The BIS annual report released last weekend has been ‘dissected’ by many but if you want the best and most detailed critical analysis, Ryan Avent´s ‘ME report’ is the place to go. One quote:
The annual report is a remarkable document, one which might well come to serve as the epitaph for an era of central banking spanning the Volcker disinflation and the Great Recession—the epoch of the central banker as oracle, guru, maestro. If the end of this era is upon us, we can credit a series of revelations: that central bankers learned the lessons of economic history less well than they’d thought, that they displayed an unfortunate tendency to set aside economic rigour in favour of an obsessive focus on price stability, and (perhaps most importantly) that they are in more need of democratic accountability than is often assumed. Above all, the report captures what may be the most critical error of the modern central banker: eschewing a focus on his proper domain—demand stabilisation—in favour of an arena in which he has no business sticking his nose—the economy’s supply side.
The irony is that, considering only the Volcker-Greenspan-Bernanke triumvirate, Bernanke was supposed to know the “lessons of economic history” better than any other but ended up showing the most “obsessive focus on price stability”, to the economy´s loss.
Greenspan has been the most ‘candid’ about the Fed´s ‘power’. In the closing of chapter 20 (The Conundrum) of his “The Age of Turbulence” – an interesting take on the so called “Great Moderation”, Greenspan ‘confesses’ utter surprise with the outcome:
Many economists in fact credit central bank monetary policy as the key factor in the last decade´s reduction in inflation worldwide. I would like to believe that. I do not deny that we adjusted policy to be consistent with global disinflationary trend as they emerged. But I very much doubt that either policy actions or central bank anti-inflationary credibility played the leading role in the fall of long term interest rates in the past one to two decades. The decline (and the conundrum) can be accounted for by forces other than monetary policy. In fact, during my experience since the mid-1990s with the interaction between the policies of the world´s central banks and the financial markets, I was struck by how relatively easy it was to bring inflation down. The inflationary pressures of which I was so acutely aware in the late 1980s were largely absent or, more accurately, dormant. The “conundrum” exposed this point.
And he got nicknamed ‘Maestro’!