Stanley Fischer – this guy can keep NGDP on a straight line

This is from Reuters:

Stanley Fischer, who led the Bank of Israel for eight years until he stepped down in June, has been asked to be the Federal Reserve’s next vice chair once Janet Yellen takes over as chief of the U.S. central bank, a source familiar with the issue said on Wednesday.

Fischer, 70, is widely respected as one of the world’s top monetary economists. At the Massachusetts Institute of Technology, he once taught current Fed Chairman Ben Bernanke and Mario Draghi, the European Central Bank president.

Yellen, the current Fed vice chair, is expected to win approval from the U.S. Senate next week to take the reins from Bernanke, whose term ends in January.

Fischer, as an American-Israeli, was widely credited with guiding Israel through the global economic crisis with minimal damage. For the Fed, he would offer the fresh perspective of a Fed outsider yet offer some continuity as well.

Good news! Stanley Fischer certainly is qualified for the job. He knows about monetary theory and policy. And even better he used to have some sympathy for nominal income targeting. Just take a look at this quote from his 1995 American Economic Review article “Central Bank Independence Revisited” (I stole this from Evan Soltas):

“In the short run, monetary policy affects both output and inflation, and monetary policy is conducted in the short run–albeit with long-run targets and consequences in mind. Nominal- income-targeting provides an automatic answer to the question of how to combine real income and inflation targets, namely, they should be traded off one-for-one…Because a supply shock leads to higher prices and lower output, monetary policy would tend to tighten less in response to an adverse supply shock under nominal-income-targeting than it would under inflation-targeting. Thus nominal-income-targeting tends to implya better automatic response of monetary policy to supply shocks…I judge that inflation-targeting is preferable to nominal-income-targeting, provided the target is adjusted for supply shocks.”

While at the Bank of Israel Fischer certainly conducted monetary policy as if he was targeting the level of nominal GDP. Just take a look at the graph below and note the “missing” crisis in 2008.

NGDP Israel

Undoubtedly Fischer had some luck, while at the BoI, and I must also say that I think he from time to time had a problem with his “forward guidance”, but his track-record speaks for itself – while Bank of Israel  governor, Stanley Fischer provided unprecedented nominal stability, something very rare in Israeli economic history. Lets hope he will help do that at the Fed as well.
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11 Comments

  1. OMG I thought that it was about Richard Fisher this whole time. It would be a bad thing I guess. This is good news, gotta love those straight NGDP trend lines :D

    Reply
    • Becky Hargrove

       /  December 12, 2013

      Petar,
      Don’t feel bad – until recently I kept trying to spell Richard Fisher’s name with a “c” (as Stanley’s) and I’m in the U.S.!

      Reply
  2. I think Fischer has done an outstanding job as the Governor of the BOI. If he had been targeting inflation inflexibly in 2008-2009 it would have been reflected in far less movement in the exchange rate, and very likely would have resulted in a recession. See for example this:

    http://esoltas.blogspot.com/2012/06/israel-targets-ngdp.html

    However his comments about eurozone fiscal policy, and in particular his negative comments about the possibility of euro bonds, have really rubbed me the wrong way. See this for example:

    http://blogs.wsj.com/economics/2012/09/01/israels-fischer-calls-for-euro-zone-discipline/

    The eurozone desparately needs a true fiscal union in order for it to be an optimal currency area (OCA), and euro bonds would be an essential step towards this. Furthermore central banks should not be in the business of interfering with fiscal policy.

    Reply
  3. marksadowski

     /  December 12, 2013

    I think Fischer has done an outstanding job as the Governor of the BOI. If he had been targeting inflation inflexibly in 2008-2009 it would have been reflected in far less movement in the exchange rate, and very likely would have resulted in a recession. See for example this:

    http://esoltas.blogspot.com/2012/06/israel-targets-ngdp.html

    However his comments about eurozone fiscal policy, and in particular his negative comments about the possibility of euro bonds, have really rubbed me the wrong way. See this for example:

    http://blogs.wsj.com/economics/2012/09/01/israels-fischer-calls-for-euro-zone-discipline/

    The eurozone desparately needs a true fiscal union in order for it to be an optimal currency area (OCA), and euro bonds would be an essential step towards this. Furthermore central banks should not be in the business of interfering with fiscal policy.

    Reply
  4. Benjamin Cole

     /  December 13, 2013

    I am a little taken aback that Israel’s top central banker will now be the USA’s No. 2 central banker. Seems unusual.I wonder how the right-wing nuts will react.

    Fischer seems okay, though still not growth-oriented enough. The USA does not have to worry about inflation; indeed higher rates of inflation would be good.

    Will Fischer influence the Fed, or will the Fed influence Fischer?

    Bernanke went into the Fed as an academic who studied Japan and the Great Depression…yet the Fed seems to have made Bernanke inflation-obsessed. The USA now around 1 percent inflation on the PCE deflator.

    Reply
  5. Benjamin Cole

     /  December 13, 2013

    Spain needs its own currency…

    “Las Vegas Sands Pulls Plug on Spanish Hotel Plan
    Cancellation of Casino-Hotel Project a Blow to Spanish Government

    Las Vegas Sands said it is shelving a proposal to build Europe’s largest integrated gambling and leisure resort in Spain, a setback for the country’s government.”

    This was an enormous project, something like 200,000 jobs….

    Imagine if Spain’s currency had depreciated a lot, and the sentiment was that it was a cheap destination….

    Reply
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  2. ラルス・クリステンセン 「スタンレー・フィッシャーFRB副議長誕生か!?」 — 経済学101
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