PARTICIPANTS

Agustín Carstens, John Gunn, Steve Haber, Ron McKinnon, Lee Ohanian, Russ Roberts, Ken Scott, Gabriel Sod-Hoffs, John Taylor, Pablo Villanueva, Ian Wright

ISSUES DISCUSSED

Agustín Carstens, Governor of the Central Bank of Mexico, discussed the impact that developed economies are having on emerging economies and related policy issues.

Carstens began by explaining how economic problems have led to a change of policy in many developed countries, which in turn has raised questions about emerging market country policies. Should emerging economies improvise and implement new policies or stick with what has worked in the past? Should a single objective rather than a dual objective be pursued by policy makers in emerging economies? Should emerging economies synchronize their policy decisions more with developed economies?

Carstens said that the key issue continuing to face U.S. policy makers is how to raise economic growth. Pertaining to Europe, he said the greatest challenge is designing policies that can be implemented in a way that will be effective in the short term, but also stable in the long term. With regard to Mexico, Carstens said the country is in a solid economic position, with a strong banking system, flexible exchange rate which accommodates shocks, and a consistent monetary policy. He said the key spillover effects of the financial problems across the globe upon Mexico have been through commodity price movements and an influx of capital flows due to a search for yield by investors.

In Carstens’ view, economic problems in a country become most poignant when two key markets cease to function: sovereign debt markets and uncollateralized interbank lending markets. In this context, he categorized the actions central banks take into three types: (1) providing liquidity, (2) serving as “risk absorbers of last resort,” and (3) trying to stimulate economic growth.

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