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If one follows the financial media on a daily basis as I do there is ample room to get both depressed and frustrated over the coverage of the financial markets. Often market movements are described as being very irrational and the description of what is happening in the markets is often based on an "understanding" of economic agents as somebody who have huge mood swings due to what Keynes terms animal spirits.
US Stock markets plumments today. Here is why:
This week the full transcripts of the Fed’s monetary policy meetings for 2008 has been published. It has gotten quite a bit of attention. This is of course not surprising given what happened in 2008. However, I would argue that it is significantly less important what individual FOMC members and Fed officials said in 2008 than it is made up to be.
I know I have paid a lot of attention to the discussion about 'currency war' recently, but I think the debate to a very large extent shows everything that is wrong about the general perception among commentators, financial journalists and policy makers. And worse - if the 'currency war worriers' are successful then that could derail the fragile global recovery. So you have to bare with me for one more post on this issue.
What the ’Export Price Norm’ is telling us about Russian growth and why it might be too optimistic right now
I believe the best way to understand the period of time we live in - both in terms of the economy and the markets - is to think of the world as it was between 1933 and 1936. This was the 'recovery phase' both for the global economy and for global financial markets - stock markets rallied and commodity prices were rising.
In my two earlier posts on "A framework for applied macroeconomic forecasting" I have first sketched a general four-equation model for forecasting purposes and then I spelled out how to think about the one of these equations - the supply side of the economy (the AS curve). In this post I will look closer at how to model the demand side of the economy - the is the finally three equations in the economy.
I am sitting in Gatwick airport waiting to fly home to Copenhagen. Reflecting on a day of meetings with investors in London I am happy that people are willing to listen to my stories of the current crisis and particularly the mess we are in Europe. However, I also realize that I think the biggest hindrance for understanding the Market Monetarist message is that the starting point for most people - investors as well as policy makers - is Y=C+I+G+NX.
Haruhiko Kuroda has been nominated new governor of Bank of Japan. His job description is simple - take Japan out of 15 years of deflation and hit the BoJ's new 2% inflation target.
For the past five years we have again and again heard the same story: "If interest rates are at zero then monetary policy can't be eased any more. We are out of ammunition."