>
> http://krugman.blogs.nytimes.com/2009/03/11/not-so-easing-wonkish/
>
> ...
>
>
> There's been a fair bit of buzz about a Goldman Sachs report (no
> link) suggesting that the Fed's policy of "unconventional easing" --
> buying up lots of assets other than the usual Treasury bills --
> isn't very effective. Specifically, GS estimates, based on market
> responses to Fed moves to date, that it would take between $1
> trillion and $1.6 trillion of unconventional easing to accomplish as
> much as the Fed can achieve, in normal times, by cutting the Fed
> funds rate by 1 percentage point. And since GS's estimate is that
> the Fed funds rate "should" be -6 percent, this means that the Fed
> has a problem.
This is really interesting stuff because the capacity of the state to affect rates higher up the interest spectrum if it puts its mind to it is a real unknown. Is anyone familiar with this Goldman Sachs Financial Conditions Index? How credible is it?
The Financial Times has an overview of the method here: http://alphaville.ftdata.co.uk/lib/inc/getfile/5285.jpg
And the GS document explaining the overall framework is here, but it's from 2001 which seems like an awfully long time ago: http://www.investinginbonds.com/assets/files/Understanding%20US%20Economic%20Statistics.pdf
Mike Beggs
