GOLDMAN: Here's The Jackson Hole Paper We Can't Wait To Read On Friday

Arvind krishnamurthyKellogg School of ManagmentArvind Krishnamurthy

The Kansas City Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming has become one of the hottest conferences for econ nerds around the world.

It was at the 2010 Jackson Hole conference when Fed Chairman Ben Bernanke prepared the world for QE2, a second round of stimulative bond purchases.

Bernanke spoke again in 2011 and 2012.

This year, Bernanke will be a no-show.

But that doesn’t mean we should ignore the conference altogether.

In case you forgot, Columbia Professor Michael Woodford basically changed the future of economics and stole the show from Bernanke with his Jackson Hole paper “Accommodation at the Lower Bound.”

“This paper ended up being on the leading edge of a general shift in thinking on the relative merits of forward guidance vs. QE,” said Goldman Sachs’ Kris Dawsey.

This year, Dawsey’s got his eyes on the work of another presenter: Arvind Krishnamurthy:

…While much of the focus this year will be on international dimensions of monetary policy, some papers will probably be directly relevant for the US monetary policy debate. Arvind Krishnamurthy (Northwestern University) is expected to present on “the Transmission of Unconventional Monetary Policy” on Friday morning. Past work by Krishnamurthy with Annette Vissing-Jorgensen found that QE1 and QE2 had large effects on highly-rated longer-term fixed income security prices, emphasising two particular transmission channels: conventional rate path signaling and influencing the relative scarcity of safe assets.

Perhaps more interestingly, they also found that MBS purchases had a disproportionate effect on depressing MBS yields, while Treasury purchases did not seem to have a similar benefit. This analysis was consistent with (and may have partly informed) past remarks from Fed Governor Stein, and Presidents Rosengren and Williams, who stated that MBS purchases may have more “bang for the buck” than Treasury purchases. General consensus on this point could reflect on the probability of disproportionate tapering of Treasury securities rather than MBS when the time comes. We think this is likely. A shift in academic sentiment in the other direction would be equally notable.

Will Krishnamurthy have a Woodford moment? We’ll find out.

It’s also worth noting that Fed Vice Chair and frontrunner to be the next Chair Janet Yellen will be moderating a panel.

“[E}xpect Janet Yellen to make a play for the Chairmanship with a “friendly” speech,” said BTIG’s Dan Greenhaus.

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