A Benjamin Cole post
With the insouciance of a true international central banker, Raghuram Rajan, the outgoing Governor of the Reserve Bank of India recently opined in Project Syndicate that “what we need are monetary rules that prevent a central bank’s domestic mandate from trumping a country’s international responsibility.” here
You might think the transcontinental University of Chicago grad Rajan has in mind tighter money everywhere and always, because a looser monetary stance would lower the exchange rate of a nation’s currency, and that is a “beggar thy neighbor” policy.
But maybe not.
While suggesting coordinated rate moves and so forth, Rajan makes breezy allusion to central-bank financing of national outlays. “If all else fails, there is always the “helicopter drop,” whereby the central bank prints money….”
Rajan then links to a Project Syndicate piece by Kemal Dervis, former Minister of Economic Affairs of Turkey and a vice president of the Brookings Institution, who is a fan of helicopter drops, or more accurately “money-financed fiscal programs,” that is financing government deficits through central bank money printing. here
Until recently, helicopter drops have been heresy in monetary circles, despite the success of money-financed fiscal programs in averting the brunt of the Great Depression in Japan, under their brilliant central banker, Takahashi Korekiyo. But of late the likes of British monetary authority Lord Adair Turner and noted Colombia University scholar Michael Woodford have tipped their hats to helicopter drops.
Bring On Beckworth
Fun would be to listen in on a podcast between senior research fellow with the Mercatus Center Program on Monetary Policy economist David Beckworth and Rajan.
The ever-insightful Beckworth has pointed out that the U.S. Federal Reserve essentially exports monetary policy to almost half of the globe’s economy. Here’s Beckworth on the post-Brexit U.S. dollar strength: “Why does a strengthening dollar matter? There are two reasons. First, over 40 percent of the world economy ties its currency to the dollar in some form….That means when the dollar strengthens, these currencies strengthen too. This is the curse of the so called ‘dollar block’ countries–they import their monetary policy from abroad. Via this channel, Brexit has just further tightened monetary conditions in all these countries.”here
But why blame Brexit? The Fed has been tight for years, as seen by the shriveled inflation, NGDP growth and interest rates of the United States.
Perhaps Beckworth should ask if Rajan thinks the U.S. Fed should loosen up and let some air into the global economy, given the “international obligations” of Chair Janet Yellen.
And helicopter drops? Hey, send in the B-52s. Why dilly-dally around?