Now I put aside $60 billion in the Future Fund. People say “oh well you could have put aside 70 or $80 billion or something like that.” But I make this point. If we’d put aside more they’d probably just have borrowed more.

It has been argued that Australia is somehow a victim of a ‘currency war’ being waged between foreign central banks engaged in quantitative easing. Yet there is nothing unusual about the effects of quantitative easing on exchange rates.

Quantitative easing is simply a change in the operating instrument of the central bank, from a price variable (the official interest rate) to a quantity variable (base money).

In itself, quantitative easing tell us nothing about whether central bank policy is easy or tight. Low inflation and low interest rates in countries like Japan and the United States imply policy settings are if anything too tight, not too easy.

The exchange rate is just one of the channels through which a change in monetary policy is transmitted to the rest of the economy and quantitative easing does not fundamentally alter this transmission mechanism.

In previous decades, Australians worried about a low exchange rate and capital flight. In the current international environment, foreign capital inflows are an affirmation of our relatively sound economic fundamentals and not a bad problem to have.

Please keep Policy in mind as an outlet for your ideas. Policy reaches an influential audience and we are planning a number of initiatives to extend its reach and build the subscriber base.

We are open to feature articles, interviews, review essays and book reviews covering a wide range of policy issues and ideas from any disciplinary perspective. Note that contributions are subject to a refereeing process.

Feel free to get in touch to discuss any ideas you may have. Contributor deadlines for future issues are as follows:

Winter 2013: 30 April
Spring 2013: 30 July
Summer 2013/14: 30 October

A model of inward foreign direct investment for Australia is estimated. Foreign direct investment is found to be positively related to economic and productivity growth and negatively related to foreign portfolio investment, trade openness, the exchange rate and the foreign real interest rate. Foreign direct investment is found to be a substitute for both portfolio investment and trade in goods and services. The exchange rate and the US bond rate affect foreign direct investment through the relative attractiveness of domestic assets. Actual foreign direct investment outperforms a model-derived forecast in recent years, consistent with the liberalisation of foreign investment screening rules following the Australia–US Free Trade Agreement.

An ungated version can be found here.

If the Garnaut recommendations could not be fully implemented in the reform era of the 1990s, it would seem unlikely that our contemporary political culture will make much progress in implementing the few substantive recommendations contained in the ACWP.

The ACWP will join the Henry review and the Rudd defence white paper as monuments to a failed process for public policy development and implementation.

The Divisia M3 and M4 figures for the US money supply, calculated by the Center for Financial Stability, show that the money supply is no higher today than in early 2008. For all the fretting about the Fed’s accommodative policy, the money supply has barely increased and is way off its previous trend. This represents a very tight policy compared to Friedman’s rule that growth in the money supply should be limited to a constant percentage. The lack of growth in the money supply is an important reason why US inflation and inflationary expectations remain under control. The Federal Reserve Bank of Cleveland’s latest market-based estimate of the 10-year expected inflation rate is 1.32 per cent.

Charles is one of the most interesting economists working in this important area of public policy. You can register to attend the lecture by following the above link.