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The Impact of Powell, Caputo, and the Greenspan Rule on Economics

ByEditor

Feb 10, 2024

Alan Greenspan, former Chairman of the Federal Reserve, once recounted an experience in which a person joined the bank’s Monetary Policy Committee and came to him with a proposal to speak at their former university and on television. Greenspan advised the person to decline the invitation, and if they had to go, not to speak. If they did have to speak, he advised them not to say anything. This anecdote reveals Greenspan’s belief in the power of actions over words.

As Chairman of the Federal Reserve, Greenspan resisted adopting an inflation targeting scheme in order to control prices. He believed that his main task was to deal with prices and that the power of economists’ words was overrated. Despite pressure from the Monetary Policy Committee, Greenspan rejected the proposal to adopt the inflation targeting scheme.

In the current government of Javier Milei, there is a similar sentiment regarding communication and transparency in economic policy. Former Economy Minister Nicolás Dujovne explained that he based his stabilization plan on a fiscal announcement that surprised the markets. However, some movements were contrary to his campaign speech, and the specific details of the plan are not widely known.

This lack of clarity and transparency in economic policy is a risk, especially in fiscal policy. As Ben Bernanke explained, providing ambiguity in non-cooperative games like poker is different from the cooperative game of monetary and fiscal policy. The need for clear communication becomes apparent when attempting to establish a fiscal anchor, as Dujovne emphasized.

In the U.S., this sentiment has shifted, and clear communication has become a priority. The current head of the Federal Reserve, Jerome Powell, recently gave an interview to clarify the bank’s position, emphasizing the need for direct, clear communication with the public and the market.

In Argentina, the Greenspan rule seems to dominate, with economic officials giving vague information and avoiding providing specific details. This lack of clarity in communication can lead to assumptions and speculation in the market. This demonstrates the importance of clear and transparent communication in economic policy.

By Editor

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