This helps to align economic cycles and makes a common monetary policy more appropriate. 16, 17  11  The classic early contribution on this point was made by McKinnon (1963), who argued that the more open the economy, the more flexible would be domestic prices and wages so that movements in the exchange rate would have little impact on competitiveness, and would be less effective as a stabiliser. In that case moving to a fixed exchange rate would be less costly. 12  Mundell (1961). 13  Some, including Bean (1992), have expressed scepticism that factors of production could in fact move over a shorter timescale than that over which prices and wages adjust. 14  This is consistent with evidence that labour moves less in Europe in response to regional shocks than is the case in the US – see Blanchard and Katz (1992) for the US, and Decressin and Fatas (1995) who apply the same methodology to Europe. The latter find that participation reacts by more to a labour demand shock, and migration by less in Europe than the US. 15  Office for National Statistics, 2011 Census. 16  Frankel and Rose (1998) found that countries with closer trade links tend to have more tightly correlated business cycles. Since joining a currency area promotes trade integration, it also is also likely to help align international business cycles. That means one of the key optimum currency area criteria is endogenous to the decision to join.
It simply is addressed at seizing the moment to kill three birds with one stone and do so with minimum violence to the market. Of course, a more effective way to put collateral back into the market would be to sell outright a carefully measured portion of our portfolio. There could even be room for the market to stomach this in its current condition. But in my opinion, this might be too radical a departure from the exit principles we announced and would risk undermining confidence in the FOMC. This is my personal view. I realize it represents thinking “outside the box”. But in my final four months at the Fed, I plan to urge my colleagues to think more outside the box in this and other ways in the interest of securing sound money, a sound economy and sound markets. And now to some Texas brag. 2  BIS central bankers’ speeches  Texas brag Allow me to walk you through some charts and comment on each on them. Thank you. And now in the great tradition of central bankers, I would be happy to avoid answering any questions you and your colleagues might have. BIS central bankers’ speeches  3