Friday, November 29, 2013

Guidance Forward policy : Central Banks new approach for Monetary policy

After the Financial crisis of 2008 rolled on , it was clear that conventional policies would not be capable to work the crisis out. Conventional monetary policy was somehow displaced ,by the fact of financial markets under stress, and the real economy with its fundamentals in a weak position (government debt, Fiscal policy restraint, low expectations for investment projects unemployment and consumption decreases).- Given that financial crisis, means weak Banks (Some analysts characterized them as “Zombies Banks”), and disconnected from real side economy requirement ,it take longer than usual for the period of recovery to take place. Besides , this time coupled with institutional flaws concerning the ability of Governments to address more efficiently its countercyclical role , made expectations more important than policies.- Therefore, Central Banks best policy instrument, is not the interest rate (actually almost at zero nominal level, and negative real level ), but how to shape these expectations concerning its next step ,and then the expected response on the real side(Employment, consumption ,and investment).- Thus, Central Banks are in an unknown territory, where learning is by doing, the chances of mistakes are high, the quality information is key, and the path of corrective decisions implementation, has not previously being proved . What signal on the real side is the more reliable : Unemployment rate?. Consumer confidence?, Real assets prices?.Actually, the policy of quantitative easing, has boosted the financial side of the economy. Does this mean that the real side indicators, are also biased because of these approach?.- In these circumstances, one thing is also for sure more decisive : the communicational skills and policy. It might be look strange, but Central Banks are currently evaluated for the effectiveness of this policy .-