What are the main issues facing leading central banks in 2014

In our interconnected world their decisions have global effects, says Professor Niall Ferguson

Maybe I should call 2013 the year of Winehouse economy. As the late British pop singer Amy Winehouse sang: "They tried to send me to a sanatorium, but I said, No, No, No!" Last year in the role of the singers were leading central banks led by the Federal Reserve, wrote about site project-syndicate.org Niall Ferguson, an economist and professor of history at Harvard University.

During the summer, the U.S. and Chinese central banks have signaled their intentions to normalize monetary policy. Fed Chairman Ben Bernanke spoke openly rolling program of buying bonds. Bank of China Governor Zhou Xiaochuan tried to rein in out of control credit growth. However, when markets in both countries reacted more violently than expected - to increase the profitability of U.S. government securities and interbank rates of growth in China - monetary authorities gave reverse.

This is a problem we have encountered many pop singers: after years of "stimulus" sobering is not as easily portray the situation Professor Ferguson.

Indeed remain strong reasons for continuing economic incentives in one form or another. In November, the man who once appeared as a successor to Bernanke - Laren Summers, argued that the U.S. economy may be in the grip of "long-term stagnation." Other economists still worry that in Europe, if not in America, reducing the rate of inflation in recent decades might lead to deflation.

Yet there are indications that the global economy as a whole is alive. IMF predicts that global growth will increase from 2.9% in 2013 to 3.6% in 2014 and will be up 4% over the next four years - more than the average rate of 80s, 90s and the first decade of the 21st century.

The disparity between the poor performance of the developed economies and the resumption of growth in the rest of the world raises (at least) seven questions, especially for major central banks.Each of these institutions has a national office, but in our interconnected world their decisions have global consequences.

Question 1: What exactly will the Fed under new Chairman Janet Yellen?

Contraction incentives should happen sooner or later, but sincere concern of Yellen status of the labor market suggests that it will promise lower interest rates for a longer period than seems justified by other indicators. The challenge will be to make the model of the "forward" the central bank to work if other indicators suggest that the recovery is underway (just like Mark Carney, Governor of the Bank of England).

The U.S. economy is recovering in more than one direction. Shale oil and gas brought energy abundance. Silicon Valley is booming. The stock market hit record. And surprisingly deeply divided Congress has just signed a two-year fiscal agreement that will support a slight short-term cost, while reducing the deficit in the long term.

Markets are likely to react to this and other good news while ignoring the future direction and focus on the contraction of incentives, rising long-term interest rates. A short-term consequence of this can be sharp market correction along the lines of those seen in 1980 and 1987 Wall Street likes to test the new head of the Fed.

Question 2: How would you react to other central banks shift commentary on politics in Washington?

ECB knows that the periphery of the eurozone is not ready for higher interest rates, although Spain, Ireland and Greece show signs of economic revival. Unemployment in the periphery remains extremely high. The big political risk for Europe remains populism and European elections this year will give kryanodesni leader Marine Le Pen as a golden opportunity.

Question 3: Will they populists to disrupt the complex process of creating a banking union in the eurozone, which is a prerequisite for sustainable recovery of the European financial system?

Probably not. In fact the populist success may even make the Social Democrats and the Christian Democrats to form a grand coalition in the European Parliament, representing another step towards germanizatsiyata EU.

Meanwhile, in Japan there is even less enthusiasm for monetary sobering: the government of Shinzo Abe clearly expected more, not less stimulus from the central bank. Without them hope that "Abenomikata" will raise inflation to 2% will be broken.

Question 4: Will Japan to maintain an aggressive monetary policy, while the U.S. money supply shrinks?

Perhaps, but the extent to which this policy will support sustainable growth and higher inflation depends on the so-called "third arrow" to "Abenomikata" - structural reforms, which have yet to strike the real targets.

The contrast with Japan's neighbor and strategic rival China is striking. There is at least some evidence that the People's Bank has resumed moentarnoto tightening efforts to impose control over the financing of the shadow banking sector. This leads to the last three questions:

Question 5: Can China achieve sustainable growth while also shrinking the credit bubble and promotes structural reforms?

Question 6: How huge new middle class in China will react if the answer to Question 5 is "No"?

Question 7: Does the government in Beijing will respond to domestic discontent with more military rhetoric abroad, as we saw in 2013

I do not pretend to know the answers to these last questions, but they could be the key to how well or badly sobering of aggressive monetary policy over the world will present ends Niall Ferguson.