ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

MIT Pours Salt Into Jackson Hole

Updated on September 4, 2012
"Mind and Hand"
"Mind and Hand"

Central Bank Mind and Hand Coordination

In MIT Pours Salt into Global Central Bank Liquidity, it was observed that the "Minds and Hands" of today's central bankers had been conditioned and coordinated at MIT. The meeting of these minds and hands at Jackson Hole, was another opportunity to observe this conditioned thinking translating into policy action.

Defending QE

Ben Bernanke used the Jackson Hole platform as an opportunity to defend the record of Quantitative Easing; and prepare the way for more of the same. His paper entitled Monetary Policy Since the Onset of the Crisis laid out the monetary history of the US economy since the crisis began. He credits Quantitative Easing with raising GDP by 3% and creating 2 million jobs. Following his train of thought; when he stated that economic performance currently was unacceptable, he was implying that there is room for more Quantitative Easing.

The Fed's broken monetary transmission mechanism
The Fed's broken monetary transmission mechanism | Source
US GDP (blue line) is below its potential (red line)
US GDP (blue line) is below its potential (red line) | Source

Taking Bernanke With a Big Pinch of Salt

The custodians of the Saltwater School for Minds and Hands appear to have taken issue with their alumnus. As far as MIT is concerned, the record of Quantitative Easing is not proven; and they suggest a far less equivocal policy tool instead. Michael Woodford of MIT was entrusted with the intellectual demolition job on Bernanke's QE; and the construction of its replacement. Woodford's paper entitled Methods of Policy Accommodation at the Interest-Rate Lower Bound was designed to follow on from Quantitative Easing, rather than to contradict and discredit it. Woodford presented evidence that gave Bernanke the benefit of the doubt; by suggesting that the benefits of Quantitative Easing were diluted by poor policy communication. In effect when Bernanke Quantitatively Eased, this was undone by policy communication that suggested tightening soon after. As a result, the Fed has expanded Reserves in the banking system, but these Reserves have remained there and not been multiplied throughout the economy. Woodford directly links this broken monetary transmission mechanism to the issue of communication. The banks and borrowers are confused about the intentions and capabilities of the Fed; therefore they don't lend or borrow respectively.

To rectify the matter, Woodoford suggested that Fed policy statements had a greater impact on interest rate expectations and the course of monetary policy. The impact of the Bank of Canada's policy statements were presented as evidence of how strong and clear communication could be achieved effectively.

The ideal communication strategy should also be linked to a stated policy aim that interest rates will remain low and policy will be loose until growth reaches its potential target. The Fed's Growth Mandate therefore is defined with a growth target.

Bernanke is currently defending the Growth Mandate, so having a stated growth target plays to his requirements.There is a dilemma however for Bernanke, because under his tenure and commitment to transparency Fed Governors have adopted the habit of making conflicting speeches simultaneously. Woodford is therefore implying that the Fed should speak with one voice; and that this voice should be Bernanke's. Once again, this suggestion plays to Bernanke's requirements.

It will be interesting to observe any changes in Fed communication policy; that signal the adoption or negation of the suggestions from MIT. The adoption of a specific growth target to go with their inflation target, would be the salty aftertaste from Jackson Hole.


This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)