| Editorial |
| The tsunami of the financial crisis has now crashed over us and this issue is flooded with comment and analysis. So our remarks will be short. |
| We begin with Ian Bright’s Rybzcynski Prize-winning essay in which he examines the Japanese financial crisis of the early 1990s. He believes it offers lessons to investors and policy makers today, but they make grim reading: lending will collapse, the economy will suffer severe and prolonged recession, and public finances will move deeply into deficit. Old news, now, of course; we are already there. Perhaps policy makers have learned from the delay and denial that cost Japan dearly, but they have yet to deliver the international co-operation needed now the crisis is global. |
| Collin Ellis looks beyond countering this crisis to consider if monetary policy could be reformed to reduce the risks of future deflationary shocks. He argues that policy should be changed in two ways: to target wage inflation rather than prices and to raise the target level of inflation. Yet trying to manage wages through interest rates may turn out a slippery path. |
| Monetary policy is not the only target for critical re-assessment in Richard Segal’s broadside against the response to the crisis so far, although he, too, believes a simple reliance on inflation-targeting has shown its limitations. But his main criticisms are directed at the failures of financial regulation. There will now be new regulatory initiatives, but the failure that led to crisis lay with the authorities who did not use the tools they had. New rules and institutions alone will not be enough to avoid some future crisis. |
| Speakers Corner runs the gamut of the crisis: Riccardo Rebonato on risk management, Jeffrey Currie on the oil price shock, Robert Woods from the Treasury on the Pre-Budget Report, Thomas Mayer on unconvention-al monetary policies and Lucas Papademos of the European Central Bank on “policies for stability and recovery.” Our Book Reviews notice nine books including a reprint of Milton Friedman and Anne Jacobson Schwarz’s The Great Contraction 1929-1933. That will cheer us up! |
| Jim Hirst Editor |