Mittwoch, 24. November 2010

Interview: Prof. James D. Hamilton, University of California, San Diego

James D. Hamilton is Professor of Economics at the University of California, San Diego.

What are the motives behind those who are unscrupulous trying to sabotage Fed’s attempts of “quantitative easing”?

I think the concern of many of the European critics may be related to the depreciation of the dollar itself rather than to the quantitative easing per se.  Within the United States, there is a lot of frustration with the financial crisis and the role that the Federal Reserve and banks are perceived by some to have played in that.  And the fact that the measures that the Fed is adopting are out of the ordinary may be another factor that causes some to have concerns.

The unemployment is too high. The inflation is too low. What needs to be done, in order to stimulate the economy?

I think the Fed’s quantitative easing was a reasonable attempt to stimulate the economy.  The U.S. Treasury could do something similar on its own even if political forces prevent the Fed from acting, by doing more of its borrowing with short-term rather than long-term debt.  There are also regulatory reforms that could be explored to lower the cost of hiring a worker and boost productivity.  But significant progress on unemployment will simply require more time.  I do not think we have very good policy options to change that reality.

There is a lot of talk of a “currency war” in these days. Isn’t there a better way to boost the demand on a global basis apart from a “competitive devaluation”?

I do not see this as a currency war or competitive devaluation.  The U.S. would like to see lower interest rates regardless of what happens to the exchange rate, because inflation is too low rather than too high here.  If other countries respond by lowering their own interest rates, that is perfectly consistent with U.S. objectives.  However, countries like China and Brazil do not want to see lower interest rates because they are in a different phase of the business cycle and do have concerns about inflation.  As long as that is the case, it actually is in everyone’s interest for the dollar to depreciate.  Moreover, from a longer run perspective, it just isn’t feasible for the U.S. to continue on forever with such huge trade deficits.

Thank you very much.

James D. Hamilton received his Ph.D. in Economics form the University of California at Berkeley in 1983. He has been a professor at the University of California, San Diego since 1992 and served as Chair of the Economics Department from 1999 to 2002. He is a Fellow of the Econometric Society and a Research Associate with the National Bureau of Economic Research and has been a visiting scholar at the Federal Reserve Board as well as the Federal Reserve Banks of Atlanta, New York and Richmond. His book Time Series Analysis is the leading graduate text on economic forecasting. Prof. Hamilton is co-author, with Menzie Chinn, of Econbrowser, a leading economic blog.

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