Fed Chair Bernanke: Simultaneous Accommodative Policy Can Benefit All Nations
When many nations with advanced economies simultaneously maintain accommodative monetary policies, as is the case today, it generally is mutually beneficial to all nations, Federal Reserve Chairman Ben Bernanke said March 25 during a speech in London.
Bernanke addressed the question of whether accommodative monetary policies can constitute "competitive devaluations." In other words, are those advanced nations trying to lower the value of their currencies in order to spur their own exports and possibly gain economically at the expense of other nations? That situation is not taking place, Bernanke said, noting no large and persistent shifts in exchange rate dynamics in the past few years.
A rising tide lifts all economies
This exercise is not simply an academic one, he explained. The distinction between monetary policies meant to support domestic objectives, on the one hand, and exchange rate devaluations or other protectionist measures meant to divert trade, on the other, is critical, Bernanke pointed out. "The former can be mutually beneficial," he said. "The latter are not."
Situation with emerging markets more complicated
But Bernanke noted that trade-weighted real exchange rates of emerging market economies have remained largely unchanged since the onset of the financial crisis in 2008. And even if low rates in major countries did lead to big currency appreciations in emerging markets, the harm to their global competitiveness would have to be weighed against the benefits of stronger demand from advanced economies. Federal Reserve models, Bernanke said, suggest that those effects are roughly offsetting. Thus, accommodative policies in major industrial countries do not appear, on balance, to damage output and exports in the emerging-market economies.
"In fact," Bernanke concluded, "the simultaneous use by several countries of accommodative policy can be mutually reinforcing to the benefit of all."
April 3, 2013