Trading & Markets and Views & Off-Topics coming up next.
Previously
on MoreLiver’s:
Weekender: Weekly Support (updated!)
ECONOMICS
Sticky Wages and the Macro Story – Krugman
/ NYT
So when I emphasize nominal wage rigidity, I am
defending an analysis of how the economy works, which is not at all the same
thing as saying that this rigidity is the problem. On the contrary, for the US (though not for
countries like Spain), wage stickiness is if anything good for us right now, helping stave
off destructive deflation.
In reality, there’s remarkable consensus among
mainstream economists, including those from the left and right, on most major
macroeconomic issues. The debate in Washington about economic policy
is phony. It’s manufactured. And it’s entirely political.
Monetary policy transmission in the euro area,
a decade after the introduction of the euro (May 2010) – ECB
(pdf)
Highly
topical, notice the date (two years old)
IMF Tracks Fiscal Rules Used in Crisis Response – IMF
Growing number of countries now have fiscal
rules in place - "Next generation" fiscal rules better account for
economic shocks - New IMF dataset covers fiscal rules in 81 countries
Empirics and Psychology – big
think
Eight of the World’s Top Young Economists Discuss
Where Their Field Is Going
Cyclical adjustment in fiscal rules: some
evidence on real-time bias for EU-15 countries – Bundesbank
(pdf)
Risk-on/risk-off, capital flows, leverage and
safe assets – BIS
Thus, calm periods, marked by leveraged
investing in emerging markets, lead to an asymmetric asset swap (risky emerging
market assets against safe reserve currency assets) and leveraging up by
emerging market central banks. In declining and volatile global equity markets,
these flows reverse, and, contrary to some claims, emerging market central
banks draw down reserves substantially. In effect emerging market central banks
then release safe assets from their reserves, supplying safe havens to global investors.
Credit risk connectivity in the financial
industry and stabilization effects of government bailouts – Bundesbank
(pdf)
Unconventional Monetary Policy and the Great
Recession: Estimating the Macroeconomic Effects of a Spread Compression at the
Zero Lower Bound – Bank
of Canada (pdf)
How big is the output gap? – Atlanta
FED
If the output gap is large, that is, if the
level of gross domestic product (GDP) is running significantly under
potential GDP, the economy is obviously not in a position of maximum employment. And
if that is the case, the inflation trend is likely to be headed lower and so
the price stability mandate may also be in jeopardy.
Rethinking macro – Free
exchange / The Economist
We learned a hugely important lesson from the
Depression—that central banks could influence the economy and prevent
demand-side macroeconomic disasters. But we took a wrong turn in thinking that
the way they did this was by moderating inflation. It was as if we discovered a
magical sword in the woods and then went about confronting enemies by whacking
them with the sheath. We can move past this intellectual limitation. Monetary
policy can influence demand, plain and simple.
Finding the core: Network structure in
interbank markets –
Netherlands
Bank (pdf)
REGULATION
21-22 June
2012, Palace Hotel, Lucerne, Switzerland
A Beekeeper's Perspective on Risk – HBR
The honeybee colonies I was cultivating were
structured for consistent long-term growth and the prevention of severe loss
due to unpredictable environmental surprises. Bees are masters at risk
management.
Bubbles without Markets – Project
Syndicate
Robert
Shiller: The speculative bubbles in the
housing, equity, and commodity markets that preceded and accompanied the
current global financial crisis are also its ultimate cause. But, before we
conclude that we should rein in the markets, we need to consider the
alternative.
Full pdf here.
July 2012 Introduction
and background to the survey
It’s All About Culture – PIMCO
Many stakeholders argue that the surest way to
restore trust in the financial services sector is to increase regulation. Sound
regulatory frameworks that enforce transparency and safeguard the system
through the responsible use of bank risk capital are absolutely necessary, but
they are not sufficient. Rather, the financial services industry is in need of
a rediscovery of the importance of culture; institutions must embrace and live
a set of core values that guide behaviors and ensure an unyielding focus on
mission.
The European ban on naked sovereign credit
default swaps: A fake good idea – voxeu.org
Uncovered sovereign credit default swaps will
be permanently prohibited in the EU by November 2012. While empirical evidence
on their destabilising role is mounting, this column argues that the EU
regulation will have only a limited effect, as a number of inconsistencies
create regulatory arbitrage and opportunities to circumvent the ban.
Rating agency worker: 'I am genuinely
frightened' – The
Guardian
The global meltdown terrified the City. But
many are more worried that no controls have been introduced since 2008. This
monologue is part of a series in which people in the financial sector speak
about their working lives
Joris talks to an auditor about long hours –
and how seniority and levels of job security affect levels of co-operation
Gambling in the House? – John Mauldin
/ The Big Picture
LIBORgate,
CDS markets and Spain.
Finance needs stewards, not toll collectors – John
Kay
We need a structure of regulation, and of the
financial services industry itself, that establishes an appropriate structure
of incentives and rebuilds trust and confidence on the basis not of public
relations, but of changed behaviour.
Why finance can’t be fixed with better
regulation – Felix
Salmon / Reuters
In order for that to happen, we’re going to
need to see today’s financial behemoths broken up into many small pieces —
because at that point each small piece is going to have to earn the trust of
the other small pieces which rely on it. Of course, that’s not going to happen.
And as a result, financial-industry scandals will continue to arrive on a
semi-regular basis.
Bankers Gone Wild – The
New Yorker
Rigging LIBOR was shockingly easy. The
estimates aren’t audited. They’re not compared with market prices. And LIBOR is
put together by a trade group, without any real supervision from government
regulators. In other words, manipulating LIBOR didn’t require any complicated
financial hoodoo. The banks just had to tell some simple lies. They had plenty
of reasons to do so.
Wall Street Is Too Big to Regulate – NYT
Of course, it would probably take another
financial meltdown to make banking nationalization politically tenable. But
given how the sector has behaved since the last crisis, a repetition seems
inevitable, and sooner rather than later.