The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, September 27, 2010

Price stability no longer guarantees financial stability

I think a key regulatory insight following the GFC is the realisation that price stability no longer guarantees financial stability, which Bean et al raise in their Jackson Hole paper. The RBA could usefully acknowledge that price stability can, in fact, undermine financial stability insofar as the reduction in volatility, rates and risk premia can compel participants into higher yield assets, and may over time result in them unreasonably discounting the probability of catastrophic loss.