Currencies, Capital, Central Bank Balances — 5th in a Series

The most recent book, Currencies, Capital, and Central Bank Balances, in a series on monetary policy has just been published. As the line-up of covers below shows, it is the 5th in a series of volumes emerging from conferences on monetary policy held each spring at the Hoover Institution. The series started during the Federal Reserve Centennial. The conferences at that time did not, in our view, portray a full range of views about policy. So we decided to start a conference series with a bigger range of views, and it has been popular. Next May 3 we will have the 6th conference and a book will likely emerge.

Currencies, Capital and Central Bank Balances focuses on several pressing issues in monetary policy with a tilt toward international issues. One issue concerns the international flow of money and capital and exchange rate volatility.  The key policy question is whether the IMF’s increasing use of capital flow management through government restrictions on cross-border flows can reduce capital flow and exchange rate volatility without creating growth-reducing market distortions and other sources of instability. Jonathan Ostry of the IMF argues for such controls, while Sebastian Edwards points out the problems. In my paper I argue that a rules-based international system of monetary policies is a better approach.

Another policy issue is the size of central bank balance sheet and its use as a separate monetary policy instrument in addition to the interest rate. The key question is whether central bank balance sheets should stay large or whether they should be reduced to a level in which interest rates are market-determined. Lorie Logan, Mickey Levy, Bill Nelson and Peter Fisher all weight in on the issue.

These issues are related because central bank balance sheet operations affect exchange rate and capital flow volatility. Both issues are currently on the policy agenda. The G20 Eminent Persons Group just made recommendations about policy toward capital flows, and the Fed is now making key decisions about the ultimate size of its balance sheet.

The book can be down loaded or purchased. There is much to be learned from  the many contributors including policy makers, academics and market participants: Adrien Auclert, Raphael Bostic, John Cochrane, Sebastian Edwards, Peter Fisher, Esther George, Gita Gopinath, Oleg Itskhoki, Robert Kaplan, Mickey Levy, Lorie Logan, Prachi Mishra, Bill Nelson, Jonathan Ostry, Kyle Palermo, Monika Piazzesi, Charles Plosser, Randy Quarles, Raghuram Rajan, Tom Sargent, Martin Schneider, George Shultz, Paul Tucker, Kevin Warsh, and  John Williams.


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