AEA Meeting: Presentations Spotlight U.S. Economic Issues, Transition Economies, and Financial Crises

• Author: Susan J. Adams
• Position: IMF Institute
• Pages: 24-26

Page 24

What would prompt many of the top names in the economics profession to spend New Year's weekend in cold, slushy Chicago? A touch of "irrational exuberance" perhaps. Indeed, the coiner of that phrase, Alan Greenspan, Chairman of the U.S. Federal Reserve, was on hand to deliver the keynote address at the opening luncheon of the event-the annual meeting of the American Economic Association (AEA).

The four-day gathering traditionally serves as a major venue for introducing new research and typically features lively discussions of a wide range of economic topics. This year, major themes included the status of the U.S. economy and growth prospects for the Group of 7 countries, developments in Africa, Russia's future and the transition process worldwide, global monetary policies and financial crises in Asia, and sessions on trade, development, and technology. U.S. Economic Issues. In his comments, Greenspan focused on recent statistical problems in the over-estimation of the consumer price index (CPI) for the U.S. economy. Mismeasurement in and of itself, he said, does not injure a vibrant economy, as has been evidenced by the sustained good performance in the United States. "Overstating the CPI simply means that real growth and standards of living are understated." What did concern him is that biases in price measurement may begin to matter more when inflation is low. Echoing Milton Friedman, he said that "persistent deflation is, at its root, a monetary phenomenon." Moderate, ongoing deflation distorts the optimal allocation of resources just as persistent inflation does.

Finally, Greenspan pointed out that it is measures of individual prices-not their aggregation-that matter. Goods in the U.S. economy have been changing-in a qualitative sense-so rapidly in recent years that it is impossible to make basket comparisons that are meaningful over time. About one-half of the one percentage point overstatement in the U.S. CPI in recent years has been attributed empirically to failures to adjust for these qualitative changes, and the other half is due to problems in aggregation techniques. While Greenspan had no suggestions for how this mismeasurement would influence the conduct of monetary policy, he seemed to hint that the deflationary trend is more worrying to him that the measurement error. African Prospects. Stanley Fischer, First Deputy Managing Director of the IMF, presented a paper co-authored with Mohsin Khan of the IMF Institute and Ernesto Hernández-Catá of the IMF African Department, entitled "Africa: Is This the Turning Point?" The paper argued that the current period will unavoidably mark a turning point for Africa because official development assistance is on a downward trend and globalization will exert its own pressures. Whether that turning point will pave the way for a stronger growth performance and a reduction in poverty will depend on the economic policies that the African...