FROM THE OFFICE OF PUBLIC AFFAIRS September 21, 2004 John B. Taylor Good International Economic Stories You Don't Read About Thank you for inviting me to speak here today. It is good to be back in Today is the last day of summer. Near the end of this summer and every summer for the last 25 years, the Kansas City Federal Reserve Bank has held an international conference in The talk at this year's Unlike many conferences in the past, this year there were no major financial crises in the world to talk about. This was in marked contrast to the 1990s when one financial crisis after another brought high interest rates and soaring unemployment to the economies of Contagion of financial crises across countries, which was discussed so much during the conferences in the 1990s, also seems to have disappeared from the scene. It was in 1998 that the default on And there was no major economy in recession this year. The only recession that I heard mentioned at the conference was the recession in the "crisis expert" business. One crisis expert even complained to me about the lack of business, and jokingly asked if I could do something about it. There was no talk of bubbles either. Most economies in the world are now growing at a healthy "goldi-locks" pace--neither too fast nor too slow--suggesting that global economic growth will continue. The Another difference from the events surrounding many past conferences had to do with interest rates. Interest rate spreads between emerging market bonds and U.S. Treasuries--an important measure of global risk--are at historically low levels. Spreads have come down markedly during the last two years. They have stayed down despite the forecasts early this year that spreads would rise sharply throughout the year as monetary tightening in the Another measure of risk--volatility in currency markets--is also low. You can clearly detect this in the prices of currency options, but ask currency traders and they will tell you about it. The one element of risk that was discussed a lot at the conference was the high price of oil, but fortunately it had declined in the week before the conference. Finally, there were no major inflation scare stories to talk about this year. Inflation is low and stable in the So what are international policy makers talking about this year? The formal topic of the Jackson Hole conference--demographic trends in the world economy--was far a field from the expertise of many participants, so conversations on this topic were short, usually expressing concerns that politicians need to start addressing the impact of aging populations on retirement and health programs. Many of the conversations I was involved in, whether on hikes in the mountains or at meals and receptions, were about why economic times were so good and how long they would continue. I focused on the role of economic policies, whether in the What about the decline of crises and risk spreads and volatility? One reason they are down is because of the more credible focus on price stability by central banks--frequently aided by market-determined flexible exchange rates--which has largely ended the boom-bust cycle in many countries and is now laying the foundation for what may be the longest global boom we have ever seen. This trend began with the Federal Reserve years ago but has spread around the world in more recent years. In addition, the international financial institutions have begun to reform, following calls by President Bush and his Administration. Important reforms include the greater clarity and predictability in the use of large-scale financing from the International Monetary Fund, the use of collective action clauses in emerging market debt, and the movement toward grants rather than loans at the World Bank. Such reforms themselves--while still very recent in their implementation--improve confidence, showing that international financial officials can work to make needed changes in the international financial system. Greater transparency has also helped to reduce contagion by enabling market analysts to better discriminate between countries that follow good policies and those that do not. Usually the journalists who attend international conferences or who come to press briefings on my international trips report on the current economic events that come up in conversations or briefings. This year the journalists have not asked much and they have not written much about the remarkably good state of the world economy. I recently asked a number of the journalists why. Most agreed that the global economic situation was indeed unusually good, but none thought it was news worthy to ask or write about. The reason was that, while unusual, it was good news, not bad news. As one of the journalists told me, "We won a prize for our coverage of the terrible Russian financial crises in 1998. There is no way we could win a journalism prize for covering the current good state of the world economy. I'm not going to cover it. I'd be surprised if anyone here covers it." -30- |
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