Economists
are still debating the central banks’ role in the world: what to target and
how? After the previous inflation- and unemployment goals and the latest
NGDP-targeting, now directly targeting asset prices is the hot topic. Minimum wage
is another topic after US shows signs of raising it (would help to raise the
inflation as well). But the most important issue will be the global currency
wars. Fiscal and monetary policies have met limits, and I believe 2013 will be
remembered as the year when the wars started.
In markets,
stock market valuations are debated and the old hand Mr. Soros has enriched
himself by a cool 1bn shorting the yen.
Previous "Economics & Markets" here.
Previous "Economics & Markets" here.
Previously on MoreLiver’s:
ECONOMICS
Is the business cycle
a cycle? – noahpinion
In modern macro models, business "cycles"
are nothing like waves. A boom does not make a bust more likely, nor vice
versa. Modern macro models assume that what looks like a "cycle" is
actually something called a "trend-stationary stochastic process"
MONETARY POLICY
The conundrum for the
world’s central bankers – The
A-List / FT
Blogs review: Asset
prices and monetary policy redux – bruegel
Federal Reserve Governor Jeremy Stein gave serious
consideration to the idea that monetary policy has a role to play in managing
financial stability (read asset prices) in a speech titled “Overheating in Credit
Markets: Origins, Measurement, and Policy Responses” given last week at a
conference hosted by the St. Louis Fed. Governor Stein provided evidence that
risk was building in certain segments of financial markets and discussed policy
tools that go beyond countercyclical macroprudential regulation or the simple
use of the Federal Funds rate to address these risks.
Scott Sumner is wrong – Free
exchange / The Economist
Central bankers, like the Fed’s Jeremy Stein, are
finally starting to reconsider some of the profession’s long-held assumptions
about their policy mandates and the ways in which they affect the real economy.
This is a welcome development. They should not be dissuaded by those who are
unfamiliar with the latest research.
A monetary policy
target can only be defeated by a better monetary policy target – Worthwhile
A monetary policy is not just the central bank doing
something right now. A monetary policy is some sort of rule that tells the
central bank the different things it should be doing under all sorts of
different circumstances in the past, present, and future.
Monetary Policy: From
There to Here to Where? – The
Big Picture
Drawing from his long experience participating in the
policymaking process at the Federal Reserve, chief policy officer Mark
Sniderman shares his views on how the Federal Reserve’s framework for
conducting monetary policy has evolved over the past decade. He explains how
changes in economic theory have helped shaped this new framework and how lessons
learned from the Great Depression and Japan’s recent
struggle with deflation have contributed.
Hot potatoes and hot
yams – Worthwhile
Money (the medium of exchange) is an asset. But the
demand for money is different from the demand for any other asset… Perhaps we should
abolish "the demand for money", and speak about "desired
velocity" instead. Or, better still, talk about the desired degree of
synchronisation between payments and receipts.
MINIMUM WAGE
Economists disagree
on whether the minimum wage kills jobs. Why? – Wonkblog
/ WP
This graph is the
best argument for raising the minimum wage – Wonkblog
/ WP
Raising the minimum
wage: Trickle-up economics – The
Economist
Minimum human wages – Free exchange
/ The Economist
REGULATION
Food and Finance – Magic,
Maths and Money
In the past, investors did the equivalent of buying
tomatoes, onions, meat and pasta. Today
financial engineers sell investors ready made lasagne. Risk managers make sure it is correctly
labelled (the traffic lights/no horsemeat instead of beef) while financial
mathematicians put a price on the lasagne. This got me thinking about the
failures of food regulation and financial regulation.
Global financial assets, there are lots – alphaville
/ FT
Tax havens: The
missing $20 trillion – The
Economist
MARKETS
‘CURRENCY WAR’
Currency War? – David Kotok / The Big
Picture
Since November, one of the major (G4) currencies, Japan, has
dramatically changed policy.
Furthermore, Japan has
directed its change in a way that causes another G4 currency, the euro, to
strengthen. This action and ensuing
reaction has triggered energetic discussion of a possible currency war. Will we
see one? Maybe. Are the currency moves we are seeing volatile
and abrupt enough to ignite one? Yes.
Root causes of
currency wars – voxeu.org
Simon J Evenett: Discussion of currency wars has
broken out again in the run-up to this week’s G20 finance ministers' meeting in
Moscow. This
column points to the underlying policy choices responsible for the recurring
currency disputes and the feeble ex-post rationalisations for them.
With the world
watching, Bernanke gives a go-ahead to the currency war – Sober
Look
Currency War
Confusions – Krugman
/ NYT
FX Manipulating G-20
"Glass House" Unable To Cast Stone At FX Manipulating-Japan – ZH
The global economy:
Phoney currency wars – The
Economist
Euro Will Be Dragged
Slowly Into Currency War – WSJ
Another Entry on The Currency Wars – Tim
Duy’s Fed Watch
Positive-sum currency wars – Free
exchange / The Economist
STOCKS & BONDS
How Overpriced Were
Stocks in 1929? – Crossing
Wall Street
Q4 Earnings and
Revenue Beat Rates – Bespoke
Earnings Roundup:
Surprise Rate Remains Impressively High – Alpha
Now / Thomson Reuters
During uncertain
times dividends drive returns – Sober
Look
Stock and Bond
Drawdowns – Historical Perspective – PragCap
Chart of the Week:
High Yield Default Rates – The
View from the Blue Ridge
Going with the flow – Buttonwood
/ The Economist
The big theme of the market this year, as already
mentioned in this blog, has been the "great rotation" out of bonds
and into equities.
HEDGE
FUNDS
Average hedge fund
fee significantly lower than reported – All
About Alpha
Falling in Love With
Global Macro All Over Again? – Pension
Pulse
Soros, other hedge
funds score billions betting on falling yen – MarketWatch
Soros Aide Wins
Kudos for Japan Bets – WSJ
Investing $24 billion of George Soros's money is no
easy job. So far, Scott Bessent has managed to keep his boss happy.
What We're Reading ~ Hedge Fund Links – market
folly
OTHER
Thorp and Buffett on
beating the market, from Quantitative Value – Abnormal
Returns
Q&A with Wesley
Gray, co-author of Quantitative Value – Abnormal
Returns
How A Rookie Excel
Error Led JPMorgan To Misreport Its VaR For Years – ZH