The ECB is going to publish its minutes 1556 weeks faster!
On September 19, 2012, I wrote on this blog:
* The Bank of England does it after two weeks
* And the ECB does it after 1560 weeks…
At this moment there is, suddenly, a discussion going on about the question if the ECB should publish the minutes of the meetings of the Governing Council a little bit faster. Should we even talk about this?”
The good news, straight from the ECB website: “ECB to publish regular accounts of monetary policy discussions from January 2015 … The accounts will be released four weeks after each meeting.”
Long story short: democracy is under siege, at the moment, but this is a big boost to transparant, accountable government in the European Union.
from Lars Syll
Endogeneity problems are of course nothing new in growth regressions. But what is special here is that policy endogeneity is not just an econometric nuisance, but typically an integral part of the null hypothesis that is being tested. The supposition that governments are trying to achieve some economic or political objective is at the core of the theoretical framework that is subjected to empirical tests. In such a setting, treating policy as if it were exogenous or random is problematic not just from an econometric standpoint, but also conceptually …
The cross-national variation we observe in government ownership is unlikely to be random by the very logic of the theories that are tested. Under the developmental perspective, this variation will be driven by the magnitude of the financial market failures that need to be addressed and the governments’ capacity to do so effectively. Under the political motive, the variation will be generated by the degree of “honesty” or “corruption” of political leaders. I show in this paper that the cross-national association between performance and policy will have a very different interpretation depending on which of these fundamental drivers dominate. Unfortunately, none of these drivers is likely to be observable to the analyst. In such a setting the estimated coefficient on state ownership is not informative about either the positive or the normative questions at stake. It cannot help us distinguish between the develop-mental and political views, because the estimated coefficient on government ownership will be negative in both cases.
On January 23, 2014, on this blog a Mark Weisbrot post was published titled: “Greece will likely begin recovery this year: Is austerity working?“. He was right and not just about the recovery, but also about its cause, increased aggregate demand:
Now the IMF is projecting economic growth for 2014. But this time they are probably, finally, going to be right. It is vitally important that we understand why. Last month the Greek parliament approved a stimulus program involving highway construction that is quite large. According to the Ministry of Infrastructure, Transport, and Networks, total spending on this project will be 7.5 billion euros over the next year and a half.
What does Elstat teach us about the results of this stimulus:
The Production Index in Construction (IPC) for the 3rd quarter 2014 compared with the 3rd
quarter 2013 recorded an increase of 61.3%. A year ago, the year-on-year growth rate of
the index was –4.7% (Table 1). The aforementioned increase is due exclusively to the
execution of civil engineering works.
Will this last? Read more…
from Lars Syll
I have not been able to lay my hands on any notes as to Mathematico-economics that would be of any use to you: and I have very indistinct memories of what I used to think on the subject. I never read mathematics now: in fact I have forgotten even how to integrate a good many things.
But I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often. Read more…
A) A gentleman called Hume argued, back in 1752, that it’s not just about household consumption prices – differences in government consumption price levels are important, too.
B) Hume’s take on prices was actually more balanced than present day central bank ideas about ‘inflation targeting‘ which invariably but for no good reason target consumer prices only.
C) An no, the DSGE-modelling strategy which assumes that there is only a single final good and one ‘representative’ household in the entire economy is not a very good reason to do this (albeit consistent with new-classical thinking)
D) Recent data from the British ONS for instance show that in the UK inflation for poor households was 1% a year higher for eleven years in a stretch than for rich households (as they buy other goods and services, especially ‘housing’ is important). The ‘repreentative consumer’might not be that representative. By the way – consumer price inflation in the UK saw a sizeable 0,3%-point decline in October – the lowest rate of inflation in 12 years. Producer output prices even declined with 0,1% – but that’s not a problem as input prices (excluding wages) declined with a massive 8,8%. An oh, the country is still infected with wealth illusion: house prices increased with more than 10% (+17% in London: sell and emigrate!).
E) Which underscores the point that central bank strategy of average ‘consumer price inflation only’ targeting is, well, daft.
F) German inflation differences between income groups were somewhat smaller than in the UK, albeit still sizeable
G) Tyler Cowen argues, rightly, that inflation is about the purchasing power of income (i.e.: not about the purchasing power of money) and even when estimated inflation is equal for all income classes higher incomes do have the advantage.
from Dean Baker
The NYT seems intent on hiding the elephant in the living room. Yesterday it gave us a piece on why men are leaving the labor force, today it gives us a piece on why women are leaving the labor force.
Both articles raise some interesting and important issues. The article on women and work in particular gives an excellent discussion of how most other wealthy countries are far ahead of the United States in providing support for working mothers in the form of paid family leave, paid sick days, and affordable child care. (These are all areas in which CEPR has done considerable research.)
The failure of the United States to meet the needs of working parents largely explains why so many countries have passed the United States in the percentage of prime age (ages 25-54) women who are employed. This figure now stands at 69.9 percent in the United States. By comparison, it is 78.4 percent in Denmark, 76.1 percent in France, and 72.0 percent in Japan. Read more…
QE for the Eurozone people instead of the Eurozone banks is perfectly possible (as well as necessary) – just give people some money. Preferably tradeable vouchers which can be used to pay back mortgage debt. It’s that simple.
Central bankers in the Eurozone are contemplating quantitative easing (QE) for the Eurozone. Basically QE consists of a central bank which creates money, or bank reserves (a kind of alt-money for transactions between banks) which it uses to buy bonds (especially government bonds). In the USA, normal money was created to buy bonds from pension funds and comparable institutions (the Wikipedia entry does not mention that buying bonds from pension funds will not increase bank reserves but will increase the amount of plain, normal, every day dollars), while reserves were created to buy bonds from banks. The idea is that this will decrease the long-term interest rate, which might lead to additional lending and borrowing in the real economy.
But do we really need to buy bonds, Read more…
International price differences of ‘machinery and equipment’ are remarkably small within the EU. International price differences of another kind of fixed assets, residential building and civil engineering works, are remarkably large (see graphs).
Investments in ‘machinery and equipment’ as well as new ‘residential buildings and civil engineering works’ (i.e. construction) are both future oriented. The flow of expenditure on both kinds of investments can be compared, using the GDP-grid. Both kinds of investment boost our stock of ‘fixed assets’ and both are in a sense a ‘sunk cost’ transfer of the present generation to future generations. But can we arithmetically compare the stock of total ‘machinery’-capital with the stock of total ‘construction’-capital? In an economic sense, the stock of ‘machinery and equipment’ is a quite different item than ‘Residential buildings en engineering works': Read more…
from Shimshon Bichler and Jonathan Nitzan
During the late 1980s and early 1990s, we identified a new phenomenon that we called ‘energy conflicts’ and showed that these conflicts were intimately linked to the differential profitability of the leading oil companies. Figure 1 below, which was first published in 1995, adds new data to bring this connection up to date.
The very first sentences of the Financial Stability Review of the ECB (December 2012) define financial stability as:
from Mark Weisbrot
A lot has changed in the last 20 years since then-Federal Reserve Vice-Chairman Alan Blinder had the audacity to suggest, in a speech, that the Fed could use interest-rate policy to help reduce unemployment in the short term. It was real blasphemy back then, and despite the fact that the Fed had by law a dual mandate to maintain both “price stability” and full employment, his remarks ignited a firestorm of controversy.
Now, thanks to the Great Recession, and Ben Bernanke’s willingness to use zero interest rates and venture into uncharted territory with quantitative easing, the “dual mandate” is widely accepted. Both Bernanke and current Fed Chair Janet Yellen also spoke out in favor using fiscal policy (i.e. deficit spending) to increase employment, something that U.S. Fed chairs didn’t say in the past. In a recent speech, Yellen noted that “the lack of fiscal support for demand in recent years also helps account for the weakness of this recovery compared with past recoveries.”
These are important institutional advances, even if other branches of government – most importantly the Congress – are not smart enough to take advantage of free money to create some of the millions of jobs that are so desperately needed. But today’s Fed could still be a threat to full employment if it proceeds too early with the “normalization” of interest rates that even Ms. Yellen is talking about. And everyone is talking about some time next year, and that is too early. Read more…
The Polish central bank is concerned about deflation. It should not be. Prices of goods and services are going down. But employment is increasing at a rate of 1,5% a year, unemployment is going down (from 10 to 8,3% in one year) and productivity increases. At the same time, wages are increasing at a rate of about 4% a year. This 4% may, due to rapidly increasing productivity, be not enough to enable positive domestic demand inflation. But that’s not a problem. Rising nominal and real income means that there is no sign of any kind of debt deflation, i.e. people and companies who, due to declining nominal incomes, are not able to pay their bills and other debts.
On this blog I’ve repeatedly argued that tourism is one of the main forces driving recoveries (Ireland, UK, Baltics). Here, some data about the magnitude of this effect in the UK. Mind that one pound spend in the tourism business leads to about two times as much work as one buck spend in the financial sector.
Classical and neoclassical economists liked and like to talk about the ‘purchasing power of money’. Which is as apt as talking about the power of a wrench. A wrench has a (sometimes adjustable) size – but no power. The man or woman who uses it has the power. Purchasing power is not about money, it is about income (as every manual on how to calculate price indices shows). We use money to spend our income.
A nice example of the dramatic differences of the amount of nominal capital, expressed as a a % of nominal GDP, and the amount of real capital, expressed as a % of real GDP (relative prices change all the time…). This is related to the Cambridge controversies.
Economic historian Claudio Borio about ‘inflation targeting’ (and the Gold Standard and Bretton Woods and all that): “no policy regime in history has simultaneously achieved sustained monetary and financial stability”
from Grazia Ietto-Gillies
What I am about to report is not specifically about the economics profession. However, it is an economics issue in that it is linked to: competition for research funds and the management of academic researchers in the current culture where the public sector, including universities, is led by: targets; markets for academics – not that dissimilar from markets for footballers -; and competition.
A distinguished Professor in the Department of Medicine of Imperial College London – Professor Stefan Grimm – was found dead in his London home in September following a review of his performance in getting research grants. A few weeks after his death, Professor Grimm’s colleagues received a delayed email, sent from his account, in which he told of his tragic story and which he wanted circulated. It speaks for itself as does the letter from his manager which Professor Grimm made public. Both can be found at: Read more…
Time to mark my believes to market. And I was wrong. I was not critical enough of the idea that a demand problem can be cured with supply side solutions. Three years ago, I criticized this article (see the comments) which more or less lauded Danish labour market ‘flexicurity’. And indeed: this supply side solution did not solve a demand side problem – Danish unemployment did not go down as intended. Flexible firing rules in combination with high but short unemployment benefit did lead to an unusual fast increase of Danish unemployment – but it did not lead to a subsequent fast decline of unemployment (graph 1). And the slight decline which can be witnessed at the end of the series is not caused by people getting jobs – but, unlike the situation in Sweden and the Netherlands, by people leaving the labor market (graph 2 and 3), a process which started right after the start of the Great Financial Crisis and which continuous until the present day. I did not expect that to happen. Flexicurity backfired. The Dutch example shows that supply side policies matter – when the macro economic surrounding is favorable. The Swedish example shows how long it can take before the consequences of a severe financial crisis, which leads to an unfavourable macro situation, are overcome. And the Danes teach us that demand side problems have to be tackled with demand side solutions. Read more…
From: Erwan Mahé (guest post)
In light of the fairly wide divergence of views as to what the ECB will decide to do (or not to do) at its monthly meeting this Thursday 4 December, I thought this would be a good time to examine the latest comments by the leading members of this institution. Their comments are more than a little surprising in that they seem to reflect a certain lack of understanding about the nature of a modern currency, such as the euro. They also show obvious confusion between monetary policy and credit policy. In reality, the most hawkish ECB members seem to have orchestrated a real warning shot across the bow of Mario Draghi, just in case he thinks of moving forward with a real sovereign debt-based quantitative easing in December.
This might be a good time for me to repeat my position that such a programme would have little impact on the eurozone’s inflation outlook, because only fiscal policy can hope to pull us out of the lowflation trap, especially when monetary policy remains stuck in zero lower bound interest rates. Read more…
Links. Latvia and the future of Europe. And a lot about the price level of consumer expenditure and central banks.
A. Latvia: a glimpse into the future of Europe? The Latvian employment rate is up (good!). But: “Due to the decrease in the number of population, also the number of employed persons declined“. Good? Bad? Soon, a bit more about the Baltics and Ireland. By the way – the slight decline in the EA-18 number of unemployed is stalling.
B. The intertemporal Big Mac Index.
C. Once, many central banks were occupied with maintaining fixed exchange rates. Nowadays, ‘inflation targeting’ is in vogue. A change for the better? Hmmm…:
C1. A new article from the International Journal of Central Banking.
“Only the objective of currency stability exhibits a significant relation with non-performing loan levels in the run-up to the crisis [According to the authors: possibly because a fixed exchange rate regime limits the possibility to credit-fund bubbles. (Is this related to limits to the possibilities to mitigate the associated deteriorating of the current account in the case of fixed exchange rates? M.K.)]. This effect is amplified for those countries with most frequent exposure to IMF missions in the pasy. Our results suggest that the current policy discussion on whether to centralize prudential supervision under the central bank and the ensuing institutional changes some countries are enacting may not produce the improvements authorities are aiming at. Whether other potential improvements in prudential supervision due to, for example, external disciplinary devices, such as IMF conditional lending schemes, are better suited to increase financial stability requires further research.” Read more…
from David Ruccio
Lying, cheating bankers are not born; they’re created.
In other words, all of the various dishonest behaviors of bankers in recent years—from manipulating the foreign exchange market, LIBOR, and the gold market to mis-selling interest-rate swaps, mortgage backed securities, and credit-default swaps—for which some bankers have been fined but none of them jailed, can be attributed to the fact that “being a banker” made people more likely to cheat.
Their study is based on the idea that individuals have multiple social identities. Read more…
Tyler Cowen and Paul Krugman are musing about the direction of macro-economics: is Keynes the new Keynes or isn’t he? In reality, macro-economics wich takes debt and money serious is winning – and didn’t the real Keynes take debts and money quite serious? A non-exhaustive list of examples:
Here, Dirk Bezemer with: ‘Debt: the good, the bad and the ugly’, good debts boosting demand and production and bad debts boosting asset prices and wealth illusion.
Here, Richard Werner with a very recent article about good and bad debts good debts boosting demand and production and bad debts boosting asset prices and wealth illusion.
Here, an article by Òscar Jordà, Moritz Schularick and Alan M. Taylor which states, based on carefull historical research, “Housing finance has come to play a central role in the modern macroeconomy.” Bezemer and Werner would consider a large part of housing finance related debts to be bad and even ugly debts. Read more…