The Risk Management Approach of the Federal Reserve System - a Model for the European Central Bank?

While it first appeared that Europe would not imitate the US in fighting the effects of the financial crisis, a growing number of European governments have now set side money to rescue distressed banks and guarantee private deposit accounts.  Is the US a model to copy?  The question was at the core of CASE policy research seminar on 20 October when Magdalena Malinowska addressed The Risk Management Approach of the Federal Reserve System - a Model for the European Central Bank? 

The presentation is based on an identically titled paper investigating whether accounting for uncertainty in monetary policy, as proposed by Alan Greenspan and conducted by the Federal Reserve System in 2003 and 2004, can be used as a model for the European Central Bank. In contrast to standard policy, the main objective of a central bank applying the “risk management approach” is to avoid scenarios defined as particularly dangerous for the economy. Greenspan’s approach is shown to involve unusually expansive policy in some states.  The study concludes that the risk of implementing such a policy differs among central banks.