Larry Summers: uncertainty

Transcript context

…What’s the best framework for thinking about how the Federal Reserve’s monetary policy decisions affect emerging economies? There’s been work coming out of Princeton and Hélène Rey. How well do we understand this? And what framework do you look to first on these questions? I think we don’t fully understand why there are so many places where the long-term interest rate is more responsive to what the central bank in Washington does than what the central bank in their capital city does. That’s an important puzzle that I don’t think the economics profession fully understands at this point. I don’t know that we’ve got a framework that is, in a profound sense, better than the Dornbusch overshooting model for thinking about a range of exchange rate fluctuations. If I think about the economy of Mexico, they have NAFTA, which I’ve always thought was a good idea. They’ve done significant reforms. They have a much, much higher level of professionalism in their government than they did several decades ago. But typically they grow in the range of two to two and half percent. This, to me, is somewhat of a puzzle. What’s your take on why Mexico hasn’t done better?…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.