Global central banks will have to learn to cope with the shock originated in the developed countries, said John Brian Taylor from the Stanford University. Taylor is known for propounding famous Taylor Rule, a simple equation to describe the response of the Fed?s interest rate target to inflation and business cycles.
The equation succeeded in serving both as a description and as a prescription: it described how the Fed had been setting its interest rate target and prescribed what the Fed ought to – and indeed might – do next.
?The crisis does reveal some potential new fault lines, largely related to the increased globalisation and international connection between financial markets, which was so evident during the panic. The central banks will have to learn to cope with the shock originated in the developed countries,? he said. Taylor was delivering a lecture on ?Lessons from the Financial Crisis for Monetary Policy in Emerging Markets? in Mumbai.
He added that for central banks that were following sounder policies? credit should be given to the progress made in India and other emerging market central banks?they should continue to do so. Emphasis should be on proposals to reduce the likelihood of government interventions and actions that led to the crisis.
Inflation is RBI?s primary concern
RBI governor D Subbarao said the current concern of the apex bank is not so much rescuing a collapsing financial sector but rather arresting the moderation in economic growth.
?We never had a fear of deflation although WPI inflation was negative for a short period; in fact, inflation has been and continues to be our dominant concern.? In advanced economies, the crisis spread from the financial sector to the real sector whereas in emerging economies, the direction was the reverse, he added.
?Much of our pressures came from the supply side, not the demand side. For all these reasons, the challenges were different and the responses called for from us had to be different. It is important for us as well as the rest of the world to appreciate these differences,? he said.