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Saturday, January 26

26th Jan - Weekender: Economics & Markets

Central bank mandates still debated – growing understanding that asset prices are a big contributor to the economic cycles, and the real solution is lessening asset price volatility. As this volatility arises from credit booms and busts, the key is monitoring asset prices and applying countercyclical banking and market regulation.  That has many implications and will be hotly debated – and probably forgotten soon. Last week’s Economics & Markets here.

Previously on MoreLiver’s:

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Misinterpreting the history of macroeconomic thoughtmainly macro
An attractive way to give a broad sweep over the history of macroeconomic ideas is to talk about a series of reactions to crises… However it is too simple, and misleads as a result.

Inflation Targeting and Country Risk: an Empirical InvestigationIMF

NGDP level targeting: Yellen it from the rooftops, but nobody heardalphaville / FT
Given the boost that Goldman’s economists gave to the nominal GDP level targeting movement when they endorsed the idea near the end of 2011, it’s probably a good idea to listen to them when they write about the subject (whether you agree with them or not).

Stubborn national politics drag down the global economyReuters
The imbalance is such that while the emerging markets produce the majority of goods and services, they depend upon selling to Western consumers. Until that changes, no continent can succeed without the other. Indeed, in the absence of global coordination the world is stuck in a rut of its own making, acting out our own global version of the “Prisoners’ Dilemma.” It is a world where no major economy can succeed on its own and yet none trusts any other enough to try a cooperative effort through coordination.

Low money multiplier does not justify ultra easy monetary policySober Look

Writing the FutureProject Syndicate
Jeffrey D. Sachs: More than we know (or perhaps care to admit), the future is a matter of human choice. So, will living standards rise worldwide, as today’s poor countries leapfrog technologies to catch up with richer countries, or will greed and corruption lead us to degrade the natural environment on which human well-being depends?

Why financial markets are
Roger E. A. Farmer: The efficient market hypothesis – in various forms – is at the heart of modern finance and macroeconomics. This column argues that market efficiency is extremely unlikely even without frictions or irrationality. Why? Because there are multiple equilibria, only one of which is Pareto efficient. For all other equilibria, the whims of market participants cause the welfare of the young to vary substantially in a way they would prefer to avoid, if given the choice. This invalidates the first welfare theorem and the idea of financial market efficiency. Central banks should thus dampen excessive market fluctuations.

How we got hereFree exchange / The Economist
Mainstream macroeconomics has a pretty poor reputation these days, both among the public at large and among economists in other fields. This is hardly surprising. There is little consensus on even the most basic questions in macro.

'Wealth Effects Revisited: 1975-2012'Economist’s View
Housing cycles matter.

World Economic Outlook October 2012: Coping with High Debt and Sluggish GrowthThe Big Picture

Terrifying Tim from TullettButtonwood / The Economist
Tim Morgan of the brokers Tullett Prebon has just produced an 82-page note (complete with lots of pictures of ancient ruins) called "Perfect storm; energy, finance and the end of growth."

Just who should we be blaming anyway?Free exchange / The Economist
Why have so few gone to jail for the financial crisis? The boom and bust in S&L lending in the 1980s ended with nearly one thousand people sent to jail for financial fraud—and that experience was quite mild compared to the recent cycle.

How much value does the finance industry create?Noahpinion

Making Sense of Wall Street’s Trading RevenueDealBook / NYT
Trading results are good place to start when assessing whether banks release sufficient information about their financial results.

Reforming risk-weights, quotes du jouralphaville / FT

Finnish Government Debt HandbookNordea (pdf)
This handbook gives an overview of the market for Finnish government debt. We offer details on the structure of the market including instruments, marketplace, auctions, issuance, outstanding volume and ownership.

Q4 Earnings Season: Far Worse Than Most SuspectZH

Financials vs Technology Sector EarningsETF Replay
In the last blog post, we showed how S&P 500 earnings were tracking vs past years.  This blog looks at 2 of the major sectors that generate those earnings.

Weekend Reading for Equity InvestorsCFA Institute

Dying markets, illustratedalphaville / FT
World Federation of Exchanges pushed out “highlights” from 2012. The trading rut extends to… everywhere. Every region. Every market. Globally equity transactions were down 22.5 per cent last year, derivatives trading fell 20 per cent, while ETF business fell by 31.6 per cent. What’s to blame?

Carry Trade and Systemic Risk: Why are FX Options so Cheap?SSRN
Ray Dalio: Cash Will Move Into 'Stuff' in 2013Marketfolly

How To Manage RiskIvanhoff