A paper presented at the Jackson Hole symposium this weekend argued against strict rule-based monetary policy
- Presented by Johns Hopkins University economics professor Jon Faust (who served as a special adviser to the Fed's board of governors until September 2014)
- Says the economic models underpinning the simple rules proposed by many in Congress don't work that well
- Better policy decisions come when central bankers look beyond those models to the unexpected forces shaping the economy
- Says it is extraordinary events outside of the basic inflation and output models used by central bankers that ultimately mattered most
What of the similar debate amongst traders ... is it better to always use simple, rules-based trading models, or are there times where better decisions come from incorporating the impact of extraordinary events?
Jon Faust said in his presentation:
"Understanding ... confounding dynamics has always been the key to good policymaking and failure to understand those dynamics has played a key role in major policy mistakes."
Can we modify his remarks this way?
"Understanding ... confounding dynamics has always been the key to good
policymaking trading decisions and failure to understand those dynamics has played a key role in major policy trading mistakes."
So, is this applicable to traders, or not?
I'm thinking of (for example) the extended move in EUR/USD (and some crosses), not to mention the WILD swings in AUD and NZD crosses that we had just last week. Not that these sorts of moves don't come along quite often, these are just some still fresh.
Traders of ForexLive, what do you say?