that time. in addition to a summary of market developments, prices and liquidity conditions, staff would bring information from across a spectrum of financial institutions and market participants, the kind of information that throughout the crisis period would prove to be invaluable to policy makers. in addition to sharing information from across the bank, discussions at these meetings would aim to synthesize diverse information gleaned from markets or if no synthesis was available generate new questions for the staff to gain intelligence on. the basic skills that economists can bring to such meetings are a framing of developments based on the efficient markets hypothesis, which holds that financial markets will quickly incorporate all relevant information in asset prices, along with an understanding of economic fundamentals. many commentators have associated a blind faith in efficient markets by market participants and regulators as one of the main underlying causes of the crisis. 6 this seems an overly simplistic and mostly incorrect characterization. a partially correct aspect of this critique is that market discipline failed in the period before the crisis. however, this is not a true rejection of the efficient markets hypothesis, as expounded by gene fama, but rather a failure for incentives to be appropriately aligned. 7 an efficient markets explanation usually involves a great deal of the monday morning quarterbacking : after observing market moves that prove an analysis incorrect, there is usually a tweak to this previous analysis prompted by the market move, which does not require any substantial changes to an underlying view. to outsiders this might sound like cheating, but if the efficient markets hypothesis has validity, then unexpected market moves always contain new information over the original analysis. indeed, the ability of individual markets to efficiently aggregate diverse sources of information most of the time is why the efficient markets hypothesis gained empirical support. 8 see adam b. ashcraft and til schuermann ( 2008 ), “ understanding the securitization of subprime mortgage credit ” federal reserve bank of new york staff reports no. 318 ( new york : federal reserve bank of new york, march ) for a discussion of how adverse selection and asymmetric information along with poor incentives caused a lack of market discipline. for further discussion of the efficient markets hypothesis and the crisis, see eugene fama ’ s blog, “ fama / french forum ” ( shared with kenneth french ). in particular, see eugene fama and kenneth french ( 2008 ), “ q & a : market turmoil ” fama / french forum ( santa monica : dimensional fund advisors, december ).

of the tasks of economists : " no part of man's nature or his institutions must lie entirely outside his regard. he must be purposeful and disinterested in a simultaneous mood ; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician. " yes, economics is not only a science, but an art. the art of thinking outside the box, the art of finding solutions. of finding new ideas to face up to today's economic problems, to fight inflation. i wish you two very artistic days! 3 / 3 bis - central bankers'speeches