There's a really nice read in the FT by Claire Jones on the parallels between Central Bank monetary policy and football. Back in 2005, Sir Mervyn King, the outgoing BoE governor, gave a monetary policy speech in London in which he stated the following,
"This is what I call the Maradona theory of interest rates....Maradona’s first “hand of God” goal was an exercise of the old “mystery and mystique” approach to central banking. His action was unexpected, time-inconsistent and against the rules. He was lucky to get away with it. His second goal, however, was an example of the power of expectations in the modern theory of interest rates....The truly remarkable thing, however, is that, Maradona ran virtually in a straight line. How can you beat five players by running in a straight line? The answer is that the English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on."
Essentially, the premise is this - how people perceive the central bank will react is what determines market interest rates. Which means, according to Jones, that Draghi might have to morph into Cruyff if his OMT is to work contrary to market sentiment.
In any case, I'm not the greatest-of-greatest-fans of the goal. It's because I wasn't there, I'm not a Maradona fan, and I'm really really surprised no English defender took him down. Maybe investors will be nice enough to central banks too. If they are perceived to be moving in a credible direction, they might not have to actually be snapping up all those mortgages/bonds etc.
"This is what I call the Maradona theory of interest rates....Maradona’s first “hand of God” goal was an exercise of the old “mystery and mystique” approach to central banking. His action was unexpected, time-inconsistent and against the rules. He was lucky to get away with it. His second goal, however, was an example of the power of expectations in the modern theory of interest rates....The truly remarkable thing, however, is that, Maradona ran virtually in a straight line. How can you beat five players by running in a straight line? The answer is that the English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on."
Essentially, the premise is this - how people perceive the central bank will react is what determines market interest rates. Which means, according to Jones, that Draghi might have to morph into Cruyff if his OMT is to work contrary to market sentiment.
In any case, I'm not the greatest-of-greatest-fans of the goal. It's because I wasn't there, I'm not a Maradona fan, and I'm really really surprised no English defender took him down. Maybe investors will be nice enough to central banks too. If they are perceived to be moving in a credible direction, they might not have to actually be snapping up all those mortgages/bonds etc.
No comments:
Post a Comment