Academic journal article The American Journal of Economics and Sociology

What If the Leader of the Central Bank Told Hilarious Jokes and Did Card Tricks? A Panel of Experts

Academic journal article The American Journal of Economics and Sociology

What If the Leader of the Central Bank Told Hilarious Jokes and Did Card Tricks? A Panel of Experts

Article excerpt

I

Introduction

ON APRIL 25, 2006, a panel of distinguished guests was assembled at Babson College in Massachusetts to discuss the linkages (if any) between the implementation of monetary policy and the personality of a nation's central banker. Why is the personality of a central banker important to monetary stability and financial leadership? Central bankers tend to be a somber lot, not prone to breaking out into comic moments or performing dexterous feats of sleight of hand. But what if one of them did do that? Would economic crisis be the result? The panelists were instructed to address this question in their own ways.

Dr. George Tavlas, who now serves as the Director-Advisor at the Economic Research Department of the Bank of Greece, spoke first. His views are his own views and do not represent those of the Bank of Greece. Tavlas attributed what progress has been made in the practice of central banking aimed at delivering price stability to the accumulated stock of economic knowledge. Central bankers place a premium on good communication with the public but, other than this, demeanor does not play any major role in the process.

Professor Perry Mehrling of Columbia University spoke next. Mehrling emphasized the value that opacity can play in a world of fast-moving financial capital commandeered from London to New York and Tokyo by private profit seekers who play fast and loose both with the roles regulating financial trade and with the higher standards of morality. In such a world of fast-moving trades, opacity has its value.

Finally, Professor Jocelyn Pixley, who serves as a Senior Lecturer at the School of Sociology and Anthropology at the University of New South Wales in Australia, offered her gloss on this important subject. Recounting some of the leading theories of money and their links to broader questions of emotions and psychology, Pixley concluded that, unlike politicians, central bankers are much too limited in what they can accomplish. Upholding a solid reputation for sobriety is the best strategy the central banker can follow to stay out of trouble and perhaps achieve the monetary stability that is so valued in a modern, globablized setting.

II

Tavlas on the Accuracy of Communication

SOME CHANGES ARE TO BE EXPECTED because, after all, the world has changed dramatically, not only since the 1960s but even over the past 15 years. As Jacob Frenkel (2004) has noted, technology has linked together the different parts of the world, so we are close to a world without distance. Capital markets have linked past and future, so we are close to a world without time (Frenkel 2004). As in Europe, currencies are being unified, so the world of multiple currencies may be drawing to a close, fulfilling a vision set forth some 150 years ago by the economist John Stuart Mill.

These latter changes are all part of what we call globalization. Perhaps the biggest change brought about by globalization is the complete internationalization of knowledge, the need to know what is happening everywhere so that we can adjust our behavior to the changing world, a situation that leads me to the issue of central bank communication and the demeanor of the central banker.

Before I go on to discuss some specifics, let me tell you a little story that illustrates an important point: globalization requires knowledge of what others are doing.

There were two brothers--Sam and Joe. One day Sam picked up a friend in a car, and as they were driving, they arrived at a red light. Sam pressed on the gas and crossed the intersection. His friend said, "What are you doing? You just passed a red light!" "Do not worry," said Sam, "my brother always does it!" They went on and they reached another red light and Sam pressed on the gas and again passed the light. "What are you doing?" asked the friend. "My brother always does it!" came the reply. Well, they went on and arrived at a green light, and Sam pressed on the brakes and stopped the car. …

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