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Sunday, May 13

13th May - Weekender: Economics

Here are the week’s select economics articles, mostly about central banks – monetary policy, both conventional and unconventional. Follow ‘MoreLiver’ on Twitter or Facebook.  The LTRO and JP Morgan posts have been updated.

Previously on MoreLiver:

How government red tape keeps poor people out of jobsModeled Behavior
In the 1950s, around 1 out of 20 jobs required a license. Now the number is around 1 in 3. This red tape keeps a lot of low income people out of better jobs with better income.

Austerity Can't Be Just for Regular PeopleRolling Stone
This sounds like the beginning of what will be a very heated debate over who has to pay for the excesses of the financial crisis. It was previously assumed that everybody but the actual financial services sector would have to pay

The growth of the shadow economy, chartedalphaville / FT
When the economy is tanking the shadow economy benefits. That’s the theory and a new study into the rise of the grey economy

Shadow economies all around the world: Model-based
Shadow economies – sometimes called the black market or informal economy – exist in every country. But how big are they? This column presents some new approaches to estimating their size and uses them to compare shadow economies across rich and poor countries over the last 60 years.

Toward an Understanding of Learning by DoingU.Chicago (pdf)
Past research has documented that learning by doing—productivity improvements that occur in concert with production increases—is one source of such improvements. Yet little is known about the specific mechanisms through which such learning occurs.

A Thumbnail Sketch of US Economy: No QE3Marc to Market

Charts: Australian EconomyASA
One might, as a result, wonder if this is a right time for the government to tighten fiscal policy, particularly when it is now apparently that a deleveraging is going to happen after a period of accumulation of debt, as one can see below

Global Growth Is SlowingCredit Writedowns
According to the JP Morgan Global Composite PMI report, “Growth of global economic activity eased sharply to a five month low in April.”

Macro Matters and OrthodoxyQuantivity
Quantivity disliked undergrad macroecon, as it was largely a waste of time: fancy theory lacking compelling evidence, amplified by no consensus within the field à la saltwater versus freshwater.

the flaws of financeresearch puzzle
James Montier delivered the keynote speech at this year’s annual conference of the CFA Institute.  It was titled simply, “The Flaws of Finance.”

Financial crises, ethics and academics: A bit more Mea Culpa would helpMagic, Maths and Money
Academics are still not accepting any responsibility for the crisis. First it was the “evil bankers”, then the governments.

It is time to end the oligopoly in bankingJohn Kay
If the only way you are allowed to operate a bank is by being much the same as existing banks, the only competition we can ever expect is the anaemic competition we see today.

What does interconnectedness imply for macroeconomic and financial cooperation?BIS (pdf)
William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Swiss National Bank-International Monetary Fund Conference, Zurich, 8 May 2012.

Country Stress Events: Does Governance Matter?IMF
This paper analyzes the linkages between governance quality and country stress events. It focuses on two types of events: fiscal and political stress events, for which two innovative stress indicators are introduced. The results suggest that weaker governance quality is associated with a higher incidence of both fiscal and political stress events.

A Dynamic Factor Model of the Yield Curve as a Predictor of the EconomyFED
We examine the predictive value of the yield curve to forecast future economic growth as well as the beginning and end of economic recessions at the monthly frequency…the proposed factor model of the yield curve exhibits substantial incremental predictive value compared to several alternative specifications.

Crowding out, brought to you by the FedFree exchange / The Economist
Monetary policy: Try overshooting for once, cont.Free exchange / The Economist
In other words, because the Fed appears to be overwhelmingly focused on keeping inflation at or just below 2%, efforts to boost employment on the public side may simply crowd out private employment growth.

How "Unconventional" Are Large-Scale Asset Purchases? The Impact of Monetary Policy on Asset PricesN.Y. FED (pdf)
By looking at the cross-asset reactions, this work concludes that, for most U.S. asset prices, the effects of asset purchases are not statistically different from an unanticipated cut in the fed funds target rate. Finally, the response of U.K. asset prices (excepting FTSE 100 stocks) to the Bank of England’s gilt purchases is quantitatively similar to the reaction of U.S. asset prices to the Fed’s asset purchases.

The Credibility Fixation Krugman / NYT
My point is that when central bankers invoke “credibility”, they’re in effect saying something like this: Our most precious asset is our hypothetical ability — for which we have no evidence, but in which we nonetheless believe — to deal more easily with a hypothetical future problem. And rather than endanger this precious asset, we refuse to act on the intense problem we have right now.

The return of the surprise in central bankingBIS (pdf)
Patrick Honohan, Governor of the Central Bank of Ireland, at the Official Monetary and Financial Institutions Forum (OMFIF) Golden Series on World Money, London, 8 May 2012.

Central Bank reserve creation in the era of negative money
Are central banks printing vast quantities of money? This column explains how money-multiplier economics (central banks create reserves that allow commercial banks to create money) no longer holds. Today, non-bank financial institutions play a pivotal role in money/liquidity creation, but hold no reserves. Their lending depends on “private reserves”, mainly highly liquid government securities. Creating more ‘public’ reserves by buying such ‘private’ reserves doesn’t trigger money creation – it just substitutes among reserve types. Open-market purchases only create money if they swap a monetary base for assets that are no longer accepted at full value as collateral in the market.

The era of the ‘negative money multiplier’ – Part 1alphaville / FT
Or, why hyperinflationists are wrong. And why everything you were ever taught about the money multiplier is not applicable to the here and now.

The era of the ‘negative money multiplier’ – Part 2alphaville / FT
If they Singh and Stella are right, the multiplier has no chance of returning for as long as the Fed continues to substitute private Treasury stock for bank reserves, or for as long as shadow banks remain risk averse with respect to the type of collateral they accept.

Does History Support NGDP Targeting Now?The Capital Spectator
The debate about targeting a higher rate of growth for nominal gross domestic product (NGDP) keeps the blogosphere humming, but the discussion doesn’t mean much if Fed Chairman Ben Bernanke doesn't embrace the idea. Don't hold your breath.

Retail sales has also missed estimates in April – ASA
China Monetary Statistics for April 2012 – ASA
Fixed asset investment weakens, real estate investment slowdown – ASA
Industrial Production missed estimates, power output growth collapsed – ASA
Inflation slowed to 3.4% in April 2012 – ASA
The worst is NOT over for the China’s economy – ASA
Chinese data: it gets worse – beyondbrics / FT
People’s Bank of China cuts reserve requirement ratio by 50bps – ASA
China Cuts Reserve Requirement Ratio, Joins Reflation Race – ZH
China Cuts Required Reserves – Marc to Market