SLIDE 1
From Chronic Inflation to Chronic Deflation
Discussant: Gita Gopinath Harvard University
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Highlights
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From Chronic Inflation to Chronic Deflation Discussant: Gita - - PowerPoint PPT Presentation
From Chronic Inflation to Chronic Deflation Discussant: Gita - - PowerPoint PPT Presentation
From Chronic Inflation to Chronic Deflation Discussant: Gita Gopinath Harvard University 1 Highlights 2 Highlights Blind Spots: 1. Expectations driven crises 2. Liquidity crises 2 Highlights Blind Spots: 1. Expectations driven
SLIDE 2
SLIDE 3
Blind Spots: 1. Expectations driven crises 2. “Liquidity” crises
Highlights
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SLIDE 4
Blind Spots: 1. Expectations driven crises 2. “Liquidity” crises
Highlights
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Policy: 1. Ensure sufficient “liquid/safe assets” 2. Global coordination of policy
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Expectations Crises: Draghi Put
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Policy Implications
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SLIDE 7
Does ability to inflate reduce exposure to roll-
- ver crises?
Policy Implications
4
SLIDE 8
Does ability to inflate reduce exposure to roll-
- ver crises?
Policy Implications
4
Not necessarily
SLIDE 9
Does ability to inflate reduce exposure to roll-
- ver crises?
Should monetary policy play an active role in debt crises?
Policy Implications
4
Not necessarily
SLIDE 10
Does ability to inflate reduce exposure to roll-
- ver crises?
Should monetary policy play an active role in debt crises?
Policy Implications
4
Not necessarily Yes
SLIDE 11
Does ability to inflate reduce exposure to roll-
- ver crises?
Should monetary policy play an active role in debt crises?
Policy Implications
4
Not necessarily Yes
Aguiar, Amador, Farhi and Gopinath (2014)
Crisis and Commitment: Inflation Credibility and the Vulnerability to Self-fulfilling debt crisis Coordination and Crises in a Monetary Union
SLIDE 12
Does ability to inflate reduce exposure to roll-
- ver crises?
Should monetary policy play an active role in debt crises?
Policy Implications
4
Not necessarily Yes
Aguiar, Amador, Farhi and Gopinath (2014)
Crisis and Commitment: Inflation Credibility and the Vulnerability to Self-fulfilling debt crisis Coordination and Crises in a Monetary Union
SLIDE 13
Liquidity Crises
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Unconventional Policy
- Buy toxic assets
- Increase government debt
- Forward guidance weak
Safe Asset Supply (trillions of $)
5.25 10.5 15.75 21 2007 2011
Caballero and Farhi (2014)
Unsavory Spillovers
- Search for other “safe assets”
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Is there still a Liquidity Crisis?
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Stein 2013 (for the U.S)
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Is there still a Liquidity Crisis?
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Stein 2013 (for the U.S)
Rising private-sector debt
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Is there still a Liquidity Crisis?
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Stein 2013 (for the U.S)
Rising private-sector debt Narrowing spreads between risk-free T reasuries and corporate bonds
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Is there still a Liquidity Crisis?
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Stein 2013 (for the U.S)
Rising private-sector debt Narrowing spreads between risk-free T reasuries and corporate bonds growing proportion of corporate debt going to riskier companies
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Is there still a Liquidity Crisis?
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Stein 2013 (for the U.S)
Rising private-sector debt Narrowing spreads between risk-free T reasuries and corporate bonds growing proportion of corporate debt going to riskier companies
Caballero and Farhi (2014): High excess returns in
stock market
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Is there still a Liquidity Crisis?
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Is there still a liquidity crisis?
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- T
rend Vs Cycle
- Demographics
- Slowing productivity
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Global Headwinds
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T ake Aways
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T ake Aways
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1. “Liquidity” scarcity has grave consequences
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T ake Aways
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1. “Liquidity” scarcity has grave consequences
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T ake Aways
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1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
SLIDE 26
T ake Aways
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1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
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T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
SLIDE 28
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think.
SLIDE 29
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think.
SLIDE 30
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think. 4. Methodology: Rational Expectations
SLIDE 31
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think. 4. Methodology: Rational Expectations
- Don’t throw out the baby with the bath water.
SLIDE 32
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think. 4. Methodology: Rational Expectations
- Don’t throw out the baby with the bath water.
SLIDE 33
T ake Aways
9
1. “Liquidity” scarcity has grave consequences 2. Unconventional policies here to stay
- Create more safe assets
3. Need a globally coordinated plan for the next liquidity crisis…which may be sooner than you think. 4. Methodology: Rational Expectations
- Don’t throw out the baby with the bath water.