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Globalization Has Lifted World Living Standards While Challenging Work of Monetary Policy, says Dallas Fed's Fisher

For immediate release: February 5, 2015

DALLAS—Though the destabilizing effects of globalization present tremendous challenges for central bankers, globalization has lifted living standards around the world, says Federal Reserve Bank of Dallas president and CEO Richard W. Fisher in the Bank’s Globalization and Monetary Policy Institute 2014 Annual Report released today.

In an introductory letter, Fisher reflects on the evolving academic debate surrounding the impact of globalization on monetary policy. The Dallas Fed established its Globalization and Monetary Policy Institute in 2007, which was announced by then-Federal Reserve Chairman Ben Bernanke in a speech at Stanford University.

“When I began speaking about this issue, a lot of the emphasis was on the disinflationary impact of the integration of large trading economies such as China into the global trading system,” Fisher writes.

This focus was somewhat misplaced, as the growth of financial globalization became a more important issue, according to Fisher.

A consensus between academics and central bank policymakers that inflation targeting sufficed to ensure macroeconomic stability also turned out to be “mistaken or, at a minimum, incomplete,” Fisher states. This was evident in the recent U.S. housing boom and bust, which was exacerbated because of “our ability to borrow large amounts of money from foreigners,” Fisher says.

“Cross-border capital flows are not always benign, but rather have the potential to fuel unsustainable asset price bubbles that create challenges for central banks seeking to deliver on their mandates,” Fisher writes.

Still, despite the challenges globalization poses for monetary policymakers, it has “lifted hundreds of millions of people out of poverty and has done more to boost global living standards than any event since the Industrial Revolution,” Fisher notes.

Limiting the destabilizing effects of globalization will be a challenge for policymakers moving forward, Fisher says, and he posits that recent global economic events could prompt a major revolution in economic theory, similar to those that occurred during the Great Depression and the Great Inflation.

“It is my belief that the Great Recession will likewise precipitate a major shift in the way economists think about the macroeconomy, toward a paradigm where finance and global linkages play a greater role than they do now,” Fisher says.

The Globalization and Monetary Policy Institute Annual Report, available on the Dallas Fed’s website, features essays by senior staff on how individual Dallas Fed research programs have advanced the understanding of globalization, as well as a summary of the institute’s activities in 2014.

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