ALL BLOG POSTS
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."
It is all over the media and everybody are talking are talking about it - the crisis in Cyprus.
A bit of fun for Saturday. Here is Dilbert on forecasting....
Over the weekend the news agencies reported that ECB chief Mario Draghi had called Italian president Giorgio Napolitano to "express concern that his resignation would leave Italy without leadership at a time of mounting tension in financial markets, exacerbated by the bank crisis in Cyprus" (quoted from Reuters). I think this pretty well illustrates what is wrong with the ECB's view of the world. Apparently the ECB thinks that it is in its mandate to actively influence the political outcome in different European nations. So it is no surprise that Mario Draghi and other European central bankers don't have any time for golfing.
Austrian economists often - rightly - stress that there are two types of deflation. The first type of deflation is monetary deflation, which tend to be quite damaging - at least according to sensible Austrians as Steve Horwitz - and second deflation caused by higher productivity. However, as there is both good and bad deflation it logically follows that there is good and bad inflation - something Austrians tend to downplay.
Earlier this week former UK Prime Minister Margeret Thatcher died. There has been written a lot about her achievements (and failures), but I just came across this (HT Vaidas Urba) very interesting quote by her Chancellor of the Exchequer Nigel Lawson: