Headwinds Vs. Tailwinds: The Macroeconomic
HeatMap – ZH
Barclays
shows a heat-map that represents their subjective assessment of the relative
balance of forces from 2012 into 2013 and beyond. In 2013, the fiscal headwind
continues to loom large and is an important basis of caution despite the strong
improvement in financial conditions. The fiscal headwind is unlikely to abate
by much in the US and Europe until 2014, possibly later. Other
sources of ‘headwind’ are likely to continue during 2013; these include private
sector de-leveraging in the highly indebted parts of Europe, as well as
political uncertainty (in this context, we observe the elections in Italy (Q1)
and Germany (Q4)). Monetary policy, policy reforms, and the financial markets
themselves are the main tailwinds as vol suppression continues.
The idea of
having GDP growth as the main target of
economic policy has been under attack in recent years. This column addresses
some of the criticisms and argues that continued GDP growth would be good for the UK and other European countries – and
not just in the short term to reduce high levels of unemployment.
Why negative interest rates are a bad idea, by
Capital Economics –
alphaville
/ FT
Macro, what have you done for me lately? – noahpinion
The dirty secret of economics education – Worthwhile
An Economics Masterpiece You Should Be Reading
Now – View
/ BB
The most
valuable new book I’ve read this year is Justin Yifu Lin’s “The Quest for
Prosperity.” George Akerlof, a Nobel laureate in economics and a man not given
to reckless overstatement, calls it “a masterpiece.” I’d say that’s right.
The surprise end game
in global trade – voxeu.org
Free trade agreements are now the centre of gravity in
global commerce. This column says they are also the likeliest pathway to
multilateral trade liberalisation. With the US
negotiating two mega deals – the Trans-Pacific Partnership and a US-EU
free-trade agreement – China and other
emerging economies will have no choice but to play by common rules of the game.
It concludes that with all heavyweights joining the charmed circle,
multilateral talks in Geneva will no
longer be needed.
The Measurement and Behavior of Uncertainty:
Evidence from the ECB Survey of Professional Forecasters – NY FED
Today’s challenges go
beyond Keynes – The
A-list / FT
Jeffrey Sachs: For more than 30 years, from the
mid-1970s to 2008, Keynesian demand management was in intellectual eclipse. Yet
it returned with the financial crisis to dominate the thinking of the Obama
administration and much of the UK Labour party. It is time to reconsider the
revival.
Macro heresy: Rethinking
policy options to avoid a lost decade – voxeu.org
Five years after the subprime bubble burst, the
self-correcting nature of business cycles is being questioned and,
subsequently, orthodox macroeconomic policy is starting to be challenged. This
column introduces a radical rethink of options open to macroeconomic
policymakers, suggesting that in order to simultaneously achieve economic
stimulus without increasing debt, new money creation should be used to directly
finance on-going budget deficits.
Financial
Globalisation and the Crisis – BIS
The global financial crisis provides an important
testing ground for the financial globalisation model. We ask three questions.
First, did financial globalisation materially contribute to the origination of
the global financial crisis? Second, once the crisis occurred, how did
financial globalisation affect the incidence and propagation of the crisis
across different countries? Third, how has financial globalisation affected the
management of the crisis at national and international levels?
The great leveraging – BIS
What can history can tell us about the relationship
between the banking system, financial crises, the global economy, and economic
performance? Evidence shows that in the advanced economies we live in a world
that is more financialized than ever before as measured by importance of credit
in the economy. I term this long-run evolution "The Great Leveraging"
and present a ten-point examination of its main contours and implications.
Global safe assets – BIS
Will the world run out of 'safe assets' and what would
be the consequences on global financial stability? We argue that in a world
with competing private stores of value, the global economic system tends to
favor the riskiest ones. Privately produced stores of value cannot provide
sufficient insurance against global shocks. Only public safe assets may, if
appropriately supported by monetary policy. We draw some implications for the
global financial system.
Capital Flows and the
Risk-Taking Channel of Monetary Policy – BIS
This paper examines the relationship between low
interests maintained by advanced economy central banks and credit booms in
emerging economies. In a model with crossborder banking, low funding rates
increase credit supply, but the initial shock is amplified through the
"risk-taking channel" of monetary policy where greater risk-taking
interacts with dampened measured risks that are driven by currency appreciation
to create a feedback loop. In an empirical investigation using VAR analysis,
we find that expectations of lower short-term rates dampen measured risks and
stimulate cross-border banking sector capital flows.
The 1980s financial
liberalization in the Nordic countries – Bank
of Finland (pdf)
This paper reviews the process of liberalization and
discusses the reasons why Finland, Norway, and Sweden drifted
into financial and economic crises.
Inside the Brain of
the Hard-Money Advocate – View
/ BB
Gross inflows and the
incidence of credit booms – voxeu.org
How can we
predict bad credit booms? This column argues that surges in gross private
inflows are good predictors of booms in credit markets, especially those booms
that end up in a systemic banking crisis. Using quarterly data on gross capital
inflows and real credit, gross private inflows remain a useful measure even
when accounting for the past history of credit and asset prices The evidence
suggests that surges in capital flows may well mean future financial turmoil.
Mistaking models for reality – mainly
macro
2012
REVIEWS
Everything You Need To Know About the Economy
in 2012, in 34 Charts
– The
Atlantic
2012 in charts: The long road to recovery – The
Economist
Top 10 Economic Charts of 2012 – WSJ
MONETARY POLICY
Time for Nominal Growth Targets – Project
Syndicate
Monetary
policymakers in some countries should contemplate a shift toward targeting
nominal GDP – a switch that could be phased in
gradually in such a way as to preserve credibility with respect to inflation.
Indeed, for many advanced economies, in particular, a nominal-GDP target is clearly superior to the
status quo.
The Omnipotent Fed idea – noahpinion
I generally
support the idea of an activist Fed, unconventional monetary policy, etc.
However, I do have a misgiving about a key element of the case made by the
aforementioned crop of monetarists. This is the notion of an "Omnipotent
Fed"...by which I mean not that the Fed can create stars and galaxies, but
that the Fed can set NGDP to be whatever it wants. If this assumption is wrong,
NGDP targeting (or similar policies) may simply not work.
Chronology -Federal Reserve's transparency
steps – Reuters
How durable is the emerging NGDP consensus? – Free
exchange / The Economist
Farewell to Inflation Targeting? – Project
Syndicate
In a
four-day period in mid-December, three seemingly unrelated developments
suggested that modern central banking is in the midst of an historic change. To
the extent that this shift gains momentum – which appears likely – it will
affect economic performance, the functioning of markets, and asset-price
valuations.
Shrink this e-dollar – Free
exchange / The Economist
the
complete displacement of paper money by electronic money could give central
banks the tools to end recessions once and for all by eliminating the problem
of the zero lower bound…central banks already have the tools to create a
negative interest rate: combining a zero nominal rate with a positive rate of
inflation.
Should Central Banks Target Employment? – Project
Syndicate
US Federal
Reserve Chairman Ben Bernanke recently announced that the Fed will keep
interest rates at close to zero until the unemployment rate falls to 6.5%,
provided inflation expectations remain subdued. It is a welcome breakthrough,
and one that should be emulated by others – not least the ECB.
Tracking the 7 Stages
of Fed Policy – PragCap
Is the Fed Risking
"Dangerous Side Effects"? – Economist’s
View
Time for Nominal
Growth Targets – Project
Syndicate
The time is right for the world’s central banks to
rethink how they conduct monetary policy. This column argues that central banks
should follow the lead of Mark Carney, the Bank of England’s new Governor, in
considering a move to nominal GDP
targeting. If nominal GDP targeting
is introduced in two distinct phases, its introduction can deliver the
advantage of some stimulus now – when it is needed – while satisfying central
bankers’ reluctance to abandon their cherished low inflation target.
Blogs review: State-dependent monetary policy
guidance – bruegel
The Fed announcement to move from a date-based approach to forward
policy guidance to quantitative unemployment and inflation targets marks a
major evolution in the practice of monetary policy. While there is still no
consensus as to how effective this move will be, there has been wide
recognition of its intellectual importance. And although similar moves appear
to be in the making in the UK and Japan, the ECB
has been singled out as behind the curve along this dimension of the crisis
response.
How durable is the
emerging NGDP consensus? – Free
exchange / The Economist