Source stringclasses 1
value | Date int64 1.98k 2.01k | Text stringlengths 2 27.1k | Token_count int64 1 5.57k |
|---|---|---|---|
fomc | 2,004 | Let me answer your questions in reverse order, if you don't mind. There is a difference in some of the conclusions we draw about pass-through, and I think it would be worth airing that a little. You might ask, What if we just extended that saving line, wouldn't everything have been wonderful? But the point of that pane... | 440 |
fomc | 2,004 | So basically we would need three things to happen domestically and one internationally. On the international side, foreign economies have to grow faster. Domestically, we have to have more saving, hopefully not too much less investment, and the fiscal deficit has to go down a little. | 56 |
fomc | 2,004 | Right. I think we're confusing endogenous and exogenous things here, which makes me a little nervous. But somewhere along the way there needs to be a mechanism that "crowds in," to use David's language, exports and helps to get external balance out of the fiscal action. The same story would have been true had the origi... | 152 |
fomc | 2,004 | And in the staff model, it would be about $1.00 of trade adjustment for every $3.00 of fiscal contraction. | 27 |
fomc | 2,004 | You did have a 30 percent figure in there. But 30 percent is better than nothing. | 20 |
fomc | 2,004 | I will take thirty seconds on this question about whether these numbers in exhibit 4 are big or little, and then we will turn to the pass-through question. It is true that the 37 percent of GDP for Europe or the 56 percent of GDP for Canada that are shown in that exhibit are big numbers. But remember, on this basis, ca... | 122 |
fomc | 2,004 | Oh, okay. | 4 |
fomc | 2,004 | We'll turn to the pass-through question. Linda. | 10 |
fomc | 2,004 | We do have a disagreement on what we think the pass-through is. I'm guessing that, in the end, there won't be as much disagreement about that going forward as it might appear. Let me go through what the difference is. When I talk about pass-through of exchange rates, I'm referring to the pass-through of exchange rate m... | 104 |
fomc | 2,004 | About 25. | 4 |
fomc | 2,004 | It's about 25 percent in the Board's simulation model. So we have a different sensitivity of import prices to exchange rate changes, and that has a number of effects in terms of what you see here in our materials. Looking at exhibit 5 in Karen's and Joe's material, the disorderly adjustment scenarios, if the pass-throu... | 424 |
fomc | 2,004 | I think we agree on what we've seen in the past and, of course, we both are wondering what will happen in the future. I'd just like to say that I believe a lot of the differences in our views come from how we think about commodities. That's an issue to consider going forward. We both looked at import prices, disaggrega... | 432 |
fomc | 2,004 | President Moskow. | 4 |
fomc | 2,004 | Mr. Chairman, my question was asked already, so I'm going to pass. | 16 |
fomc | 2,004 | Governor Bernanke. | 4 |
fomc | 2,004 | Thank you. Joe, in modeling the current account deficit, you have to explain where it came from. A big part of your story is that U.S. assets and foreign assets are imperfect substitutes, and there was a big exogenous increase in the foreign demand for U.S. assets. I understand why you did that, but that's a very impor... | 172 |
fomc | 2,004 | You are referring to the background paper that we circulated? | 11 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | In that we had a somewhat different model simulate a rise and fall in the current account balance. I'm not sure that we are here to hang our hat on one explanation for the rise and fall of the current account; clearly a number of things were going on then. I wouldn't say that the portfolio preference shock is entirely ... | 220 |
fomc | 2,004 | I was also pointing out that this assumption has important implications for the way the model works. For example, relatively small changes of demands in the portfolio can have large effects on relative asset prices. How sensitive are your simulations to that assumption? | 47 |
fomc | 2,004 | That's a very good question. I don't sense that it is that important. A movement in foreign exchange intervention of, say, $100 billion or so in the model is not going to swamp the exchange rate, if that's what you're saying. Is the portfolio balance built to do that? No, I don't think it would do that. I actually can'... | 208 |
fomc | 2,004 | Governor Olson. | 3 |
fomc | 2,004 | Coming back to the point that several have made about the frustration with the absence of a response to the external imbalance issue, there has been talk about a fiscal policy response and even a monetary response in the instance of a disorderly threat. My question--and I asked this of Joe at the break--is what the eff... | 144 |
fomc | 2,004 | The one stumbling block in trying to analyze this problem that we've encountered since we began--we have a little cottage industry here, and I have been doing this for eight or nine years of my life now--is that we don't have the capacity to relate exchange rates, in real time or hypothetically in a model, to a number ... | 307 |
fomc | 2,004 | Well, let me come at it from the other direction. What is the impact of staying pretty close to the position generally espoused by the Secretary of the Treasury--except for O'Neill who was somewhat more flexible on it--of being supportive of a strong dollar position? The current Secretary has maintained that position, ... | 78 |
fomc | 2,004 | Part of me clings to the hope that oral intervention of whatever sort has a marginal and only transitory effect on exchange rates and that deep down the economic fundamentals drive the process, regardless of what anybody says. | 42 |
fomc | 2,004 | So that ought to work the other way also, on the downside? | 14 |
fomc | 2,004 | It should. | 3 |
fomc | 2,004 | Vice Chair. | 3 |
fomc | 2,004 | I have a question for Karen and Joe. Karen, do you want to hazard a view on whether the probability of a benign adjustment exceeds that of a malign disorderly adjustment? | 35 |
fomc | 2,004 | Ask her to predict the exchange rate! | 8 |
fomc | 2,004 | We're just not in the business of predicting crises here. Down deep the things that make the U.S. economy different from the rest of the world I think are overpowering in terms of the role of the dollar, notably the size of the economy, the flexibility of the markets, and the depth and size of the asset markets. The no... | 175 |
fomc | 2,004 | So in a sense, you think we control the risk? | 12 |
fomc | 2,004 | If U.S. macroeconomic policy remains well grounded, if the value of goods in terms of U.S. dollars is well maintained by this Committee, if nature doesn't impose some truly exogenous crazy event on the U.S. economy, and if U.S. fiscal policy could get a little better, I think those are the things that will determine ho... | 209 |
fomc | 2,004 | I want to come back to scenario 1 in your exhibit 5, in which you have the dollar falling 30 percent in a year. Certainly an outright cliff of that magnitude in a year-- | 40 |
fomc | 2,004 | It's in two quarters actually. | 6 |
fomc | 2,004 | In two quarters. And you assume that comes with no increase in risk premiums on other U.S. financial assets. I'm asking how realistic is that? | 30 |
fomc | 2,004 | No, no. You should think of scenario 1 as just an initial description of an element that is in the whole set of scenarios. We didn't really mean for you to take scenario 1 seriously without scenario 2 coming along as well. That was more an analytical clarification. We think that much dollar depreciation would roil mark... | 67 |
fomc | 2,004 | In that short a time period. | 7 |
fomc | 2,004 | Yes, in that short a time period. As indicated in exhibit 6, starting in 1985 a depreciation of that magnitude occurred over 21/2 years. | 34 |
fomc | 2,004 | And in 1986 we sat here and had a conversation--one in which I actually participated, sort of in Linda's role--and tried to ferret out what the consequences were going to be of the dollar depreciation that was in train and how much dislocation there would be. We were all concerned about whether there would be enough do... | 194 |
fomc | 2,004 | In my own mind--Joe actually did this page, so he might have a different way of explaining it--I don't think of the shock in scenario 1 as causing the shock of scenario 2. If people were to wake up and decide that they didn't want to hold claims in the United States, that would mean that all those things would occur at... | 101 |
fomc | 2,004 | So you've drawn no particular policy implications in terms of things we could do to mitigate the risk of an adverse outcome beyond what we would do anyway, such as try to keep monetary policy credible, inflation expectations low, and rediscover fiscal virtue. Another question is, Does it matter at all what happens to e... | 67 |
fomc | 2,004 | I see that as affecting the path. In other words, those countries are in some sense financing our deficit. Official finance is a variant of private finance; it has different incentives behind it and perhaps works through other asset markets a bit differently. But what the Asian official sector is now doing is in part f... | 271 |
fomc | 2,004 | May I just add one point? I fully agree, but in addition to the exchange rate policies in greater Asia, there's the question of whether demand management there can ultimately help push toward the benign outcome. If we get increased openness and thus greater consumption of U.S. goods--so that basically those markets bec... | 119 |
fomc | 2,004 | Governor Kohn. | 4 |
fomc | 2,004 | Actually, I was going to ask about this last point, the Asian dollar block. Let me just ask one variant on that. The Europeans sometimes complain that the Asian dollar block forces more adjustment through them. But I would say that that is not necessarily the case. It could mean that the Asians, by absorbing these clai... | 80 |
fomc | 2,004 | That is certainly the attitude that the staff has taken. We've even written those points down, and we've asked the Chairman to say them out loud, and he has. [Laughter] | 37 |
fomc | 2,004 | And nobody knocked me down! | 6 |
fomc | 2,004 | You're just following orders, I know. [Laughter] | 12 |
fomc | 2,004 | In part, it goes back to this unanswered question of exchange rate determination. In essence, that conclusion follows from a kind of portfolio balance theory of the exchange rate. What it says is that, when the Chinese, for example, take dollars off the market and out of the hands of the private sector, they make dolla... | 197 |
fomc | 2,004 | While I have the floor, let me make one comment on fiscal policy and the exchange rate correction--the fiscal rectitude point. I've told the same story that we're telling here, but I also remember the lively discussion that Chairman Greenspan started in Jackson Hole about ten years ago, when he said that he thought nar... | 128 |
fomc | 2,004 | There are time-varying and policy-varying risk premiums on most of those equations, and we can get different outcomes. | 26 |
fomc | 2,004 | Governor Bies. | 4 |
fomc | 2,004 | I have two questions. The first one is for Joe and Karen because I was thinking about financial markets as they apply to the analysis that you did, especially in the first paper that was distributed to us on June 16. When I look around the world, the United States has really been very innovative compared with other cou... | 203 |
fomc | 2,004 | I would say it's not. The fact of the matter is that most of the securities of at least private corporations--not U.S. Treasuries, obviously--that foreigners buy are marketed in Europe and are sold in the euro markets. They are not sold in New York. I'm not saying that there aren't any sales of the type you asked about... | 343 |
fomc | 2,004 | My other question is for Linda and goes back again to exhibit 7 and is about the pass-through. One of the changes that international corporations have made involves replacing trade by going into customer markets--actually putting in facilities and manufacturing in the resident country where the ultimate sale occurs. Wh... | 182 |
fomc | 2,004 | I think that's certainly a possibility. When I think about what the import-price response to an exchange rate change is going to be, I think of the producer who is doing the exporting looking at his own costs and his margins over those costs. Based on that and the markups in the industry and so forth, he then determine... | 190 |
fomc | 2,004 | President Lacker. | 4 |
fomc | 2,004 | First, let me add to Cathy's commendations for Joe and Linda and the excellent background papers. My question relates to Tim's in a way. It has to do with the locus of disorderliness. The prospects for disorderly adjustment seem to motivate and animate a lot of this analysis. And it strikes me that a lot of the risk re... | 221 |
fomc | 2,004 | Well, a certain variation of that theme is to rerun the Asian crisis in one's head over and over and ask, What if this or that or the other thing had been different? Indeed, many people now argue that some of the Asian countries are recreating conditions comparable to those that existed in 1996 and 1997, in particular ... | 719 |
fomc | 2,004 | I know it's about time to end this discussion, but I have one more question. Does it matter what happens to the projected foreign share of the U.S. Treasury market under a scenario where our external imbalance is substantially larger--maybe getting larger than the increase in the net borrowing requirement of the govern... | 96 |
fomc | 2,004 | Within the kinds of numbers we've experienced to date we're inclined to be relatively relaxed about that. Dino might want to comment on that issue, too, though. | 31 |
fomc | 2,004 | Doesn't it depend on the interaction between U.S. Treasury securities and private securities in total? | 19 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | You assume that the preference would change? | 8 |
fomc | 2,004 | Yes. In other words, if there is literally zero preference difference, then the 50 percent foreign holdings of U.S. Treasuries is the wrong ratio. The denominator has to be the aggregate. And it's probably closer to that than not, so that number falls from 50 very significantly. | 60 |
fomc | 2,004 | You assume that their preference would change as their share increased? | 12 |
fomc | 2,004 | I think what we're talking about are the preferences of everybody else. Let's assume that foreign officials, because of laws written into their books, their regulations, their procedures, or whatever, always want U.S. sovereigns but that the vast majority of global investors regard U.S. sovereigns and U.S. corporate tr... | 94 |
fomc | 2,004 | And if the yield spreads are relatively stable, then the substitutability, for all practical purposes, is without limit. | 24 |
fomc | 2,004 | Now as a taxpayer, Mr. Chairman, it would probably be churlish to complain that the foreigners are buying our debt at high prices. | 29 |
fomc | 2,004 | I agree. It would be churlish. [Laughter] | 14 |
fomc | 2,004 | I think there are consequences for market liquidity within the Treasury market because some of these foreign purchasers do act differently in the primary and secondary markets than private holders. In particular, there are differences in terms of participating directly in the auction and not putting in competitive bids... | 64 |
fomc | 2,004 | Aren't these second-order effects generally? | 9 |
fomc | 2,004 | This reminds me of the debate we had when we thought U.S. debt was going to disappear. While that has consequences, it was not something we regarded as a bad thing because we had surpluses. So, surely it is manageable. | 49 |
fomc | 2,004 | We started a whole new discussion! [Laughter] Anyway, the clock has run out on us, and I just want to congratulate Karen, Joe, and Linda. It has been a very interesting seminar, which is really what this has been, and I hope it engages us. One little thing that went by unnoticed as you were talking about "nature's" eff... | 90 |
fomc | 2,004 | Yes. | 2 |
fomc | 2,004 | I say that because there is a very interesting phenomenon here, in terms of what happens to all of this adjustment process in the event of a significant terrorist attack within the borders of the United States. That's a whole different scenario, which we really haven't addressed in any material way, except to presume t... | 170 |
fomc | 2,004 | Mr. Chairman, I was wondering if there would be enough time for Dino to give his report from the Desk. That way we can start tomorrow with the chart show. | 34 |
fomc | 2,004 | I'm sorry. I didn't realize that we did have some time. I think that's an excellent suggestion. Dino, why don't you get started and see if you can finish. | 34 |
fomc | 2,004 | 3 Thank you, Mr. Chairman. I'll be referring to the charts that Carol circulated a short time ago. I'll try to proceed quickly. During the intermeeting period the market's focus was on the anticipated start of the tightening cycle. As shown in the top panel on page 1, three-month deposit rates (the black line) increase... | 2,568 |
fomc | 2,004 | I haven't looked at the primary dealer data system in recent years, but the net outright positions, as you point out, have essentially come down to zero from a significant plus. What are the missing items in the balance sheet that account for the difference? | 50 |
fomc | 2,004 | I'm not sure I fully understand your question. | 9 |
fomc | 2,004 | Well, on the asset side, the primary dealers have positions, long and short. There is a net position with a value. What is on the liability side for capital? | 35 |
fomc | 2,004 | What we try to do is to look at the position data to see what the longs and the shorts are, excluding certain things such as TIPS, bills, and discount notes. That basically gives us a sense of what securities are there. Now, there will be a big repo book on both sides of the balance sheet, so those have been subtracted... | 87 |
fomc | 2,004 | The tradable positions. | 5 |
fomc | 2,004 | Yes, without cluttering it up with a matched book, which would tend to balloon the balance sheet. That would tell us something about the financing, how this on net is being financed. But the matched book operation is its own business-- | 48 |
fomc | 2,004 | And you don't have the derivative positions net in this at all? | 13 |
fomc | 2,004 | That's right. | 3 |
fomc | 2,004 | One other thing. On the chart showing Japanese three-month to thirty-year government yields, are these the absolute values and the actual yields? These are not the yields of the one-year maturity ten years out? | 41 |
fomc | 2,004 | No, these would be the actual yields. | 9 |
fomc | 2,004 | They are the actual yields. That leads me to conclude in looking at the ten-year, twenty-year and thirty-year yields that the more implicit one-year maturity ten years out is yielding very significantly above these numbers. What is that yield, do you know offhand? | 53 |
fomc | 2,004 | I don't. | 3 |
fomc | 2,004 | In our case, we've got 61/2 plus percent, and this doesn't look all that different. | 21 |
fomc | 2,004 | This goes to thirty years. | 6 |
fomc | 2,004 | I know, but look at the ten-year. It's the rate of change in the yield curve. | 20 |
fomc | 2,004 | There's a risk premium in that as well as an expectation. | 12 |
fomc | 2,004 | I would hope so. [Laughter] Questions for Dino? You traumatized everybody! | 18 |
fomc | 2,004 | I move approval of the domestic transactions. | 8 |
fomc | 2,004 | Without objection they are approved. We will adjourn until tomorrow morning. Is anyone not coming tonight to the dinner? Good, I'm glad everyone will be attending. So we'll see you all at the British Embassy at 7:30. | 47 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.