:14:52,240 --> 00:14:56,360 Speaker 4: So the fed's theory of this has always been that 277 00:14:56,520 --> 00:15:01,840 Speaker 4: you take duration, you're buying longer term securities. You're taking 278 00:15:01,840 --> 00:15:05,040 Speaker 4: that out of the market. There's people that crave duration, 279 00:15:05,200 --> 00:15:07,760 Speaker 4: that want to have that in their portfolio, and so 280 00:15:08,120 --> 00:15:10,680 Speaker 4: the first thing you do is you reduce the supply 281 00:15:10,760 --> 00:15:14,160 Speaker 4: that's available to market. That lowers interest rates to some extent, 282 00:15:14,240 --> 00:15:17,480 Speaker 4: but it also probably changes term premium because people have 283 00:15:17,520 --> 00:15:19,160 Speaker 4: to now pay a premium. If they want to get 284 00:15:19,160 --> 00:15:21,600 Speaker 4: the treasuries that you've taken away, they're going to bid 285 00:15:21,640 --> 00:15:24,120 Speaker 4: that up, and then if they wanted duration, they're going 286 00:15:24,160 --> 00:15:26,160 Speaker 4: to go find it somewhere else, so that they think 287 00:15:26,200 --> 00:15:30,080 Speaker 4: that that's going to spill over into adjacent markets. It's 288 00:15:30,160 --> 00:15:34,080 Speaker 4: incredibly contentious as to how wide the spillovers are. We 289 00:15:34,120 --> 00:15:36,960 Speaker 4: know the best evidence for QE comes when markets were 290 00:15:37,040 --> 00:15:40,760 Speaker 4: very dysfunctional, and whether this was just a signaling thing 291 00:15:41,200 --> 00:15:44,320 Speaker 4: that's the Fed's got your back, or whether it was 292 00:15:44,400 --> 00:15:47,480 Speaker 4: really this complicated theory I just gave you is very 293 00:15:47,520 --> 00:15:50,880 Speaker 4: hard to know, but I guess that's the state of play. 294 00:15:51,200 --> 00:15:51,400 Speaker 5: Joe. 295 00:15:51,400 --> 00:15:54,200 Speaker 2: Do you remember that Ben Bernanki quote where it was 296 00:15:54,320 --> 00:15:57,880 Speaker 2: like the problem with QE is that it works like 297 00:15:58,200 --> 00:16:02,600 Speaker 2: in practice but not in theory. Yeah, yeah, Okay, Well, 298 00:16:02,800 --> 00:16:04,800 Speaker 2: on that note, maybe we can broaden this out a 299 00:16:04,800 --> 00:16:07,600 Speaker 2: little bit and talk about the transmission of monetary policy 300 00:16:08,160 --> 00:16:10,720 Speaker 2: in general. But it feels like a lot of the 301 00:16:10,760 --> 00:16:14,560 Speaker 2: debates that we had post twenty twenty are now potentially 302 00:16:14,600 --> 00:16:18,080 Speaker 2: happening in reverse, where we're asking, like, Okay, the Fed's 303 00:16:18,120 --> 00:16:20,840 Speaker 2: going to ease what does that actually mean for the 304 00:16:20,880 --> 00:16:23,680 Speaker 2: economy and for markets? How are you thinking about that? 305 00:16:23,800 --> 00:16:26,320 Speaker 4: Okay? I think that question is related to the thing 306 00:16:26,360 --> 00:16:28,240 Speaker 4: that the two of you talked about at the beginning, 307 00:16:28,280 --> 00:16:31,120 Speaker 4: which is, Okay, the Fed's going to hammer the economy. 308 00:16:31,120 --> 00:16:34,480 Speaker 4: They've raised rates, you know, five hundred basis points. The 309 00:16:34,520 --> 00:16:38,520 Speaker 4: economy has not fallen into recession and crashed. So part 310 00:16:38,520 --> 00:16:40,920 Speaker 4: of the motivation for the conference is how did that happen? 311 00:16:41,400 --> 00:16:44,560 Speaker 4: And now inflation is starting to come down? How did 312 00:16:44,560 --> 00:16:48,480 Speaker 4: that happen without slack opening up nearly still happen? I 313 00:16:48,560 --> 00:16:50,880 Speaker 4: think we don't know. Part of it is the stuff 314 00:16:50,920 --> 00:16:53,200 Speaker 4: that we didn't understand or see coming on the way 315 00:16:53,280 --> 00:16:55,800 Speaker 4: up has certainly reversed itself. So some of it they 316 00:16:55,800 --> 00:16:59,280 Speaker 4: got maybe for free. Some of it is people are 317 00:16:59,320 --> 00:17:03,680 Speaker 4: not still asking for aggressive wage increases, so we haven't 318 00:17:03,720 --> 00:17:07,040 Speaker 4: seen these second round effects where because you discover your 319 00:17:07,040 --> 00:17:09,080 Speaker 4: grocery bills higher. You go to your boss and say 320 00:17:09,080 --> 00:17:11,520 Speaker 4: I need a raise, and then he gives you a raise, 321 00:17:11,520 --> 00:17:13,239 Speaker 4: and he has to raise his prices and so on. 322 00:17:13,280 --> 00:17:16,760 Speaker 4: So we haven't had a huge wage price spiral, so 323 00:17:16,880 --> 00:17:21,640 Speaker 4: that's been helpful. Chairman Powell today talked about inflation expectations 324 00:17:21,680 --> 00:17:24,639 Speaker 4: being anchored, and because people kind of trust the Fed, 325 00:17:25,080 --> 00:17:27,639 Speaker 4: they're content to go back for asking for normal raises 326 00:17:27,680 --> 00:17:29,439 Speaker 4: because they think prices are going to grow at the 327 00:17:29,960 --> 00:17:34,640 Speaker 4: normal rate. So I think it's a complicated story. On 328 00:17:34,680 --> 00:17:38,040 Speaker 4: the question of why didn't the economy tip over, I 329 00:17:38,080 --> 00:17:42,440 Speaker 4: think that's a very other contentious debate. Some of it 330 00:17:43,160 --> 00:17:47,400 Speaker 4: looks like the fiscal stimulus was bigger and more targeted 331 00:17:48,040 --> 00:17:50,879 Speaker 4: in ways that impacted monetary policies. So what do I 332 00:17:50,920 --> 00:17:54,320 Speaker 4: mean by that? Well, Number one, auto industry normally gets 333 00:17:54,400 --> 00:17:57,439 Speaker 4: crushed when the Fed hikes interest rates five hundred basis points. 334 00:17:57,640 --> 00:18:01,120 Speaker 4: People still can't get cars from the shortages from four 335 00:18:01,200 --> 00:18:04,000 Speaker 4: years ago, so the auto market hasn't tipped over quite 336 00:18:04,000 --> 00:18:08,960 Speaker 4: so much. Construction normally gets crushed. Well, the Inflation Reduction Act, 337 00:18:09,119 --> 00:18:13,119 Speaker 4: aptly named, has generated all kinds of construction spending, so 338 00:18:13,200 --> 00:18:15,879 Speaker 4: that hasn't tipped over. So those are two of the 339 00:18:15,920 --> 00:18:21,080 Speaker 4: engines that normally tightening would work through that haven't been crushed. 340 00:18:21,119 --> 00:18:24,320 Speaker 4: Now the housing market has been hurt some. But I 341 00:18:24,359 --> 00:18:27,520 Speaker 4: think it is very much an open question as to 342 00:18:27,560 --> 00:18:28,880 Speaker 4: how they've pulled this off. 343 00:18:29,119 --> 00:18:31,359 Speaker 3: What does it say that there are so many open questions, 344 00:18:31,800 --> 00:18:33,000 Speaker 3: like we're like, okay, good time. 345 00:18:34,080 --> 00:18:35,200 Speaker 4: We could have five. 346 00:18:35,119 --> 00:18:39,360 Speaker 3: Conferences on how QUI works alone. We don't really know 347 00:18:39,480 --> 00:18:43,680 Speaker 3: the degree to which interest rate hikes have depressed inflation 348 00:18:43,960 --> 00:18:47,639 Speaker 3: versus some of the reversal of these distinct factors like 349 00:18:47,680 --> 00:18:50,439 Speaker 3: big picture, the fact that like so much and so 350 00:18:50,520 --> 00:18:53,160 Speaker 3: much energy it spends in markets and everyone else thinking 351 00:18:53,160 --> 00:18:57,200 Speaker 3: about monetary policy, and yet these core fundamental questions are 352 00:18:57,240 --> 00:19:00,919 Speaker 3: like massively open for debate, Like what's your take on that. 353 00:19:01,359 --> 00:19:04,119 Speaker 4: I think we got lulled into a sense of false 354 00:19:04,160 --> 00:19:07,200 Speaker 4: security by twenty five years of pretty good luck where 355 00:19:07,200 --> 00:19:11,320 Speaker 4: we didn't have big shocks and where central banks built 356 00:19:11,359 --> 00:19:12,920 Speaker 4: a theory of the case of this is how the 357 00:19:12,960 --> 00:19:16,720 Speaker 4: economy works. We know we can fine tune and land 358 00:19:16,800 --> 00:19:19,200 Speaker 4: things just right. You know, we need to worry about 359 00:19:19,240 --> 00:19:21,960 Speaker 4: these one or two variables. We've got this kind of 360 00:19:22,320 --> 00:19:26,240 Speaker 4: conventional consensus, and you know that kind of got blown 361 00:19:26,320 --> 00:19:29,800 Speaker 4: up in the global financial crisis, where the simple models, 362 00:19:29,800 --> 00:19:32,600 Speaker 4: the Phillip's curve and all that didn't work out so 363 00:19:32,760 --> 00:19:35,280 Speaker 4: much because if you saw the size of that recession, 364 00:19:35,320 --> 00:19:38,600 Speaker 4: you should have had massive disinflation. It didn't happen there. 365 00:19:39,080 --> 00:19:42,280 Speaker 4: Then we didn't see this inflation spike coming. It came. 366 00:19:42,520 --> 00:19:46,800 Speaker 4: Now it's dissipated again, no recession. So I think part 367 00:19:46,800 --> 00:19:49,920 Speaker 4: of it is the period between about nineteen eighty four 368 00:19:50,720 --> 00:19:53,840 Speaker 4: and now has been an anomalous period. We didn't have 369 00:19:53,960 --> 00:19:58,639 Speaker 4: deep recessions, we didn't have these wild external shocks to 370 00:19:58,680 --> 00:20:02,440 Speaker 4: deal with, And I think that also means that it's 371 00:20:02,480 --> 00:20:05,159 Speaker 4: really hard to do empirical work because there's not a 372 00:20:05,200 --> 00:20:07,960 Speaker 4: lot of variants, and so there's lots of theories that 373 00:20:08,040 --> 00:20:11,000 Speaker 4: work just about as well. Like I think inflation is 374 00:20:11,000 --> 00:20:12,840 Speaker 4: going to be what it was last year, that model's 375 00:20:12,920 --> 00:20:14,000 Speaker 4: incredibly hard to beat. 376 00:20:14,359 --> 00:20:18,680 Speaker 2: Speaking of empirical research, I wanted to ask you about 377 00:20:18,880 --> 00:20:21,600 Speaker 2: one of your I think probably one of your most 378 00:20:21,760 --> 00:20:25,600 Speaker 2: well known research projects or papers, and this was on 379 00:20:26,200 --> 00:20:32,040 Speaker 2: price setting. During your PhD, Joe asked you how QY works. 380 00:20:32,040 --> 00:20:33,800 Speaker 2: So I'm going to ask a very simple question and 381 00:20:33,840 --> 00:20:37,000 Speaker 2: then hopefully you can talk about your paper. But what 382 00:20:37,160 --> 00:20:40,600 Speaker 2: changes prices or why do prices change. 383 00:20:40,840 --> 00:20:45,200 Speaker 4: Well, businesses will try to pass through cost shocks when 384 00:20:45,200 --> 00:20:49,240 Speaker 4: they come, but for lots of goods, the cost just 385 00:20:49,320 --> 00:20:53,520 Speaker 4: keep following because automation and just supply chain efficiencies keep 386 00:20:53,520 --> 00:20:55,960 Speaker 4: getting ever greater. If you just look at the way 387 00:20:56,000 --> 00:20:59,720 Speaker 4: that prices for so many goods have evolved, the cost 388 00:20:59,800 --> 00:21:03,520 Speaker 4: just falling, and so we haven't had a great amount 389 00:21:03,600 --> 00:21:06,600 Speaker 4: of cost pressure, at least for goods. Now for services 390 00:21:06,640 --> 00:21:11,520 Speaker 4: it's rather different. And you certainly saw after the pandemic 391 00:21:11,560 --> 00:21:13,679 Speaker 4: if you tried to go on vacation or come to 392 00:21:13,880 --> 00:21:16,520 Speaker 4: any place where it was you could go hiking and 393 00:21:16,600 --> 00:21:19,639 Speaker 4: be away from people, it got really expensive and the 394 00:21:19,640 --> 00:21:21,679 Speaker 4: market cleared by price, just like you got taught in 395 00:21:21,720 --> 00:21:24,679 Speaker 4: your econ one on one class. So I think it 396 00:21:24,800 --> 00:21:27,560 Speaker 4: depends on what you're looking at. I think for the 397 00:21:27,600 --> 00:21:30,600 Speaker 4: service sector the usual story is kind of right. It's 398 00:21:30,640 --> 00:21:33,880 Speaker 4: its demand versus supply, and if the demands urges, price 399 00:21:33,960 --> 00:21:36,600 Speaker 4: is going to go up. In many cases, what you 400 00:21:36,720 --> 00:21:40,640 Speaker 4: actually see, like in supermarkets, is you just see fewer discounts, 401 00:21:41,040 --> 00:21:43,840 Speaker 4: so there's a lot of loss leaders to draw people 402 00:21:43,920 --> 00:21:47,600 Speaker 4: into the stores. When the economy's running really hot. They 403 00:21:47,640 --> 00:21:50,080 Speaker 4: just they do less of that, so that's a hidden 404 00:21:50,240 --> 00:21:53,320 Speaker 4: price increase, but the effective price paid is going to 405 00:21:53,359 --> 00:21:53,680 Speaker 4: go up. 406 00:21:53,840 --> 00:21:55,320 Speaker 3: You know, it occurs to me, you know, you talk 407 00:21:55,359 --> 00:21:58,400 Speaker 3: about this like long stretch of stability, or people talk 408 00:21:58,680 --> 00:22:03,000 Speaker 3: about it the Great moderation and this confidence that like 409 00:22:03,160 --> 00:22:06,200 Speaker 3: central banks or maybe just the FED in particular, has 410 00:22:06,240 --> 00:22:09,040 Speaker 3: this power to sort of solve any problem or smooth 411 00:22:09,080 --> 00:22:10,440 Speaker 3: over any problem. And then there was a lot of 412 00:22:10,560 --> 00:22:14,120 Speaker 3: questions about whether that was true during the Great Financial Crisis. 413 00:22:14,119 --> 00:22:16,440 Speaker 3: But then the economy maybe not as fast as we'd like, 414 00:22:16,520 --> 00:22:20,080 Speaker 3: but it slowly resumed it's ascent. Then COVID comes and 415 00:22:20,119 --> 00:22:22,720 Speaker 3: we get a very different kind of shock and inflationary shock. 416 00:22:23,200 --> 00:22:26,920 Speaker 3: But here we are in August twenty twenty four. Unemployment 417 00:22:27,040 --> 00:22:29,679 Speaker 3: is below four and a half percent, inflation seems to 418 00:22:29,720 --> 00:22:33,439 Speaker 3: be back to target basically, Like, I feel like you 419 00:22:33,440 --> 00:22:35,960 Speaker 3: could tell a story in which all of the belief 420 00:22:36,000 --> 00:22:39,840 Speaker 3: about the omnipotence of the FED actually kind of keeps 421 00:22:39,880 --> 00:22:40,800 Speaker 3: getting vindicated. 422 00:22:41,200 --> 00:22:43,800 Speaker 4: Ah, yes, and no. I mean I think that they 423 00:22:44,080 --> 00:22:48,480 Speaker 4: showed tremendous courage hiking interest rates as fast as they did. 424 00:22:48,520 --> 00:22:51,840 Speaker 4: One of the other panels on my panel was talking 425 00:22:51,840 --> 00:22:55,520 Speaker 4: about communications policy and pointing out how much more predictable 426 00:22:55,560 --> 00:22:58,400 Speaker 4: FED policy has been, which I thought was quite interesting 427 00:22:58,480 --> 00:23:00,639 Speaker 4: to show just how systematic is and it's not just 428 00:23:00,720 --> 00:23:03,479 Speaker 4: the FED, all the central banks have gotten away from this. 429 00:23:03,600 --> 00:23:05,160 Speaker 4: We got to surprise them, you know. 430 00:23:05,760 --> 00:23:07,560 Speaker 2: They thought about that. 431 00:23:07,800 --> 00:23:10,639 Speaker 4: Yeah, think about green Span. I used to give a 432 00:23:10,680 --> 00:23:13,679 Speaker 4: handout to my class of a nineteen ninety one FMC 433 00:23:13,840 --> 00:23:16,080 Speaker 4: meeting where he talked about the journalists are going to 434 00:23:16,119 --> 00:23:18,840 Speaker 4: be watching you at Jackson Hole, the tilt of your head, 435 00:23:18,960 --> 00:23:20,880 Speaker 4: which way you look, and how you answer a question. 436 00:23:20,960 --> 00:23:23,239 Speaker 4: We can't let them know what we're thinking. You know 437 00:23:23,880 --> 00:23:25,480 Speaker 4: now how it used to be like that. 438 00:23:25,600 --> 00:23:28,160 Speaker 3: Yeah, so you surprise their ability to surprise. 439 00:23:28,920 --> 00:23:31,080 Speaker 4: So they've done a lot of good stuff. And if 440 00:23:31,080 --> 00:23:34,040 Speaker 4: you looked in December, somebody raised this at the meeting 441 00:23:34,080 --> 00:23:37,000 Speaker 4: in December of twenty twenty one, if you asked how 442 00:23:37,080 --> 00:23:40,160 Speaker 4: much higher interest rates for forecast to be, I think 443 00:23:40,200 --> 00:23:42,639 Speaker 4: at the end of twenty twenty two it was something 444 00:23:42,800 --> 00:23:45,760 Speaker 4: like seventy five basis points. Well, they blew through that, 445 00:23:46,320 --> 00:23:48,720 Speaker 4: so even they didn't know what they were going to do, 446 00:23:48,800 --> 00:23:51,360 Speaker 4: but once they got going giddy up. 447 00:23:52,320 --> 00:23:54,679 Speaker 2: So the panel where you were speaking it was about 448 00:23:54,760 --> 00:23:59,080 Speaker 2: you know, the financial stability and the transmission of monetary policy, 449 00:23:59,480 --> 00:24:03,679 Speaker 2: and we are coming off of quite a dramatic market event. 450 00:24:04,000 --> 00:24:07,479 Speaker 2: So we're speaking on August twenty third, and then, you know, 451 00:24:07,520 --> 00:24:09,800 Speaker 2: a couple of weeks ago, we have this huge sell 452 00:24:09,800 --> 00:24:12,560 Speaker 2: off in markets, lots of talk about the unwind of 453 00:24:12,560 --> 00:24:15,600 Speaker 2: the carry trade, and at that particular moment in time, 454 00:24:15,720 --> 00:24:18,440 Speaker 2: there were some calls or maybe at least one call 455 00:24:18,880 --> 00:24:22,480 Speaker 2: for the FED to do some sort of emergency intervention. 456 00:24:23,320 --> 00:24:25,639 Speaker 2: Given your knowledge of financial stability and your work on 457 00:24:25,680 --> 00:24:29,359 Speaker 2: this topic, how did you view that episode and what's 458 00:24:29,400 --> 00:24:32,320 Speaker 2: your sense of the response that the central bank should 459 00:24:32,359 --> 00:24:33,800 Speaker 2: have taken if any. 460 00:24:34,160 --> 00:24:36,560 Speaker 4: Well, look, the markets always want to get bailed out, 461 00:24:36,680 --> 00:24:39,320 Speaker 4: so the fact that people were saying that this should 462 00:24:39,359 --> 00:24:43,000 Speaker 4: happen is no surprise. But I use that as an 463 00:24:43,040 --> 00:24:46,199 Speaker 4: example in my talk. I said, you know, it turned 464 00:24:46,200 --> 00:24:48,920 Speaker 4: out in the event that there was not so much 465 00:24:48,920 --> 00:24:51,320 Speaker 4: instability at the beginning of the month as to have 466 00:24:51,440 --> 00:24:54,199 Speaker 4: any central bank have to go intervene. But if they 467 00:24:54,240 --> 00:24:56,960 Speaker 4: had intervened, I think they would have wanted to use 468 00:24:56,960 --> 00:24:59,560 Speaker 4: the Bank of England playbook and they would have wanted 469 00:24:59,560 --> 00:25:01,480 Speaker 4: to say this just like what the Bank of England did, 470 00:25:01,960 --> 00:25:05,560 Speaker 4: and so the spirit of my comments were, Okay, not 471 00:25:05,680 --> 00:25:09,240 Speaker 4: everybody has the legal infrastructure that the BOE does. So 472 00:25:09,480 --> 00:25:12,480 Speaker 4: there is a financial policy Committee, it's by statue, there's 473 00:25:12,800 --> 00:25:15,480 Speaker 4: all these rules around it. If you don't have that, 474 00:25:15,920 --> 00:25:18,960 Speaker 4: why don't you go ahead and set up something that 475 00:25:18,960 --> 00:25:21,800 Speaker 4: would approximate it. So let's suppose the thing in August 476 00:25:21,840 --> 00:25:23,960 Speaker 4: had gotten much worse and had gone on for a 477 00:25:24,000 --> 00:25:26,760 Speaker 4: few more days into a week or two, and then 478 00:25:27,000 --> 00:25:29,240 Speaker 4: somebody was going to buy What would they have said 479 00:25:29,240 --> 00:25:32,600 Speaker 4: about it? You know? And I think they're having the 480 00:25:33,119 --> 00:25:36,800 Speaker 4: playbook worked out and agreed amongst yourselves in advance and 481 00:25:36,840 --> 00:25:40,920 Speaker 4: communicated to markets probably would make that easier next time around. 482 00:25:41,240 --> 00:25:44,440 Speaker 2: Yeah, I remember this was potentially one of the differentiating 483 00:25:44,480 --> 00:25:47,440 Speaker 2: factors of March twenty twenty was that the FED kind 484 00:25:47,440 --> 00:25:51,199 Speaker 2: of had a playbook of what it could potentially do, 485 00:25:51,359 --> 00:25:53,399 Speaker 2: and so it could kind of pull it off the shelf. 486 00:25:54,080 --> 00:25:57,520 Speaker 2: I have just one more question, which is looking over 487 00:25:57,920 --> 00:26:04,080 Speaker 2: your career history and research, it is incredibly varied, probably 488 00:26:04,119 --> 00:26:07,680 Speaker 2: like one of the most varied academic careers that I've seen. 489 00:26:07,840 --> 00:26:11,840 Speaker 2: So you've done work on Japan's economy. I think maybe 490 00:26:11,880 --> 00:26:14,320 Speaker 2: you came up with the term zombie firms, or at 491 00:26:14,400 --> 00:26:17,000 Speaker 2: least you did some of the early work on that topic. 492 00:26:17,480 --> 00:26:22,280 Speaker 2: You did early work on contingent capital Coco's living wills, 493 00:26:22,920 --> 00:26:27,000 Speaker 2: Like how do you decide what you want to look 494 00:26:27,000 --> 00:26:29,280 Speaker 2: at and examine and what do you think you're going 495 00:26:29,359 --> 00:26:30,240 Speaker 2: to be looking at next? 496 00:26:30,680 --> 00:26:33,960 Speaker 4: Well, I mean, one thing kind of leads to another. 497 00:26:34,440 --> 00:26:37,760 Speaker 4: So I started out. I was I was on the 498 00:26:37,800 --> 00:26:42,320 Speaker 4: staff at the board actually, and Greenspan was talking about 499 00:26:42,320 --> 00:26:46,760 Speaker 4: stuff in nineteen ninety that I couldn't understand. And my colleague, 500 00:26:46,800 --> 00:26:49,880 Speaker 4: my longtime co author, Jeremy Stein maybe you've had him 501 00:26:49,880 --> 00:26:52,520 Speaker 4: on here. Jeremy and I were talking and we started 502 00:26:52,520 --> 00:26:54,760 Speaker 4: trying to figure out, like, how do we understand what 503 00:26:54,800 --> 00:26:58,440 Speaker 4: he's talking about? So we started studying banks, how monetary 504 00:26:58,480 --> 00:27:03,040 Speaker 4: policy transmission worked through the banking system. Then we started 505 00:27:03,119 --> 00:27:06,760 Speaker 4: learning about banks and started to think about financial regulation 506 00:27:06,840 --> 00:27:10,520 Speaker 4: because it's kind of tied up. And Japan had this 507 00:27:11,240 --> 00:27:15,520 Speaker 4: really terrible productivity ten year long crisis where the banks 508 00:27:15,520 --> 00:27:16,919 Speaker 4: were in the middle of that. So a lot of 509 00:27:16,960 --> 00:27:20,000 Speaker 4: this is all tied together by banks. Actually, the next 510 00:27:20,040 --> 00:27:24,159 Speaker 4: thing I'm working on is actually money laundering. So imagine 511 00:27:24,920 --> 00:27:27,679 Speaker 4: you think about where the global economy is going to 512 00:27:27,680 --> 00:27:29,920 Speaker 4: be in five or ten years. My guess is there's 513 00:27:29,920 --> 00:27:32,560 Speaker 4: going to be more fragmentation. There'll be a lot of 514 00:27:32,600 --> 00:27:36,679 Speaker 4: stuff on sanctions, there's going to be friendshoring, there's going 515 00:27:36,720 --> 00:27:40,560 Speaker 4: to be all these forces. And that kind of economic 516 00:27:40,680 --> 00:27:46,520 Speaker 4: policy involves the state compelling the private sector to do 517 00:27:46,560 --> 00:27:49,280 Speaker 4: stuff that it wouldn't otherwise do. Okay, when you think 518 00:27:49,320 --> 00:27:52,480 Speaker 4: about most regulation that the government engages, and it's to 519 00:27:52,520 --> 00:27:55,920 Speaker 4: correct an externality, it's some adverse bill over. You know, 520 00:27:56,040 --> 00:28:00,200 Speaker 4: private incentives don't align. This isn't that. This is like, okay, 521 00:28:00,240 --> 00:28:02,080 Speaker 4: we think there's a risk of another nine to eleven. 522 00:28:02,440 --> 00:28:04,720 Speaker 4: We're going to compel you to do a bunch of stuff. 523 00:28:04,720 --> 00:28:07,359 Speaker 4: It might cost you half a billion dollars, but you 524 00:28:07,440 --> 00:28:09,560 Speaker 4: got to do it. Where do you draw the boundaries 525 00:28:09,600 --> 00:28:11,280 Speaker 4: on that, and how do you think about it? Well, 526 00:28:11,359 --> 00:28:14,719 Speaker 4: economists don't have a great way of thinking about problems 527 00:28:14,720 --> 00:28:18,000 Speaker 4: of that sort, because you can't do cost benefit. If 528 00:28:18,240 --> 00:28:21,159 Speaker 4: you know, you think about the value of a human life. 529 00:28:21,600 --> 00:28:23,600 Speaker 4: You could try to start adding this stuff up, but 530 00:28:23,760 --> 00:28:26,840 Speaker 4: it's not very satisfying. It turns out there is one 531 00:28:26,960 --> 00:28:29,760 Speaker 4: part of the US economy where we've run an experiment. 532 00:28:29,800 --> 00:28:32,760 Speaker 4: It's a fifty year old experiment, and it's where we 533 00:28:32,800 --> 00:28:35,840 Speaker 4: compel the private sector to deal with money laundry. And 534 00:28:35,880 --> 00:28:39,280 Speaker 4: so if you look at the history of how money 535 00:28:39,360 --> 00:28:42,480 Speaker 4: laundering laws have evolved, there's a lot of lessons in 536 00:28:42,520 --> 00:28:45,800 Speaker 4: there for once the state starts compelling the private sector 537 00:28:45,840 --> 00:28:48,440 Speaker 4: to do stuff. So, Kate, Judge and I are working 538 00:28:48,480 --> 00:28:49,160 Speaker 4: on a book on this. 539 00:28:49,400 --> 00:28:51,920 Speaker 3: Can you tell us some of the lessons? You know, 540 00:28:52,240 --> 00:28:55,480 Speaker 3: we'll read the book still vite lessons come back? 541 00:28:55,680 --> 00:28:57,800 Speaker 4: Yeah, I mean there's so many. I mean it's gonna 542 00:28:57,800 --> 00:29:03,000 Speaker 4: be a book, but many many analogies about you know, 543 00:29:03,080 --> 00:29:07,400 Speaker 4: you you start out, you don't have an overall set 544 00:29:07,400 --> 00:29:10,200 Speaker 4: of principles and objective, So what do you do? You're reactive, 545 00:29:10,440 --> 00:29:12,800 Speaker 4: So think about the way we did Russian sanctions. It's 546 00:29:12,880 --> 00:29:14,720 Speaker 4: kind of pulled out of the air, made up. You 547 00:29:14,800 --> 00:29:19,160 Speaker 4: look at often their competing aims with respect to money laundering. 548 00:29:19,200 --> 00:29:21,560 Speaker 4: So we don't want to push people out of the 549 00:29:21,560 --> 00:29:25,040 Speaker 4: financial system. But if we make the know your customer 550 00:29:25,040 --> 00:29:28,040 Speaker 4: stuff too onerous, we drive them out. So there's a 551 00:29:28,080 --> 00:29:29,920 Speaker 4: trade off. It's kind of hidden. We don't have a 552 00:29:29,960 --> 00:29:32,360 Speaker 4: good formula for dealing with think about all the things 553 00:29:32,400 --> 00:29:35,120 Speaker 4: we're going to do with which Chinese companies do we 554 00:29:35,200 --> 00:29:37,800 Speaker 4: cut off? Where are we going to draw the boundaries? 555 00:29:37,840 --> 00:29:39,560 Speaker 4: So there's many, many, many analogies. 556 00:29:39,680 --> 00:29:41,120 Speaker 2: All Right, you're going to have to come back on 557 00:29:41,200 --> 00:29:44,120 Speaker 2: All Blots or Kate will to when the book is out, 558 00:29:44,160 --> 00:29:46,720 Speaker 2: to give us all the lessons and all the detail 559 00:29:46,720 --> 00:29:49,200 Speaker 2: and nuance. But in the meantime, and Neil, thank you 560 00:29:49,240 --> 00:29:51,680 Speaker 2: so much for coming on All Blots. Really appreciate it. 561 00:29:51,880 --> 00:29:52,560 Speaker 3: That's fantastic. 562 00:29:52,600 --> 00:30:06,440 Speaker 5: Thank you, Joe. 563 00:30:06,520 --> 00:30:08,920 Speaker 2: That was interesting, and part of me thinks it's kind 564 00:30:08,920 --> 00:30:10,680 Speaker 2: of crazy that that was the first time we had 565 00:30:10,680 --> 00:30:11,160 Speaker 2: Aneil on. 566 00:30:11,400 --> 00:30:14,320 Speaker 3: Yeah, he was great, and I know all these different topics. 567 00:30:14,360 --> 00:30:16,240 Speaker 3: We didn't even really talk about Japan at all. 568 00:30:16,600 --> 00:30:17,680 Speaker 5: Yeah, we could. 569 00:30:17,480 --> 00:30:20,320 Speaker 2: Have done a whole separate episode just on Japan totally. 570 00:30:20,400 --> 00:30:23,560 Speaker 3: I really enjoyed that. And I do remember thinking in 571 00:30:23,560 --> 00:30:27,920 Speaker 3: March twenty twenty that this massive balance sheet expansion that 572 00:30:27,960 --> 00:30:31,880 Speaker 3: the FED engaged in was not the same thing as 573 00:30:31,920 --> 00:30:35,400 Speaker 3: the QWI, even though in the monetary aggregates it looks 574 00:30:35,440 --> 00:30:37,520 Speaker 3: like it's all the same thing on the chart, that 575 00:30:37,560 --> 00:30:40,840 Speaker 3: there was clearly something different, And I remember thinking like, oh, 576 00:30:40,960 --> 00:30:43,320 Speaker 3: it's sort of got a tricky situation here, because then 577 00:30:43,360 --> 00:30:45,880 Speaker 3: they had to figure out the sequence of the unwined Yeah, 578 00:30:46,040 --> 00:30:49,080 Speaker 3: then to the first rate hike, and so it's interesting, 579 00:30:49,400 --> 00:30:50,880 Speaker 3: you know, and then we sort of forgot about that. 580 00:30:50,880 --> 00:30:54,000 Speaker 3: It's ancient history. But the idea that there are costs 581 00:30:54,680 --> 00:30:59,720 Speaker 3: if a market intervention for financial stability purposes ends up 582 00:30:59,840 --> 00:31:02,600 Speaker 3: in intersecting with whatever you're trying to fight on the 583 00:31:02,600 --> 00:31:03,360 Speaker 3: macro front. 584 00:31:03,400 --> 00:31:05,800 Speaker 2: Right with monetary policy, and then you get those sort 585 00:31:05,800 --> 00:31:09,360 Speaker 2: of cross currents. The other thing we'll have to watch 586 00:31:09,400 --> 00:31:13,480 Speaker 2: out for going forward is if there is a PFC created. Yeah, 587 00:31:13,600 --> 00:31:15,040 Speaker 2: we'll know where it came from. 588 00:31:15,120 --> 00:31:17,920 Speaker 3: Well, because everyone listened to odd Lots or either that, 589 00:31:18,160 --> 00:31:20,800 Speaker 3: or maybe it came from all present the room at 590 00:31:20,880 --> 00:31:23,000 Speaker 3: Jackson Hole. It's got to be one of the other though. 591 00:31:23,280 --> 00:31:26,120 Speaker 3: But the intuition there makes a lot of sense. And 592 00:31:26,160 --> 00:31:29,640 Speaker 3: I had forgotten. I didn't forget the whole Bank of 593 00:31:29,680 --> 00:31:33,800 Speaker 3: England liz Trust Pound mini crisis in late twenty twenty two, 594 00:31:34,240 --> 00:31:36,720 Speaker 3: but I had forgotten how quickly the Bank of England 595 00:31:37,000 --> 00:31:39,920 Speaker 3: was able to extricate itself. Yeah, and because there were 596 00:31:39,920 --> 00:31:41,680 Speaker 3: a bunch of you know, people like ah, you like 597 00:31:41,760 --> 00:31:43,960 Speaker 3: lost your will and the fight against inflatia is there. 598 00:31:44,000 --> 00:31:46,040 Speaker 3: They do it again and of course, you know, there 599 00:31:46,120 --> 00:31:48,720 Speaker 3: was the opening of the discount window or discount window 600 00:31:48,720 --> 00:31:50,800 Speaker 3: activity in March twenty twenty three in the US. 601 00:31:51,080 --> 00:31:51,600 Speaker 5: It kind of. 602 00:31:51,520 --> 00:31:54,960 Speaker 2: Got lost in the political drama. Totally happened afterwards, but 603 00:31:55,320 --> 00:31:55,720 Speaker 2: it wasn't. 604 00:31:56,040 --> 00:31:58,280 Speaker 3: Both of those are examples of how there are certain 605 00:31:58,320 --> 00:32:01,000 Speaker 3: aspects of the balance sheet that don't evitably have to 606 00:32:01,080 --> 00:32:04,800 Speaker 3: interact with like the macro fights you're trying to have, right. 607 00:32:04,720 --> 00:32:08,400 Speaker 2: Like, you can design these sort of last resort programs 608 00:32:08,920 --> 00:32:12,800 Speaker 2: to fine tune certain aspects with financial markets totally. 609 00:32:12,840 --> 00:32:16,000 Speaker 3: And this is where, like, if you accept the premise 610 00:32:16,320 --> 00:32:19,440 Speaker 3: that there is a fundamental difference between asset purchases for 611 00:32:19,520 --> 00:32:23,400 Speaker 3: financial stability versus asset purchases to drive interest rates lower 612 00:32:23,520 --> 00:32:26,280 Speaker 3: take duration out of the market, then this is where 613 00:32:26,320 --> 00:32:30,960 Speaker 3: the problem of a sort of pure money supply approach 614 00:32:31,880 --> 00:32:34,920 Speaker 3: comes from, because again, on paper, it's all the same 615 00:32:35,080 --> 00:32:37,000 Speaker 3: M like M one on or M two whatever it is, 616 00:32:37,480 --> 00:32:40,160 Speaker 3: but they do have different functions. And I do think 617 00:32:40,200 --> 00:32:43,320 Speaker 3: this is where sometimes people get led astray simply by 618 00:32:43,360 --> 00:32:46,040 Speaker 3: looking at that aggregate chart and not realizing that at 619 00:32:46,040 --> 00:32:50,040 Speaker 3: different times those purchases, even though it's still just you know, 620 00:32:50,120 --> 00:32:52,720 Speaker 3: reserves for securities can do different things. 621 00:32:52,840 --> 00:32:55,200 Speaker 2: Yeah, I think that's right. All right, shall we leave 622 00:32:55,200 --> 00:32:55,440 Speaker 2: it there. 623 00:32:55,480 --> 00:32:56,200 Speaker 3: Let's leave it there. 624 00:32:56,400 --> 00:32:59,240 Speaker 2: This has been another episode of the All Thoughts podcast. 625 00:32:59,320 --> 00:33:02,480 Speaker 2: I'm Tracy. You can follow me at Tracy Alloway. 626 00:33:02,240 --> 00:33:04,920 Speaker 3: And I'm Jill Wisenthal. 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