November 24, 2013
Forward rates and monetary tightening
The Federal Reserve has been trying hard to communicate that it intends to keep short-term interest rates low for quite some time. The market seems to have embraced the message.
November 10, 2013
Summarizing monetary policy
Before 2008, U.S. monetary policy was primarily conducted in terms of a target set by the Federal Reserve for the fed funds rate, which is the interest rate a bank pays to borrow funds overnight from other banks. A large academic literature used the fed funds rate as a summary of monetary policy, looking at its correlations in dynamic regressions with other variables of macroeconomic interest. But the fed funds rate has been stuck near zero for the last 5 years, and will likely be replaced by an alternative policy focus even once we exit the zero lower bound. Economic researchers face not just the difficulty of summarizing what the Fed has been doing in the current and future environment, but also the practical challenge of how to update their historical regressions to try to describe the full set of historical data along with the new experience in a coherent way. Here I describe a new research paper that suggests one solution to these problems.
October 30, 2013
What Currencies Are Foreign Exchange Reserves Held In?
Following up on the dollar's status as an international currency (and how threats of default are not helpful), here is what we know about the dollar's role as a reserve currency.
October 21, 2013
American Debt, Chinese Anxiety, Elaborated
Or, how the Tea Party is working hard to sabotage the dollar's role in global finance.
October 02, 2013
Debt Ceiling Watch (III)
Lots of pooh-poohing of the implications of a debt-ceiling crisis. It's instructive to examine what happened to equity markets when we last came close to a breach, but the Government didn't actually default.
Debt Ceiling Watch (II): October 2
From Alec Phillips/Goldman Sachs today (not online):
...the Treasury bill market is clearly indicating concern about upcoming debt ceiling deadlines ...
September 27, 2013
Debt Ceiling Watch
From WSJ, a picture of rising risk perception surrounding a debt ceiling crisis:
September 24, 2013
The Absolute Funniest Thing I Have Read This Year
From Ed (We Are Not in a Recession) Lazear and Keith Hennessey, "Bush ended financial crisis before Obama took office -- three important truths about 2008", FoxNews (9/16):
July 24, 2013
Prescience, 2007 edition
Having coauthored an entire book on the financial crisis of 2008 (Lost Decades, with Jeffry Frieden) I think that one of the most important qualities for a policymaker is the ability to look forward, and assess potential dangers and understand why those dangers arise. Looking back to 2007, it's of interest to see who foresaw the impact of adverse feedback loops in the financial system as risk was repriced.
June 30, 2013
The all-powerful Fed
The conventional wisdom is that the big jump in interest rates since the beginning of May is the result of a poorly conceived or poorly communicated shift in policy by the U.S. Federal Reserve. The conventional wisdom is wrong.
June 25, 2013
“Global Spillovers and Domestic Monetary Policy”
If QE1 through QE3 and other unconventional monetary policy (UMP) measures had little impact upon implementation, why did the hint of a stepback induce such large reactions in international markets?
June 22, 2013
The end of low interest rates
The yield on 10-year U.S. Treasury securities averaged 1.8% during 2012, the lowest levels in 60 years. But that episode may now be behind us.
June 21, 2013
The ECB's OMT and the German Constitutional Court
The Outright Monetary Transactions (OMT) program undertaken by the ECB has been key in stabilizing sovereign yields in the euro area periphery. Helmut Siekmann and Volker Wieland have evaluated the (German) legal concerns surrounding the program, here.
June 18, 2013
Revisions in Expected Interest Rate Paths
There’s been a lot of discussion of upward movements in long term interest rates. I thought it useful to consider the revisions in expectations, over time, and in context.
June 16, 2013
It's not just the Fed
The yield on 10-year U.S. Treasuries has jumped 50 basis points since the start of May, leading some to speculate that the market is already starting to price in anticipation of an end to the Fed's bond-buying program. There may be some truth to that, but it's only part of the story.
May 19, 2013
Sovereign debt concerns in 2013
Interest rates on government debt for a number of European countries-- notably Greece, Portugal, Ireland, Italy, and Spain-- shot up considerably during 2010-2012. Those yields have fallen significantly from their peaks, though these five countries still face higher borrowing costs than most other countries in Europe.
May 16, 2013
George Akerlof on the Response to the Financial Crisis and Great Recession
May 13, 2013
Crowding Out Watch, Heritage Edition
The Heritage Foundation's Salim Furth writes:
May 12, 2013
How Fannie Mae made its profit
Mortgage buyer and insurer Fannie Mae was in the news again this week.
May 08, 2013
The soaring stock market
Broad market indicators like the S&P500 have been making all-time nominal highs. What's the significance of that for investors and the economy?
May 07, 2013
Crowding Out Watch, Continued
The end of the semester has arrived, and as I prepared my last lecture, I checked to see how the government deficits had impacted yields. Real yields were pretty much as they were when the semester began in January.
April 28, 2013
The contributions of Reinhart and Rogoff
With all the heated discussions of the last two weeks, it is important to keep perspective on which issues are in dispute and which are not. Let me state plainly something on which I think we ought to be agreed: Carmen Reinhart and Ken Rogoff's 2009 book, This Time Is Different: Eight Centuries of Financial Folly, is a valuable work of scholarship that continues to deserve study and praise from any thinking person. Here I review some of my reasons for saying that.
March 06, 2013
Fiscal tipping points
At the recent U.S. Monetary Policy Forum I presented the paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, along with co-authors David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). One of the goals of our research was to try to understand the events that can lead a country to a tipping point in which it faces rapid increases in the interest rate on its sovereign debt, as a result of which the country finds itself with an unmanageable fiscal burden.
February 03, 2013
Is this a good time to buy stocks?
With the stock market setting new 5-year highs, I was interested to take another look at some of the long-term fundamentals underlying equity values.
January 08, 2013
Understanding risk aversion in financial markets
At the economics meetings here in San Diego this weekend, I learned about some very interesting new research on one of the core questions in finance and macroeconomics that had long puzzled me.
December 13, 2012
U.S. government profits from AIG bailout
A key player in the financial crisis was insurance giant AIG, which sold a huge volume of credit default swaps supposedly protecting buyers of mortgage-backed securities from losses due to default. But AIG had nowhere near the capital necessary to honor these guarantees when things went bad, and much of AIG's liabilities ended up being picked up by the Fed and the Treasury. On Tuesday the U.S. Treasury announced that it had sold the last of the common shares in AIG that it had acquired as compensation for its emergency assistance to AIG and reported that the Treasury and the Fed had together earned a profit of $22.7 billion as a result of their assistance to AIG. I was curious to take a look at how this story ended up having a happy ending.
November 10, 2012
Links for 2012-11-10
A few links to some items I found of interest.
September 25, 2012
Lost Decades: Two Years Later
The paperback edition of Lost Decades (W.W. Norton) is to be officially released October 1st. This seems as appropriate a juncture as any to assess the predictions Jeffry Frieden and I wrote almost two years ago.
September 23, 2012
Fat fingers and the price of oil
Can the wild swings in the price of oil over the last few weeks have anything to do with supply and demand?
August 08, 2012
The Federal Reserve's Maturity Extension Program and Treasury debt management
The Fed giveth and the Treasury taketh away.
July 24, 2012
Crowding Out Watch: July 2012
As feared by Representative Ryan, in March 2011, crowding out due to deficits: The ten year inflation adjusted constant maturity rate as of 7/20 was -0.67%
Source: St. Louis Fed FRED accessed 7/24 11am Pacific.
July 19, 2012
Would Regulation of Libor Have Passed Senator Shelby’s Benefit-Cost Analysis?
Senator Shelby, Ranking Republican of the Banking Committee, has sponsored The Financial Regulatory Responsibility Act, which seeks to restrict implementation of Dodd-Frank, and require benefit-cost analysis for financial regulation. To quote Sen. Shelby: "American job creators are under siege from the Dodd-Frank Act."  Now, it’s clear that British authorities have primary responsibility for regulating Libor (after all, the “L” in Libor stands for “London”). But I think it’s useful to consider this question because clearly similar concerns will arise in markets in the US sometime in the future.
June 19, 2012
Europe in 1931
I was at a conference at the Cato Institute two weeks ago discussing some research by Dartmouth Professor Doug Irwin on the role of the gold standard in the Great Depression of 1929-1933. If you're interested, you can see a written version of my comments, the slides from my presentation, or a video of the session (my comments begin a little more than half way in). Here I'd like to relate some of the discussion of what happened in Europe in 1931, and comment on some of the parallels with what is going on today.
June 16, 2012
Options for Europe
This problem is not fixing itself.
June 03, 2012
Markets see bad news
May was a bad month for U.S. stocks. June started out worse, with the S&P500 on Friday down 9% from where it stood at the beginning of May. That puts us back about where we started the year in January, though still significantly above last fall's lows.
May 28, 2012
Alexander Field (and Santayana) on Financial Regulation
As some in policy circles advocate unilateral financial disarmament, I think it is useful to think about what history tells us about the financial crisis of 2008, which seems to have already receded in people’s collective consciousness. Here I turn to Alexander Field’s new volume on the Great Depression, A Great Leap Forward. From Chapter 10, "Financial Fragility and Recovery":
The regulatory or policy failure was not simply or primarily a matter of interest rate policy. Rather it was a failure to control, or really be interested in controlling, the growth of leverage. ...
May 23, 2012
Commodity index funds and agricultural prices
I've just completed a new research paper with University of Chicago Professor Cynthia Wu on the Effects of Index-Fund Investing on Commodity Futures Prices. Here was our motivation for writing the paper:
The last decade has seen a phenomenal increased participation by financial investors in commodity futures markets. A typical strategy is to take a long position in a near futures contract, and as the contract nears maturity, sell the position and assume a new long position in the next contract, with the goal being to create an artificial asset that tracks price changes in the underlying commodity. Barclays Capital estimated that exchange traded financial products following such strategies grew from negligible amounts in 2003 to a quarter trillion dollars by 2008 (Irwin and Sanders (2011)). Stoll and Whaley (2010) found that in recent years up to half of the open interest in outstanding agricultural commodity futures contracts was held by institutions characterized by the Commodity Futures Trading Commission (CFTC) as commodity index traders.
May 13, 2012
JP Morgan and systemic risk
For some time, financial observers have been discussing the large positions in bond-index derivatives amassed by a trader known as the London Whale, now revealed to be Bruno Iksil working for JP Morgan Chase. On Thursday we learned that JP Morgan has lost over $2 billion in the space of two weeks as a result of the trades. On Friday the stock price fell by 9.3%, wiping out $14.4 billion of the company's value.
May 02, 2012
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.
April 03, 2012
Lessons from the Crisis for Teaching Macro
The NY Times "Room for Debate" recently had a forum on "Rethinking How We Teach Economics", with contributions by Blinder, Taleb and Skidelsky, among others. In my contribution, I focused on the importance of asymmetric information and self-reinforcing feedback loops:
March 20, 2012
Revisiting the Determinants of the Term Premium
In last Thursday’s post, John Kitchen recounted our joint work on what amount of foreign financing would be required to make consistent projections of government debt, and short and long term interest rates. That article from International Finance is now freely available on the Council on Foreign Relations website here.
February 15, 2012
Measuring the consequences of the zero lower bound constraint
In a period of deleveraging such as the U.S. has been going through, it is possible for the natural rate of interest to become negative. Since cash is always an option for earning at least a yield of zero, no asset should ever pay less than zero. This lower bound of zero on nominal interest rates can put a constraint on the ability of the economy to self-correct or the Fed to provide stimulus in such a situation.
The Fed still has some tools to try to reduce longer-term yields, namely large-scale asset purchases and signaling the Fed's future intentions. A new research paper by Federal Reserve Bank of San Francisco President John Williams and Senior Research Advisor Eric Swanson proposes a creative new approach to measuring when and to what extent the zero lower bound is a relevant constraint on interest rates of any maturity.
January 08, 2012
Current economic conditions
The latest U.S. economic indicators have taken a favorable turn.
January 05, 2012
Lost Decades at ASSA/Chicago
For those of you attending the Allied Social Sciences Association (and AEA) meetings in Chicago, January 6-8, I'll be at the W.W. Norton booth in the exhibition hall, Friday afternoon, particularly 5PM onward, ready to talk about Lost Decades: The Making of America's Debt Crisis and the Long Recovery.
December 21, 2011
European financial tensions and the Fed
U.S. monetary policy has gone through three distinct phases since 2008. We may be about to begin the fourth.
November 30, 2011
Central banks augment currency swap capabilities
The U.S. Federal Reserve, European Central Bank, and central banks of Canada, England, Japan, and Switzerland today announced a coordinated monetary action that could provide added assistance to interbank lending in the event of a further deterioration in global financial markets. Here I offer some thoughts on what the action signifies.
November 27, 2011
If you're prone to worry about where the economy's headed, last week's developments weren't very reassuring.
November 15, 2011
Links for 2011-11-15
Quick summaries of a few items of interest.
November 13, 2011
Greece, Italy, and financial stability
The drama began in Greece. Where is it going to end?
October 26, 2011
IMF Book Forum: "Lost Decades: The Making of America's Debt Crisis and the Long Recovery"
The transcript and video for the IMF Book Forum (October 14th) is now online here. Nobel Laureate George Akerlof (UC Berkeley) moderated, Diane Lim Rogers (EconomistMom, Concord Coalition) and Gail Cohen (Joint Economic Committee) were discussants, and Simon Johnson (Baseline Scenario, MIT) provided concluding comments.
September 26, 2011
Lost Decades: The Lost Graphs
In our book Lost Decades, Jeffry Frieden and I tried to be as comprehensive as possible in documenting the history we described, the analytical results we reported, and the data we used. We had intended to rely to a greater degree on graphical depictions, but for a variety of reasons, not all the proposed graphs made it in. Hence, we present the graphs that didn't make it into Lost Decades. (And, by virtue of the just-in-time nature of the web, updated!). The graphs are organized by chapters:
September 25, 2011
"What Predicts a Credit Boom Bust?"
From Chapter 1 of the IMF’s recent World Economic Outlook (Box 1.2), a set of findings by Jörg Decressin and Marco Terrones:
The econometric results confirm that net capital inflows, financial sector reform, and total factor productivity are good predictors of a credit boom. Net capital inflows appear to have an important predictive edge over the other two factors.
September 19, 2011
Lost Decades: The Making of America's Debt Crisis and the Long Recovery
From the preface to Lost Decades, published today (9/19) by W.W. Norton:
The United States ... lost the first decade of the twenty-first century to an ill-conceived boom and a subsequent bust. It is in danger of losing another decade to an incomplete recovery and economic stagnation.
In order to not lose the decade to come, the United States will have to bring order to financial disarray, gain control of a burgeoning burden of debt, and re-create the conditions for sound economic growth and social progress. None of this will be easy. The tasks are made more difficult by the fact, which we have learned to our alarm, that all too many policymakers and observers cling to the failed notions that got the country into such trouble in the first place. If Americans do not learn from this painful episode, and from others like it, they will condemn the nation to another lost decade.. (p. xvi).
September 11, 2011
What do low government bond yields signify?
August 21, 2011
Waiting for the Fed to act
Economic conditions are deteriorating. Here's how and when the Fed might intervene.
August 17, 2011
Not dead yet
We had a couple of pretty scary economic developments last week, but as far as I can tell, we're still standing.
August 10, 2011
Losing your AAA
On Friday, Standard & Poor's, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It's been a wild ride for equity and commodity markets ever since.
June 16, 2011
When Price Does Not Clear the Market
And other non-Neoclassical tales
Finance and Development has a profile of one of my teachers, Nobel Laureate George Akerlof, written by Prakash Loungani. Akerlof's views are critical to recall in these times when some individuals think supply and demand are sufficient to answer all policy issues. Akerlof's research highlighted the role of information asymmetries that prevent prices for setting quantity demanded equal to quantity supplied. From the article
June 01, 2011
Some Brief Thoughts on Sovereign Defaults
Sovereign default experiences are a staple in international finance. Here are a couple bits of information from a vast literature.
May 22, 2011
Measuring systemic financial risk
On a recent visit to UCSD, NYU Professor and Nobel Laureate Rob Engle called my attention to the NYU Stern Volatility Laboratory, a great resource that anyone can use to get some very interesting real-time analysis. Here I'd like to describe some of the features available for assessing the systemic risk posed by financial institutions.
March 17, 2011
Real Interest Rates and Crowding Out: Reagan Era vs. Now
Recent commentary on whether real interest rates rose during the Reagan era tax cuts -- Kling responding to Krugman -- impelled me to look at the data...
February 03, 2011
The Financial Crisis: Foreseeable and Preventable
January 23, 2011
The Fed's new policy tools
We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I'd like to discuss three new papers that have come out since then.
January 17, 2011
The Financial Crisis, Interpreted
Much of the popular, and scholarly, analysis of the crisis has focused on its financial aspects: the breakdown of financial markets, the malfunction of financial innovations, the failure of financial regulation. ...
January 03, 2011
On Reading "The Financial Crisis Primer"
The Republican members on the FCIC released a Financial Crisis Primer that has been debunked by a number of observers (since so many of the old canards were hauled out, this was easily accomplished).   But the refusal to allow the phrase "Wall Street" in the final commission report  impelled me to quantify the attempts by Wall Street to influence financial legislation in the years leading up to the financial crisis.
December 26, 2010
Changes in the yield curve
The bond market sees an improving economy.
December 09, 2010
Trade and Credit, Again
From Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis, by Davin Chor and Kalina Manova:
November 30, 2010
Europe and China: is this deja vu all over again?
The autumn of 2010 is in some ways a replay of what we saw last spring. Is what we saw then a guide to what's going to happen next?
November 03, 2010
QE2, News, and Differential Impacts in Asset Markets
Typically, economists assume that news, defined as information that induces revisions to expectations of the future value of relevant variables, should affect asset prices simultaneously, and in a consistent manner. That's why today's announcement of QE2 has somewhat surprising effects, if one is to believe that QE2 had already been priced in .
QE2: Been there, done that
The Federal Open Market Committee announced today that:
the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
October 31, 2010
Links for 2010-10-31
Some quick links on the flash crash, China's rare earth elements monopoly, Larry Summers, and economics at UCSD.
October 27, 2010
Negative real interest rates
What message should we take from negative real interest rates?
October 24, 2010
Richard Clarida's retrospective on the financial crisis
I earlier discussed several of the presentations at the monetary policy conference at the Federal Reserve Bank of Boston last week. But missed in the popular coverage of the conference was an insightful discussion by Columbia Professor Richard Clarida that expressed very nicely the conclusions that I have come to as well on the events that led us into these problems.
October 10, 2010
The market moves ahead of the Fed
Over the last month, a consensus seems to have emerged that (1) the Fed has the ability to depress long-term yields further, and (2) the Fed has the intention to implement such measures. That raises the possibility that recent market moves represent a bet already placed by market participants on the basis of the logical implications of (1) and (2).
October 03, 2010
QE2: estimates of the potential effects
As the conviction grows that the Federal Reserve will adopt a second round of quantitative easing (dubbed by some as "QE2"), I thought it might be helpful to survey some of the different estimates of what effect this might have on long-term interest rates.
October 02, 2010
Causes of the flash crash
September 27, 2010
Portfolio Crowding Out, Illustrated
I have been updating graphs for my money and banking course, and here is the graph I generated to illustrate the tremendous impact of government borrowing on interest rates via portfolio crowding out (as argued in this post).
August 29, 2010
New database on the maturity structure of publicly-held debt
I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I'll be relating the conclusions from that research in a few days. But first I'd like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.
August 22, 2010
Long-term perspective on the stock market
Nobody can tell you for sure what's going to happen next in the stock market. But thanks to the nice data set collected and maintained by Yale Professor Robert Shiller we can speak with authority about what it's been doing for the last 140 years.
August 14, 2010
Escape from arbitrage: the movie
Two of my favorite economists, Bilkent University Professor Refet Gurkaynak and Johns Hopkins University Professor Jonathan Wright, have a nice new paper in which they survey macroeconomic theories of the term structure of interest rates. As an unusual digital supplement to their paper, they put together a movie in which you can watch the arbitrage glue that normally holds markets together start to fail as financial markets literally fell apart at the end of 2008.
August 11, 2010
Ever so slightly less contractionary
What is the significance of yesterday's statement from the FOMC?
August 05, 2010
For a while, contagion had dropped off the (research) map. But it's now back (thanks to Greece et al!), in both research and policy arenas. A new symposium published in Pacific Economic Review covers the topic.
August 01, 2010
Options for monetary stimulus
The latest economic data have surely warranted a downward revision in the Federal Reserve's assessment of near-term economic performance. It therefore might be a good time to review the steps the Fed could take if it wishes to provide further economic stimulus.
July 15, 2010
The Return of Portfolio Balance Models: "The Large Scale Asset Purchases Had Large International Effects"
In a new working paper, the St. Louis Fed's Christopher Neely argues The Large Scale Asset Purchases Had Large International Effects.
The Federal Reserve's large scale asset purchases (LSAP) of agency debt, MBSs and long-term U.S. Treasuries not only reduced long-term U.S. bond yields also significantly reduced long-term foreign bond yields and the spot value of the dollar. ...
July 06, 2010
Bob Hall on financial frictions
Via Mark Thoma and Arnold Kling, the Federal Reserve Bank of Minneapolis published an interview with Stanford Professor Robert Hall. The interview is terrific not just because Bob is a very smart guy, but also because interviewer Douglas Clement did a great job choosing the right questions. The whole thing's worth reading, but I wanted to focus today on Bob's comments on the role of financial frictions in the crisis and policy options to address them.
June 14, 2010
Global Imbalances and the Crisis
In today's VoxEU, Kati Suominen asks "Did global imbalances cause the crisis?, and surveys the arguments. I recently wrote a survey on the same topic for the forthcoming Encyclopedia of Financial Globalization. Here's my take:
June 13, 2010
Gold and inflation
Federal Reserve Chair Ben Bernanke last week dismissed the suggestion that the recent surge in gold prices signals some kind of inflationary pressures:
So gold is out there, doing something different from the rest of the commodity group. I don't fully understand the movements in the gold price, but I do think that there is a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.
I think Bernanke has this exactly right.
June 09, 2010
Toxic assets and toxic oil
In some ways the Gulf of Mexico oil spill seems like a replay of the subprime lending disaster. Clever technological innovations blew up in a mess that nobody knew how to control, wreaking devastation on those innocently standing by. The actors and the scenes have changed, but you can't shake the feeling you've been through this nightmare before.
May 29, 2010
It's not just Europe
I see many financial commentators bravely trying to explain recent ups and downs in asset and commodity prices in terms of news coming out of Europe. But a Eurocentric perspective misses an important part of the story.
May 19, 2010
Europe and the world economy
Since mid-April, the euro has depreciated 10% against the U.S. dollar and European stocks have lost 17% of their value. But markets aren't acting as though the problems will be confined to Europe.
May 12, 2010
The European bailout
May 11, 2010
The Rescue Package Graphically Depicted
May 09, 2010
Staying sane in a crazy market
For a few exciting minutes on Thursday, the Dow-Jones Industrial Average was down a thousand points, with some major stocks momentarily falling to a penny a share. The basic story appears to be as follows. Initial strong selling in some stocks such as Procter & Gamble led the New York Stock Exchange to halt trading temporarily in a few stocks until specialists could sort out what was going on. But trading in those stocks continued on other exchanges, where as a result of their thinner books, orders to sell at any price went far down the list of existing buy bids. These lower prices triggered further automatic selling that sent some stocks all the way through the list of outstanding bids until encountering basement bids at one cent a share.
One popular meme is to attribute these fireworks to the existence of multiple trading venues that didn't all get shut down simultaneously (e.g., WSJ or NYT). But I think we should also be taking a closer look at the folks who were sending the sell orders rather than just blaming the exchanges for carrying out the instructions they received.
May 06, 2010
Euro Area to US Contagion?
I was wondering why the Reuters website wasn't loading on my computer. Then I got a phone call from a reporter asking about the US stock market meltdown in response to Greece...which struck me as an odd linkage. It still strikes me as an odd linkage.
April 28, 2010
Why Adam ate the apple
In my last post, I discussed how the run-up of U.S. mortgage debt during the last decade was funded. One important element was the sale of commercial paper that helped fund the purchase of some mortgage-related securities. Here I comment on why it was hard for some institutions to resist buying that commercial paper.
April 25, 2010
Follow the money
What happened to housing and financial markets over the last decade? To find out, follow the money.
April 06, 2010
The Predictive Content of Commodity Futures: Latest Estimates
Econbrowser readers will know that I've long been interested in how derivatives like futures predict commodity prices. An early paper on energy futures, coauthored with my former CEA colleagues Michael LeBlanc and Oli Coibion, was summarized in this 2006 post (paper here). Recently, Oli Cobion and I have updated and expanded our examination, to incorporate for the most recent data, account for GARCH effects, alloow for time variation, and to try to explain why there has been time variation in the deviations in the unbiasedness proposition.
From the abstract to our paper:
March 28, 2010
Interest rates spike up
How scary is it?
March 09, 2010
Modeling problems in credit markets
On Friday I joined fellow blogger Mark Thoma (and a good many other economists) at a very interesting conference on financial markets held at the Federal Reserve Bank of San Francisco. Here I share some ideas I expressed at the conference about the directions I feel this research ought to go.
March 07, 2010
A new index of financial conditions
What do current financial indicators tell us about where the economy is headed?
February 22, 2010
In Search of...Crowding Out
There are various definitions of crowding out. There's crowding out in the financial markets, and crowding out of actual economic activity. In order for crowding out in the financial markets to translate into a reduction of the interest sensitive components of aggregate demand, one needs to see an impact on interest rates. So, what is happening to real (inflation adjusted) interest rates?
January 31, 2010
John Cochrane on the credit crisis
January 14, 2010
What Are Current Small Business Credit Conditions, Really?
Casey Mulligan titles a post Credit Study by the Federal Reserve Says No Crunch, citing a Macroblog post. But he neglects to mention that the survey is "A small business snapshot from the Southeast". In contrast, a nation-wide NFIB survey summarizes conditions thusly:
January 11, 2010
Marsh and Pfleiderer on the Financial Crisis
In this Preface, we offer some analysis of the 2008-2009 financial crisis and its implications for financial industry reform and research. We primarily focus on issues relating to transparency and the measurement of risk and how these are affected by management incentives that are often misaligned with the incentives of those who are exposed in various ways to the risk being measured. In the aftermath of the crisis many have called for increased transparency; we suggest that while transparency is no doubt a desirable goal in many ways, enhancing it could prove to be quite difficult.
December 26, 2009
Lost decade for stocks
Why were the aughts so nasty for stocks?
December 19, 2009
What went wrong and how can we fix it?
December 13, 2009
Should the Fed be the nation's bubble fighter?
That's a question recently taken up by the Wall Street Journal. Here are my thoughts.
November 23, 2009
Debt and Interest Rates: Some Empirical Evidence and Implications
Today's NYT article suggests apocalypse (very) soon:
...the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
Do we really need to worry so much in the short term?
November 15, 2009
Why are the prices of so many commodities rising in an economy that seems to remain quite weak?
November 07, 2009
Consequences of the Lehman failure
William Sterling of Trilogy Global Advisors has an interesting new paper on the abrupt changes in financial markets subsequent to Lehman's bankruptcy on September 15, 2008.
October 28, 2009
Futures As Predictors of Commodity Prices
As commodity prices start rising again -- at least some -- the question of whether futures are useful indicators seems relevant. Figure 1 shows the IMF commodity price indices, as reported in the October World Economic Outlook:
October 27, 2009
Improving financial regulation and supervision
There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder's message was It's Broke, Let's Fix It: Rethinking Financial Regulation. Here I summarize four key reforms these speakers addressed.
October 05, 2009
Guest Contribution: The Wisconsin Foreclosure and Unemployment Relief Plan (WI-FUR)
By Morris A. Davis
Research by economists inside the Federal Reserve system have shown that two events typically lead homeowners to default on their mortgage (see here). First, the value of the house must be less than the value of the mortgage ("under water"). This is necessary but not sufficient (see here). Second, homeowners must experience a significant disruption and loss of income. The available data suggest there might be a big increase in foreclosures in the immediate future. Zillow estimates that 22 percent of the 50 million homeowners with mortgages are currently under water; unemployment rates are high and are expected to remain high for the next two years.
September 20, 2009
Economy improves but concerns remain
Last week we received positive readings for some key economic indicators. But I still see plenty to worry about.
September 18, 2009
Regulating compensation in the banking sector
I see a good case for this, but also some big things to worry about.
September 07, 2009
Guest Blog: Financial Crisis and Reform Déjà Vu
By Simon van Norden
"Once you've seen one financial market crisis...you've seen one financial market crisis."
-- Attributed to Federal Reserve Board Governor Kevin Warsh by former US Treasury Assistant Secretary for Economic Policy Phillip Swagel in The Financial Crisis: an Inside View, March 2009, p. 4.
August 26, 2009
Reflections on the Causes and Consequences of the Debt Crisis of 2008
In late 2008, the world's financial system seized up. Billions of dollars worth of financial assets were frozen in place, the value of securities uncertain, and hence the solvency of seemingly rock solid financial institutions in question. By the end of the year, growth rates in the industrial world had gone negative, and even developing country growth had declined sharply.
August 25, 2009
Good news on house prices
I was happy and surprised to see that the nominal S&P/Case-Shiller seasonally adjusted Home Price Index rose by 0.75% in June for a composite of 20 U.S. metropolitan areas.
August 18, 2009
Replay of 1930?
We know the glass is both half empty and half full. But the real question is whether liquid is being added in or draining out.
August 11, 2009
Paying for design flaws
Updates on what this is going to cost you and me.
August 06, 2009
Pricing of interest rate risk in fed funds futures contracts
Do current fed funds futures prices signal a belief by market participants that the Fed may begin raising interest rates early next year? My latest research paper suggests not.
July 23, 2009
Looking for an exit: Part 2
In my previous post I commented on Ben Bernanke's recent communication of the Fed's exit strategy for getting its balance sheet and daily operations back to historical norms. I suggested that one necessary ingredient to convince the public that we will see a return to a stable monetary regime would be a credible explanation of how the United States government will be able to meet its enormous current and implicit future fiscal obligations. Today I'd like to discuss a second element that I feel is missing from the exit strategy articulated by Bernanke, and this is a compelling vision of what a healthy financial market not propped up by the Treasury and the Fed would look like.
July 17, 2009
Links for 2009-07-17
Some quick remarks about the evidence for economic recovery, central bank independence, and Goldman Sachs.
July 09, 2009
Guest Contribution: Index Funds and Commodity Prices... Here We Go Again
By Scott Irwin
Econbrowser is pleased to host another contribution from Scott Irwin, who holds the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois, and today offers some insights from his research on the current debate concerning commodity speculation.
June 24, 2009
The leading economic index
The Conference Board Leading Economic Index increased by more than 1% in both April and May. Since I've been scratching my head trying to find some confirmation for recent economic optimism, I was curious to take a look at what's responsible for the favorable reading from the LEI.
June 11, 2009
How to lose on a sure-fire bet
There was a wonderful story in today's WSJ about how some big banks managed to lose some of their hard-earned TARP money.
June 09, 2009
More on disaggregate bank landing
I'd like to mention two more useful analyses of the disaggregated behavior of bank lending over the last year. The first is from James Kwak at the Baseline Scenario, and the second is a new research paper by Silvio Contessi and Johanna Francis.
June 02, 2009
More on bank lending data
Further evidence on the decline in bank lending.
June 01, 2009
High Anxiety (about Interest and Inflation Rates)
In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn't understand the fears at the time; and I still don't. Now flash forward eight years, and move across the Pacific.
May 27, 2009
More papers on the credit crunch
Links to some interesting papers that I recently read.
April 24, 2009
...and the Financial and Economic Crisis
I don't read very many books. At least not during the academic year. But I have read two books recently that are quite germane to thinking about the buildup to the financial crisis, and thinking about how to respond to the current economic downturn. The first is Akerlof and Shiller's Animal Spirits. The second one is actually not yet out -- it's Justin Fox's The Myth of the Rational Market (I got a prepublication copy; here's a hint of it). They are both important books, well worth reading.
April 21, 2009
The IMF's Global Financial Stability Report Is Out
April 19, 2009
Robert DeYoung on payday loans
I thought this was an interesting editorial in Tuesday's WSJ.
April 16, 2009
There has been a lot of breast-beating in the press and in the blogosphere about how economists failed to discern the possibility that not all was going well in the years leading up the current financial and economic crisis . I think the notion that all economists were blithely optimistic has been dispelled (well, okay, here's a couple of exceptions: Dan Gross h/t Free Exchange, A. Kaletsky). At the risk of some gross simplifications, I will speculate that there was -- until recently -- less optimism among academic macroeconomists than Wall Street economists. There was probably less anxiety among say finance professors who focused on asset pricing (as opposed those who worked in banking) than macroeconomists (Dani Rodrik highlights the diversity). One divide that I think is not particularly relevant in locating the source of the crisis is the most well known one -- specifically whether prices are sticky.
In my opinion, the big divide in thinking relates to how economists conceive of financial markets working. This is a divide that cuts across other divides. For instance, the Hicksian decomposition (IS-LM), in its simplest incarnation, treats the financial world as one wherein bonds are identical, and the only means of borrowing; there is no separate channel for lending, say via bank loans, to influence aggregate demand (see this post for the many channels of monetary policy). In the real business cycle literature, and many New Keynesian DSGE models, there is a representative bond (and lending rate) which summarizes the asset markets (see Camilo Tovar's survey of DSGEs for a discussion).
April 13, 2009
The Demise of the Dollar? Should We Worry about Quantitative Easing and Deficit Spending?
Over the weekend, I was working on my long delayed manuscript on exchange rate modeling , and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
April 08, 2009
Phillip Swagel on the Financial Crisis
I'm behind the curve on recommending Phillip Swagel's BPEA paper on the Administration's response to the financial crisis. But today he talked to the students in my macro course, and his presentation just reinforced my view that his account is one that everbody should read.
April 06, 2009
The Yield Curve, across Countries, across Time
A year and half ago, I asked "Does it matter that yield curves (around the world) are sloping downward?" (October 12, 2007). I included this snapshot of term premia in the post:
March 31, 2009
As the G-20 leaders meet in London, one graph should remind the representatives of these disparate countries of their shared interest in restoring the health of the financial systems of the developed countries.
March 29, 2009
The Fed's new balance sheet
My previous post reviewed the profound changes in the balance sheet of the U.S. Federal Reserve over the last 18 months. Here I comment on some of the concerns that the new Fed balance sheet raises for the conduct of monetary policy.
March 27, 2009
Money creation and the Fed
A lot of people have seen this picture of the recent behavior of the monetary base and wondered what it means.
March 17, 2009
New York Attorney General Andrew Cuomo (hat tip: LA Times) asserted that on Friday insurance company AIG, recipient so far of perhaps $170 billion in bailout assistance, distributed over $160 million in "retention payments to members of its Financial Products Subsidiary." These payments apparently included "retention" payments of over $1 million each to eleven individuals who are no longer working at AIG.
March 10, 2009
Moral hazard and AIG
We are now suffering the consequences of one of the most spectacular financial miscalculations in history, after investors around the world discovered that trillions of dollars invested in securities derived from U.S. home mortgages were far riskier than they had originally believed.
March 01, 2009
Stock prices and fundamentals
How low can stock prices go, and how worried should you be?
February 24, 2009
The Bernanke rally
Tuesday's stock market rally was pretty impressive. But can the mere words of the Federal Reserve Chair actually produce a 4% increase in the value of the U.S. capital stock?
February 17, 2009
Prospects for the U.S. banking system
Some thoughts on the extent of the problem and options for solution.
February 14, 2009
Former Bernanke home in foreclosure
A couple of stories that provide some personal perspective on the scope of the current problems.
February 10, 2009
The Treasury's Financial Stability Plan
Here's my two cents on the latest two trillion.
February 01, 2009
Links to a few items I found interesting on non-residential structure investment, the "bad bank" proposal, and separation of powers.
January 25, 2009
Bailouts should be no fun
If everybody wants a bailout, that's a good indication that we're making some mistakes.
January 19, 2009
Is there a problem? And is there a solution? My answers: yes, and yes.
January 11, 2009
Signs of a thaw
Yes, I saw the discouraging headlines. But I also see signs of hope in last week's economic news.
December 22, 2008
ZIRP and the exchange rate...and other macro variables
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals -- the output , inflation and exchange rate gaps -- were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
December 18, 2008
Credit Crunch or Not
One of the debates regarding the current financial crisis is whether in fact there is a crisis, or whether in fact the financial system is operating normally. I've been skeptical myself of the "times are normal view", but here is some evidence that the credit crunch is real. The findings also reinforces my view that un-nuanced reliance on highly aggregated volume statistics (e.g., Chari et al. 2008) is likely to result in misleading inferences (See the rejoinder from the Boston Fed's economists). From the conclusion to Tong and Wei (2008) ungated version of Tong and Wei:
December 16, 2008
December 15, 2008
Finding the exit
How you think we might get out of our current economic problems has something to do with how you think we got into them in the first place.
December 02, 2008
Greg Mankiw notes some odd behavior this week in the values reported by the U.S. Treasury for the yields on constant-maturity Treasury Inflation Protected Securities.
November 19, 2008
The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock
Markus Brunnermeier provides an excellent summary graph of the financial crisis, told in "spreads".
November 16, 2008
The anomalous fed funds market
Some further thoughts on the bizarre behavior of the interest rate that used to be the core instrument of U.S. monetary policy.
November 13, 2008
Investment advice for a wild market
Your retirement nest egg might have lost 40% of its value since this summer and 10% the last 2 weeks. What should you do? Here's the advice I've been giving to friends who ask, as well as what I've been doing with my own portfolio.
October 25, 2008
The Federal Reserve's balance sheet
On Thursday, the Federal Reserve issued its weekly H.4.1 report, which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting.
October 21, 2008
CRA and Fannie and Freddie as betes noire
There is so much chaff floating around about the roles of Fannie and Freddie and of the Community Reinvestment Act in the current crisis, despite the best efforts of economists like Jim Hamilton  , Mark Thoma and Janet Yellen, that it seems worthwhile to once again go through some of the arguments that have been forwarded.
Federal Reserve Board data show that:
- More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
- Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
- Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
October 15, 2008
Credit Spreads and How Lax Is Monetary Policy?
All eyes have been on the housing market as the trigger for the financial crisis, but we're all aware that there are other potential "triggers" for additional distress: auto loans and credit cards. In addition, spreads are not everything -- levels of real interest rates matter as well.
Some encouraging developments
Plenty of gloom out there if you're hungry for more. But I wanted to pass along a couple of developments this week that give me some hope.
October 14, 2008
The global recession
IMF research economist Prakash Loungani reports some statistics on the extent to which housing price declines are being seen worldwide.
October 07, 2008
Balance sheet of the Federal Reserve
I was astonished when I heard that the Fed is contemplating increasing the Term Auction Facility to $900 billion. I wanted to take another look at the ever-changing balance sheet of the Fed to see how logistically Bernanke might be able to perform such a feat.
October 06, 2008
How Bad Will the Downturn Be? Stylized Facts
The IMF released several chapters of the World Economic Outlook; one chapter entitled Financial Stress and Economic Downturns provides some insights into the ramifications of the current financial turmoil.
Roundtable discussion on the financial crisis
I participated on Friday with several other UCSD faculty members (including Nobel laureate Harry Markowitz) in a discussion about the current economic crisis. If you have RealPlayer, you can view the discussion here, though I recommend fast-forwarding to skip the first 8 introductory minutes to get to the actual discussion. If you just want my slides, I've posted them here.
September 28, 2008
Understanding the TED spread
One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. The size of this gap presumably reflects some sort of risk or liquidity premium. I was interested to break the TED spread down into identifiable components to try to get a better understanding of what may be responsible for its recent behavior.
Gross domestic income and recessions
The "final" values for 2008:Q2 GDP released by the Bureau of Economic Analysis on Friday were more disappointing than the earlier estimates. Still, the 2.8% annual growth rate for real GDP that we're now told characterized the second quarter doesn't sound like a recession. Or does it?
September 25, 2008
Does House Republican Resistance Make Sense for Their Constituency?
From the Justin Fox, regarding House Republicans' plan:
...that of the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to "encourag[e] corporations to sell unwanted assets." But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?
Eric Cantor, the Republican chief deputy whip, has a more reasonable-sounding if still pretty vague plan to insure more mortgages rather than buy mortgage securities. ....
I'm in agreement with Justin that guaranteeing even more mortgages won't be any better than the original Paulson plan.
My observation here is that the obstructionism of this group is either a manifestion of denial of reality, or a sheer indifference to the needs of their constituents -- to the extent that House Republicans purport to represent small business Main Street.
September 24, 2008
The Financial Crisis and Entrepreneurship
Most of the discussion surrounding the current crisis has focused on the implications for major businesses and their hiring and investment decisions, or households and their employment possibilities, or consumer behavior. One overlooked (or underemphasized) aspect of the issue is the impact on small firms. Fortunately, my former colleague (and coauthor), Rob Fairlie has just published a book that can inform one's thinking on this subject.
September 23, 2008
Who'll Be the Next Treasury Secretary?
As the Congress was debating how much power and how many hundreds of billions to the US Treasury, I was pondering who would be in charge of all that come January 20th.
September 22, 2008
"The government's bailout efforts" on MPR
Brad DeLong on Bernanke and Paulson
Brad DeLong had some insightful and amusing observations on the priorities of Federal Reserve Chair Ben Bernanke and Treasury Secretary Henry Paulson. I can't resist reproducing Brad's comments with some annotations of my own.
September 21, 2008
Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke-- it is hard to overstate just how scary this week's developments in financial markets could be.
September 20, 2008
The housing meltdown: Why did it happen in the US?
From a timely BIS working paper by Lucy Ellis released on Thursday:
Mortgage lending standards eased in many countries in recent years, but the limited available cross-country evidence does suggest that the process went further in the United States. Standards are difficult to measure because different aspects need not all move together (Gorton 2008), but the observed increase in early payment defaults in the United States (but not elsewhere) provides direct evidence that it occurred (Kiff and Mills 2007); Gerardi, Lehnert, Sherlund and Willen (2008) provide additional detail on the easing in lending standards.
Two developments seem to have spurred the easing in US standards. First, a range of legislative and policy changes had been made to encourage the development of a non-conforming (Alt-A and subprime) lending sector, lying outside the model defined by the government-sponsored enterprises (GSEs, Fannie Mae and Freddie Mac). Part of the motivation for this was a desire to ensure that home ownership was accessible to households who had historically been underserved by mortgage lenders (Gramlich 2007). In addition, the administration had wanted to reduce the GSEs' domination of the mortgage market. Following problems with accounting and governance at both institutions, the GSEs' capacity to expand lending was capped by new regulatory limits on their activities (Kiff and Mills 2007, Blundell-Wignall and Atkinson 2008). [emphasis added -- mdc]
September 19, 2008
Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again
There's a lot of commentary -- more comprehensive and up to date than I can provide -- on the crisis and the attempts to resolve the logjam in the financial markets.,  But I stilll have a couple of thoughts about the causes, and the implications, of the process that has resulted in so much turmoil this week.
September 18, 2008
Implications of Repricing of Dollar Denominated Assets
In the wake of global financial events, a couple of articles have caught my attention in terms of implications for the dollar. First was this Reuters account of a People's Daily editorial, suggesting "diversification". But it's hard to discern the underlying message given the low signal to noise ratio in official publications. Today's article in the IHT is a little more informative, not just about what's going on in China but in Asia (where a lot of that "saving glut" was alleged to come from):
September 08, 2008
Palin, on the Ongoing Financial Crisis
Saturday in Colorado Springs, Colo., Alaska Gov. Sarah Palin said, "The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."
August 10, 2008
Current Account Adjustment Redux? What's Different this Time Around
August 06, 2008
Synergies of the unpleasant kind: recessions, credit crunches and housing busts
From the abstract of a new paper by Stijn Claessens, M. Ayhan Kose and Marco E. Terrones, entitled "What Happens During Recessions, Crunches and Busts?" (paper now online here):
We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. We document a rich set of stylized facts about the behavior of key macroeconomic and financial variables during these various events. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of a recession. In particular, we show that recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are. In light of our findings, we examine the implications of recent macroeconomic and financial developments in the United States for the future path of its economy.
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession , and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
July 23, 2008
Implications of adjustment to riskier dollar assets in a portfolio balance framework, illustrated in three steps
Consider a hypothetical world economy with assets denominated in dollars and euros.
July 15, 2008
Did Fannie and Freddie cause the mortgage crisis?
Some thoughts about the role played by the GSEs in the run-up in mortgage debt and house prices.
July 13, 2008
The Fannie and Freddie assistance plan
I see much to like about this.
July 12, 2008
Fannie Mae and Freddie Mac
How did we get into this mess, and how do we get out of it?
July 07, 2008
Janet Yellen on risks and prospects for the U.S. economy
This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. Her complete speech is available from the FRB SFO Here are some excerpts.
May 30, 2008
Commodity futures speculation
More on the possible contribution of index fund investment to recent commodity price moves.
May 25, 2008
How Effective Will Monetary Easing Be? The Bank Lending Channel and the Implications of Increasingly Internationalized Banks
As I noted in a previous post, monetary policy works through various channels, one of which is the "bank lending channel". Lower policy rates, as witnessed in the past few months and shown below, should induce greater lending.
May 13, 2008
Credit crunch: how we got here and how to get out
Fed Chair Ben Bernanke on Tuesday offered his perspective on the appropriate response of the Fed to the ongoing turmoil in financial markets. I still think he's overlooking a key element of what's been happening.
May 02, 2008
Fast and Easy Fannie
The Wall Street Journal had a very disturbing story on Wednesday about the "Fast and Easy" loan program of Countrywide Financial Corporation, many of whose mortgages were bought up by Fannie Mae.
April 17, 2008
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
April 16, 2008
Scott Irwin is the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois. He has been doing some fascinating research on the relation between spot and futures prices in agricultural markets that may shed some light on the role of speculation in recent commodity price movements. We are delighted that Scott agreed to share some of the results of his research with Econbrowser readers.
April 14, 2008
The G-7 Communique and the Dollar
April 11, 2008
Some more unwelcome developments
New bankruptcies as consumer sentiment deteriorates.
April 08, 2008
Distressing Table of the Day
Here's the basis for the $945 billion estimate of losses to the financial sector. From the IMF's Global Financial Stability Report:
March 25, 2008
Recoupling, Monetary Policy Divergence, and the Dollar
At the risk of losing my audience by skipping over the the record housing price decline, and an outsized drop in the consumer confidence index, I'm going to focus on what seems like old news (but is being reflected in current news on the dollar), namely the OECD reduction in growth forecasts for the G-7 economies. The euro area economy is slated to do better than the US economy in 2008H1, but that's not saying much.
March 24, 2008
Kicking the Can down the Road
Inspection of the Administration's approaches to previous policy issues provides some instructive precedents , , , ,  to consider in light of current policy challenges in the financial markets.
March 21, 2008
More bad news
More confirmation that the slowdown in housing has spilled over to manufacturing.
March 18, 2008
Not a bailout
How shall we describe what happened this weekend with Bear Stearns? The first big casualty of the credit crisis, yes. Bailout, no.
March 17, 2008
President Bush Discusses Economy
THE PRESIDENT: Mr. Secretary, thank you very much for coming by today to talk about the economic situation -- we'll be meeting later on this afternoon with the President's Task Force on Financial Markets.
March 11, 2008
Asking too much of monetary policy
I remember a Federal Reserve economist once recounting a conversation with his young daughter, who asked him, "What do you do at work, Daddy?" He answered, "I help make important decisions." "What kind of decisions, Daddy?" "Oh, things like how much money the government needs to print."
March 07, 2008
Commodity prices and the Fed
If the Fed thinks that recent commodity price moves have nothing to do with their own actions, perhaps they should think again.
March 05, 2008
Tabulating the Credit Crunch's Effects: One Educated Guess
In a recent paper, David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin exposed us outsiders to the inside workings of those estimates we see of how the credit crunch affects output. The paper, entitled "Leveraged Losses: Lessons from the Mortgage Market Meltdown", was widely covered (, , , Calculated Risk, Big Picture) but I still think that the conclusions, as well as the methodology, bear some repeating for emphasis. And in any case, it's a long paper, and different people have focused on different aspects.
February 27, 2008
Musings on the Dollar: PPP and Thresholds
As the dollar hits a new low against the euro , some thoughts on what arguments make sense, given our knowledge of the statistical properties of real exchange rates.
February 25, 2008
What Explains Deviations from Interest Rate Parity in Emerging Markets?
Some people have the impression that financial capital zips to wherever the returns are highest. Maybe that's the case. But I'm not sure.
February 23, 2008
Crony Capitalism Comes (Returns?) to America
By Menzie Chinn
Or, who will be the Keating 5 of the 2000's? Perspectives from those of us who remember the East Asian crises of the 1990's.
From the NYT:
February 13, 2008
International Aspects of Tax Policy in the 2008 Economic Report of the President
February 08, 2008
Just an anecdote, but an interesting one.
January 31, 2008
Thinking about Monetary Policy Efficacy: Back to the Textbooks
As the Fed drops interest rates, I've been trying to sort out all the channels that monetary policy will affect output, and which ones are likely to be short circuited this time around.
January 30, 2008
Fed rate cut
Today the Federal Reserve announced a further 50-basis-point cut in its target for the fed funds interest rate, bringing it down to 3.0% for a total reduction in January of 125 basis points. How long should it take before this has an effect on the economy?
January 22, 2008
Another day, another dollar
It was a fun day to be a macroeconomist, don't you think?
January 16, 2008
Will inflation fears restrain the Fed?
I think not, and here's why.
January 13, 2008
How low will Ben go?
Was 25, now we have 50. Do I hear 75?
January 11, 2008
I thought it might be helpful to summarize some of the background on how we got into our present mortgage mess.
January 04, 2008
Economic indicators take a turn for the worse
No cheer for the New Year from the numbers released this week.
January 01, 2008
The Dollar in the New Year
Is there (an "equlibrium" exchange rate) model for all seasons?
December 24, 2007
A Thought on the Sub-prime Debacle
Most of the NYT's recent coverage of the subprime mess focused on Greenspan and the Federal Reserve System.
December 21, 2007
Earning excess returns
December 01, 2007
Risk premia creeping higher
Since Halloween, financial markets seem to be getting spooked again.
November 29, 2007
The Euro as the World's Reserve Currency: A Progress Report
Back in 2005, Jeff Frankel and I presented a series of projections about the dollar's role as the world's dominant reserve currency. We concluded:
...Whether the euro might in the future rival or surpass the dollar as the world's leading international reserve currency appears to depend on two things: (1) do enough other EU members join euroland so that it becomes larger than the US economy, and (2) does US macroeconomic policy eventually undermine confidence in the value of the dollar, in the form of inflation and depreciation.
November 21, 2007
Freddie Mac and Fannie Mae back in the news
So how worried should you be?
November 12, 2007
The Credit Crunch Continues, and the Conundrum Is History
The credit crunch seems to be worsening, rather than lessening, and the conundrum seems to have disappeared.
October 21, 2007
Distressing Picture of the Day
From the IMF's September Global Financial Stability Report:
October 17, 2007
Deteriorating lending standards
What is the significance of the fact that the most recently issued subprime mortgages are the ones that are running into the biggest problems?
October 14, 2007
The Wall Street Journal describes it as a "superconduit", the New York Times refers to it as a "super-SIV", and the Washington Post is calling it a "Master-Liquidity Enhancement Conduit". Whatever you call it, does it make any sense?
October 12, 2007
The World Inverted: Does It Matter That Yield Curves Are Sloping Downward?
In glancing at Table 4 the last issue of the Economist (sub. req.), I was surprised that so many countries had downward sloping yield curves. Should we worry?
October 11, 2007
Inferring market expectations from changes in fed funds futures prices
I recently completed a new research paper studying how interest rates of different maturities change with market expectations of what the Fed is going to do next.
October 10, 2007
IMF World Economic Outlook on Managing Large Capital Inflows
The IMF has just released several chapters of its semi-annual World Economic Outlook. One chapter is entitled "Managing Large Capital Inflows".
October 08, 2007
What's a "Strong Dollar"?
I used to wonder about the use of this term a lot, at least in the context of government pronouncements. Here's my answer. First, the use of the term in context. From Bloomberg:
Weak Dollar Boosts Growth Without Fueling Inflation (Update1)
By Matthew Benjamin and Vivien Lou Chen
Oct. 8 (Bloomberg) -- Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.
October 01, 2007
Pick a finger
Princeton Professor Alan Blinder offers his thoughts in the New York Times on who's to blame for the mortgage mess, getting the attention of Mark Thoma, Dave Iverson, Brad DeLong, and Greg Mankiw. Here are my two cents.
September 30, 2007
Foreign Exchange Market Transactions and Reserves: Recent Statistics
There's been a cornucopia of forex market information released in the past week, which I'm only now getting to. First, the BIS has released the preliminary results from its Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, conducted in April of this year. The results are interesting, insofar as they confirm trends evident in the previous survey in 2004. Second, the IMF released its most recent tabulation of foreign exchange reserve holdings (COFER).
September 25, 2007
More troubles for housing
New data released today portend continued weakness for housing.
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
September 20, 2007
Forward rates and inflation expectations
Forward rates on Treasury bonds tell an interesting story about the market's reaction to the Fed's interest rate cut on Tuesday.
September 19, 2007
Divining the Dollar
The dollar declines in response to the drop in the target Fed Funds rate. What next?
September 18, 2007
50 it is
For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday's fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
September 13, 2007
Saving Glut Redux
Bernanke recaps his interpretation of the explanation for global imbalances. Is it any more convincing than the first time?
September 11, 2007
The Decoupling Scenario: Pre-Assessment
The U.S. economy appears to be slowing. Predictions of continued growth probably rely on assumptions the rest of the world continues to grow. How reasonable is this view?
September 10, 2007
By how much will the Fed cut rates?
Once again we're seeing a big divergence between what the markets expect the Fed to do and what the Fed expects the Fed to do.
September 06, 2007
Borrowing short and lending long
Here I elaborate on the description of the nature of current problems in financial markets that I offered at the Fed's Jackson Hole conference last week.
September 04, 2007
Another suggestion for the GSEs
George Washington University Professor Richard Green has another suggestion for addressing the market distortions generated by Freddie Mac and Fannie Mae that I mentioned in my comments at Jackson Hole.
September 01, 2007
Comments on Housing and the Monetary Transmission Mechanism
Here are the comments that I delivered this morning at the Fed Jackson Hole conference.
Bernanke and Gramlich on the subprime issue
Also featured yesterday at the Federal Reserve conference in Jackson Hole were speeches by Fed Chair Ben Bernanke and former Fed Governor Edward Gramlich.
August 31, 2007
Report from Jackson Hole
Here are some brief impressions about this morning's papers at the Federal Reserve conference.
August 29, 2007
Update on the fed funds market
One perspective on approaching the current situation
Since Jim laid out some of the proposals for addressing the mortgage problem, I thought I'd put in my two cents worth.
August 28, 2007
Solutions to the mortgage problem
Quick links to a few of the suggestions out there on what to do about pending mortgage defaults.
August 24, 2007
Latest economic indicators
August 21, 2007
Worse than 1998?
From IDEAGlobal, FX Alert, August 21:
August 18, 2007
Where's the risk?
Usually an economic downturn is associated in a big increase in the spread between corporate and Treasury yields. This spiked pretty dramatically last week, but still has a long way to go.
August 11, 2007
Another roller coaster week
Glad I wasn't trying to provide a play-by-play explanation of fed funds futures last week. But whatever was going on, we seemed to end up with the same conclusion with which the week began.
August 10, 2007
What is a liquidity event?
It was an exciting week in financial markets, including some dramatic central bank interventions in short-term money markets.
August 04, 2007
Interpreting fed funds futures
Despite what you may have read elsewhere, the probability of a fed funds rate cut has increased significantly over the last few weeks.
July 26, 2007
No, this was not a good housing report.
July 19, 2007
Bernanke on the economic outlook
In testimony before the U.S. Congress yesterday, Fed Chair Ben Bernanke continued his policy of greater openness and transparency for Federal Reserve policy, trying to lay out clearly what the Fed is most worried about.
July 16, 2007
More on the Yuan and the Chinese Trade Balance
More speculation on the Yuan's prospects. From Bloomberg:
July 13, 2007
Import prices surge...
...but mostly due to increasing oil prices.
July 12, 2007
A Tipping Point for the Dollar?
In a post over a year ago, I observed that the relative stability of the dollar would come to an end as a confluence of events occurred. Those would be the end to rises in the US interest rates, and the continued increases in policy rates abroad, especially in the euro area and the UK, against a backdrop of a massive current account deficit that requires large and continuous infusions of saving from the rest of the world (and indeed consumes most of the world's excess saving).
Are your inflation expectations well-anchored?
Fed Chair Ben Bernanke's comments Tuesday about anchors for expected inflation left some analysts unsettled and others mystified. Bernanke was speaking to a group of academic researchers, and I believe his message was intended to provide some insights from practical policy-making to help improve the quality of academic research. So let me offer my interpretation of his message.
July 08, 2007
The Compleat UberNerd
An UberNerd, Tanta tells us, is
someone who is compelled to understand how things work in grim detail, even if the things in question are tedious in the extreme, like mortgage insurance policies.
A Compleat UberNerd is then
Someone who has read all these posts already and quotes them at tailgate parties.
She kindly provides all the links necessary to become the Compleat UberNerd over at Calculated Risk.
July 05, 2007
Maybe the Euro Isn't the Competition
Typically, people think of the euro as the most likely competitor to the dollar. And maybe it is in the long run (see these posts , , and this paper). But in the short term, maybe it's the British pound.
July 02, 2007
The yield curve dis-inverts, sort of
Long term yields have jumped up, as Jim noted. The spread between the 10 year and 3 month interest rate has moved positive.
June 29, 2007
CDOs: what's the big deal?
Here are my two cents on concerns about possible systemic financial problems.
June 28, 2007
The 2006 Net International Investment Position
The BEA released the end-2006 net international investment position (NIIP) today.
June 24, 2007
Following yields up and down
June 22, 2007
Econoblog on interest rates
I was pleased to participate in the latest Wall Street Journal Econoblog with Mark Zandi, Chief Economist and co-founder of Moody's Economy.com. Here's a brief preview of what you can find over at the WSJ.
June 20, 2007
Thinking about import prices, the dollar, and inflation
Some delayed reflections on the May import/export price release, and how to interpret the data in light of the empirics of exchange rate pass through.
June 18, 2007
Rejoice! The 2006 current account to GDP ratio has been revised up by 0.3 percentage points
There's a temptation to view the upward revision to the current account balance, and the components thereof, as yet more evidence that the US external situation is in better shape than commonly perceived.
June 17, 2007
More on those rising interest rates
Rising rates look scary, but I still read it as good news.
June 14, 2007
Lessons from the yield curve
The dramatic upward move of long-term interest rates gives me an opportunity to look back on some of the predictions made on the basis of the inversion of the yield curve, and what might be in store next.
May 10, 2007
Oops. Or Trade Deficit Stabilization Deferred
April 26, 2007
Further implications of the productivity slowdown for the dollar
In a previous post, I noted that the slowdown in economic growth in the US relative to rest-of-OECD would have a number implications for the dollar's value in nominal and real terms.
April 21, 2007
Assorted links to updates on some of the stories we've been following at Econbrowser, including declining Saudi Arabian oil production, the role of mortgage-backed securities, and pressures on public pension funds to take on additional risks.
April 17, 2007
The Coming (?) US Current Account Adjustment: Two Questions Inspired by Two Graphs
The IMF has recently released its Global Financial Stability report. Two figures inspired two questions from me.
April 13, 2007
The Last Throes of PoMo Macro?
That is to say, is Post-Modernist Macroeconomic Policy over?
April 12, 2007
Hedge fund regulation
Fed Chair Ben Bernanke yesterday explained why he sees no need for increased regulation of hedge funds.
April 02, 2007
The Subprime collapse and the housing market: a bubble or "looting"
Jim Hamilton's recent post "Bubble, bubble, toil, and trouble" elicited a tremendous amount of commentary -- and incredulity -- amongst the readers.
March 27, 2007
Maybe we can't count on exorbitant privilege/dark matter/manna from heaven...
The new conventional wisdom is that the return foreigners obtain on U.S. assets is less than the return U.S. residents obtain on foreign assets. And that this means that the U.S. can build up a bigger foreign debt than traditional analyses; I've been skeptical , . Now, we have more reason to ask how robust is the finding of a durable earnings differential in favor of U.S. investors?
March 20, 2007
San Diego city pension fund
I earlier described some disturbing details about the assets held by the San Diego County Employees Retirement Association. Our separate pension fund for city employees, the San Diego City Employees' Retirement System, is another tale of local woe that I worry may have global implications.
March 15, 2007
Negative Net Income: The 2006 Balance of Payments
Most commentary on the 2006q4 current account balance release focused on the improvement in the overall balance. Little noted is the fact that 2006 is the first year in which the net income category has registered negative.
March 13, 2007
The Term Spread, Cross Country
How does the term spread correlate with recession in other economies?
March 11, 2007
Fannie, Freddie, and Ben
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
March 06, 2007
Financial or banking panics were a recurrent theme in 19th-century U.S. economic history.
February 28, 2007
Recent data leave me significantly more bearish than I was a month ago.
February 27, 2007
The Fundamentals Are...
The equity indices take a dive. Is this in spite of -- or because of -- the fundamentals?
The Fundamentals Are...
The equity indices take a dive. Is this in spite of -- or because of -- the fundamentals?
February 23, 2007
San Diego County pension fund
I have been developing concerns about the possibility that hedge fund investment flows have become a destabilizing force in world financial markets. Following the maxim "think globally, act locally," I decided to take a look at how the behavior of our local pension funds may be one small part of that phenomenom. And I have some recommendations to make on behalf of San Diego County residents and the world at large.
February 15, 2007
The market reads Bernanke's lips
The Fed Chair speaks, and the market jumps. But why?
January 25, 2007
Exchange rates, output gaps and inflation rates
Is there any role for the Taylor rule in helping predict exchange rates?
January 21, 2007
Two stories this week give me some concern.
January 09, 2007
International Economics at the AEA/ASSA: Selected Items
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
January 02, 2007
Low Real Rates Disappear...but the Deficit Remains
I've been looking at real long term interest rates as proxied by nominal rates minus expected inflation. The problem of course is finding measures of expected inflation. Subtracting off the ex post rate (appropriate under the rational expectations hypothesis) can lead to misleading inferences -- and is not practicable for current measures of long term rates. Using ten year constant maturity rates and the Society of Professional Forecasters 10 year horizon CPI inflation rates yields the following picture.
January 01, 2007
What will the Fed do next?
December 20, 2006
The term premium and reduced volatility
I earlier discussed the role that foreign government purchases of U.S. Treasury securities may have played in reducing long-term bond yields. A study by Fed researchers Glenn Rudebusch, Eric Swanson, and Tao Wu that is soon to appear in Monetary and Economic Studies explores an alternative explanation based on reduced volatility of underlying macroeconomic and financial fundamentals.
The RMB: Where's it been and where's it going?
Faster appreciation against the dollar. And apparently against a broad basket of currencies.
December 18, 2006
Econoblog on "Dollars, Debt and the Trade Gap"
Thoughts on the Dropping Dollar
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
December 03, 2006
The yield curve and foreign purchases of U.S. debt
A few weeks ago I discussed some new research that suggests that the current negative spread between long-term and short-term yields may be a little less worrisome than earlier studies had led us to conclude, to the extent that the negative spread in part results from an unusually low term premium on U.S. bonds rather than an expectation of future declines in short-term yields. One factor that may be depressing that term premium is foreign holdings of U.S. securities.
November 26, 2006
Housing: speculative bubble or fundamentals?
Caclulated Risk had some interesting observations this week about why forecasts for housing differ so widely across analysts.
November 25, 2006
Will the Dollar Plunge? Would that Be So Bad?
Yesterday's dollar plunge unnerved markets. What's the likelihood of a sustained, drastic decline?
November 13, 2006
The yield curve and the term premium
Some new studies suggest that the yield curve inversion might not be quite as ominous as some of us have been assuming.
November 02, 2006
Federal Reserve policy and mortgage rates
I've recently completed writing a research paper titled Daily Monetary Policy Shocks and the Delayed Response of New Home Sales. The paper develops some new measures of the delay between changes in Fed policy and the impact on the economy. In this, the second of three posts on the paper, I describe the paper's findings about how the Federal Reserve affects mortgage lending rates.
October 31, 2006
Accuracy of futures prices as predictors of the fed funds rate
I'm just finishing writing a new research paper whose goal is to come up with a better measure and understanding of the lagged effect of monetary policy on the economy. One of my claims is that the public's expectations of what the Fed is going to do next play a key role in that process. In this, the first of several posts based on that paper, I describe some of the properties I've found for fed funds futures prices as predictors of subsequent Fed policy changes.
October 19, 2006
One way or the other
Mixed signals this week leave Bernanke still needing to earn his pay.
October 16, 2006
How Strong Is (Was) the Dollar?
An alternative view on the dollar's strength and trend over time.
October 03, 2006
And they all lived happily ever after
Can high-flying stocks be reconciled with an inverted yield curve? David Rosenberg of Merrill Lynch, via Felix Salmon and Business Week thinks "it is highly doubtful that both asset classes can be getting the story right." But here's one scenario under which both markets in fact might be telling the same story.
September 29, 2006
Amaranth hedge fund losses
How in the world did hedge fund Amaranth Advisors manage to lose $6 billion in September on natural gas trading?
August 25, 2006
How Mobile Is Capital Internationally?
The issue of international capital mobility comes up time and time again. There is the worry of capital and associated production capacity moving abroad to China for lower wage rates, and if not to China, to the rest of the world to escape environmental regulations or to avoid corporate taxation. So how mobile is capital?
August 19, 2006
The yield curve: Mid-August 2006
What to make of the newest inversion?
August 04, 2006
A pause it shall be
The last month has been something of a cliffhanger for Fed watchers. But today the market seemed to make up its mind.
July 24, 2006
Reading the yield curve
What are the implications of the current shape of the yield curve?
July 13, 2006
Out of sample prediction of the euro, pound and CAD
Once more unto the breach.
July 10, 2006
One picture from the 2005 International Investment Position release (and one from the NIPA)
Amid all the relief (see here and -- kind of -- here) over the improvement in the U.S. net international investment position (NIIP) despite the record current account deficit, the trend in one ratio was unremarked upon -- namely the ratio of U.S. Government securities held by non-residents, divided by GDP.
July 02, 2006
The Fed speaks and markets listen
Tim Iacono at The Mess That Greenspan Made had some interesting graphs this week.
June 07, 2006
The dollar and interest rate expectations
What can one read from asset responses to "news"
May 31, 2006
Does a new economic team mean a new economic policy?
Henry Paulson has been nominated to the position of Secretary of Treasury. Will it matter?
May 16, 2006
Commodity price inflation
Commodity markets have been a little too exciting recently for my quiet tastes.
May 11, 2006
The portfolio balance effect and reserve diversification
Implications from the debate over the Renminbi. And the Won. And the...
May 01, 2006
New research on the current account adjustment process
Insights on how global current account imbalances might be resolved
April 08, 2006
Who's grumpy about this week's good economic news?
People who bought long-term Treasuries at 4.3%, that's who.
April 04, 2006
What's moving long-term yields?
Long-term interest rates continue to creep up.
March 28, 2006
What would be the important effects?
March 23, 2006
The dollar and purchasing power parity
In my post on the dollar's trajectory, one person asked about purchasing power parity (PPP). Here is a brief discussion of the relevance of this concept to exchange rate forecasts.
March 08, 2006
Rising long-term yields
The yield on 10-year U.S. Treasuries is up almost 40 basis points so far this year, which means it's been gaining on the fed funds rate and reducing the prospect of full inversion of the yield curve. Why have rates been going up?
February 16, 2006
Open Economy Macro in the 2006 Economic Report of the President
Beryl Sprinkel meets Ben Bernanke
February 06, 2006
Gold and inflation
What's behind the ongoing run-up in gold prices? One popular interpretation is that investors fear a resurgence of U.S. inflation. But that story just doesn't square with the facts.
February 01, 2006
Should the Fed worry about going too far?
January 09, 2006
What's the Fed waiting for?
The Fed is likely to stop raising rates soon. What will be the final signal that enough is enough?
December 29, 2005
Who's afraid of the big bad yield curve?
December 17, 2005
The real yield curve
Economist's View reported last week on a letter from Alan Greenspan that addressed some questions about monetary policy posed for the Fed Chair by Representative Jim Saxton (R-NJ). I was particularly interested in Greenspan's explanation of why he is not concerned about the seemingly bearish connotations of the slope of the yield curve.
December 04, 2005
Investing in gold
Should you be looking at gold as an investment?
November 30, 2005
Facing the latest economic data
Here are a few thoughts about some of the economic news that's been coming in over the last few weeks.
November 27, 2005
Inverted yield curve edges closer
If you haven't been worrying about the possibility of an inverted yield curve, now might be a good time to start.
November 20, 2005
Hedge fund risk
Psst-- want to earn a 41% annual return over a decade? Then read on.