ALL BLOG POSTS
This morning the Nikkei index has dropped has much as 6%. By any measure this is an extreme drop in stock prices in one day. Furthermore, we are now officially in bear market territory as the Nikkei is down more than 20% in just three weeks. I can only see one reason for this and one reason only and that is the breakdown of the credibility of Bank of Japan governor Kuroda and his commitment to fulfill his official 2% inflation target.
For somewhat more than a decade I have regularly been watching monetary policy decisions from different central banks around the world. Most 'modern' central banks in the world announce changes to monetary policy once every month. Mostly these events are pretty much none-events - the central banks do not surprise markets much. However, over the last fives years it has certainly been harder to predict the outcome of these meetings compared to how relatively easy it was in the decade before the crisis.
Scott Sumner has an interesting new post in which he argues that Utah is "America's Denmark". I like Scott's theory a lot. Mostly because I think of Utah is how Denmark used to be. I really don't like to write about Denmark, but this topic is too interesting to miss.
While surfing a bit on Brad DeLong's blog I came across a reference to what looks like a very interesting paper by one of my favourite economic historians - Barry Eichengreen. He has co-authored the paper "Political Extremism in the 1920s and 1930s: Do German Lessons Generalize?" with Kevin H. O’Rourke.
"Everything reminds Paul Krugman of the GOP. Everything reminds me of sex, but I try to keep it out of my papers."
This is Paul Krugman:
The ECB is very proud of its 2% inflation target. The problem is just that it is not hitting it.
The Melaschenko-Reynolds banking resolution model makes a lot of sense (damn that is not a sexy headline)
I recently bashed the Bank of International Settlements for having irrational bubble fears. That, however, do not mean that I think that BIS is making bad research. Rather I think that BIS comes out with a lot of interesting research. The latest BIS paper I have read is a paper by Paul Melaschenko and Noel Reynolds on banking resolution.
The rally in the global stock markets has clearly run into trouble in the last couple of weeks. Particularly the Nikkei has taken a beating, but also the US stock market has been under some pressure.
I am writing this sitting in Warsaw’s Chopin airport. Over the last decade I have spend more time in Chopin than in any other airport in the world. The airport has changed a lot over the years and the development in the airport in many ways seem to have tracked the development in the rest of the Polish economy.
Bank of Japan governor Kuroda came off to a good start when he announced his strategy for taking Japan out of 15 years in the beginning of April - the yen weakened, the Nikkei rallied and most importantly inflation expectations started to inch up. However, over the past two weeks Mr. Kuroda's efforts have run into trouble. The Nikkei has tumbled and fears that Mr. Kuroda will not be able to deliver on his promise to increase Japanese inflation to 2% have increased.