Cheryl,
bog.frb.fed.us
Let's look at these extracts
The big question, what, to Alan et al, is ad hoc
The current crisis, ..., will have to be addressed with ad hoc remedies...transparency, legal structures, supervision, fiscal/monetary policies longer time to bite
pivot point, why a high real federal funds rate no longer as critical:
Since then, deteriorating foreign economies and their spillover to domestic markets have increased the possibility that the slowdown in the growth of the American economy will be more than sufficient to hold inflation in check
the problem overhang of unhedged dollar holdings especially in countries with currecny pegged to the dollar, rates on dollar denominated debt in emerging countries too high
This phenomenon [borrowing cheap dollars, lending at higher rates in local currencies], and its risky exploitation, is one important element in the current crisis and a symptom of what has gone wrong generally. What appeared to be a successful locking of currencies onto the dollar over a period of years in East Asia and elsewhere, led, perhaps inevitably, to large borrowings of cheaper dollars to lend at elevated domestic interest rates, with the intermediary pocketing the devaluation risk premium. When the amount of unhedged dollar borrowings finally became excessive, as was almost inevitable, the exchange rate broke.
looks like a cut fed funds rate might be ad hoc
see also
Message 5821617
Message 5763255
Let's also read this:
bog.frb.fed.us
Nancy |
