Sympathy for the banker

One of the curious characteristics of globalisation is that financial markets deliver much the same price judgments, despite widely differing circumstances between countries. So the Australian share market has mirrored US equities in responding to the US sub-prime problems and prospective recession there, despite the fact that the Australian financial sector is strong, there has been no commercial or domestic over-building, our export markets are going gang-busters, and the main macro problem is the expansionary effect of the highest terms-of-trade in living memory, impinging on a labour market with the lowest levels of unemployment for more than thirty years.

But policy-makers have to go on making policy for their own idiosyncratic environments. One thing is clear: if central banking seemed to be an effortless job in the 1990s, it isn’t now. I explore some of these issues in an opinion piece that appeared in the Australian Financial Review on the weekend.