January 25, 2009
Bailouts should be no fun
If everybody wants a bailout, that's a good indication that we're making some mistakes.
Continue reading "Bailouts should be no fun"
Posted by James Hamilton at 07:47 AM permalink | Comments (34)
January 19, 2009
Executive compensation
Is there a problem? And is there a solution? My answers: yes, and yes.
Continue reading "Executive compensation"
Posted by James Hamilton at 03:19 PM permalink | Comments (36)
January 11, 2009
Signs of a thaw
Yes, I saw the discouraging headlines. But I also see signs of hope in last week's economic news.
Continue reading "Signs of a thaw"
Posted by James Hamilton at 08:06 AM permalink | Comments (29)
December 22, 2008
ZIRP and the exchange rate...and other macro variables
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals -- the output [0], inflation and exchange rate gaps -- were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
Continue reading "ZIRP and the exchange rate...and other macro variables"
Posted by Menzie Chinn at 01:32 PM permalink | Comments (9)
December 18, 2008
Credit Crunch or Not
One of the debates regarding the current financial crisis is whether in fact there is a crisis, or whether in fact the financial system is operating normally. I've been skeptical myself of the "times are normal view", but here is some evidence that the credit crunch is real. The findings also reinforces my view that un-nuanced reliance on highly aggregated volume statistics (e.g., Chari et al. 2008) is likely to result in misleading inferences (See the rejoinder from the Boston Fed's economists). From the conclusion to Tong and Wei (2008) ungated version of Tong and Wei:
Continue reading "Credit Crunch or Not"
Posted by Menzie Chinn at 12:20 PM permalink | Comments (32)
December 16, 2008
Quantitative easing
Today's announcement from the Federal Reserve marks the end of the road for Plan A (fighting the recession by lowering interest rates), and the beginning of ... what?
Continue reading "Quantitative easing"
Posted by James Hamilton at 05:40 PM permalink | Comments (41)
December 15, 2008
Finding the exit
How you think we might get out of our current economic problems has something to do with how you think we got into them in the first place.
Continue reading "Finding the exit"
Posted by James Hamilton at 05:19 PM permalink | Comments (57)
December 02, 2008
TIPS yields
Greg Mankiw notes some odd behavior this week in the values reported by the U.S. Treasury for the yields on constant-maturity Treasury Inflation Protected Securities.
Continue reading "TIPS yields"
Posted by James Hamilton at 08:38 PM permalink | Comments (26)
November 19, 2008
The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock
Markus Brunnermeier provides an excellent summary graph of the financial crisis, told in "spreads".
Posted by Menzie Chinn at 08:32 PM permalink | Comments (36)
November 16, 2008
The anomalous fed funds market
Some further thoughts on the bizarre behavior of the interest rate that used to be the core instrument of U.S. monetary policy.
Continue reading "The anomalous fed funds market"
Posted by James Hamilton at 12:01 PM permalink | Comments (44)
November 13, 2008
Investment advice for a wild market
Your retirement nest egg might have lost 40% of its value since this summer and 10% the last 2 weeks. What should you do? Here's the advice I've been giving to friends who ask, as well as what I've been doing with my own portfolio.
Continue reading "Investment advice for a wild market"
Posted by James Hamilton at 11:01 AM permalink | Comments (90)
October 25, 2008
The Federal Reserve's balance sheet
On Thursday, the Federal Reserve issued its weekly H.4.1 report, which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting.
Continue reading "The Federal Reserve's balance sheet"
Posted by James Hamilton at 08:19 AM permalink | Comments (65)
October 21, 2008
CRA and Fannie and Freddie as betes noire
There is so much chaff floating around about the roles of Fannie and Freddie and of the Community Reinvestment Act in the current crisis, despite the best efforts of economists like Jim Hamilton [0] [1], Mark Thoma and Janet Yellen, that it seems worthwhile to once again go through some of the arguments that have been forwarded.
From David Goldstein and Kevin G. Hall, "Private sector loans, not Fannie or Freddie, triggered crisis":
Federal Reserve Board data show that:
- More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
- Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
- Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
Continue reading "CRA and Fannie and Freddie as betes noire"
Posted by Menzie Chinn at 12:00 PM permalink | Comments (46)
October 15, 2008
Credit Spreads and How Lax Is Monetary Policy?
All eyes have been on the housing market as the trigger for the financial crisis, but we're all aware that there are other potential "triggers" for additional distress: auto loans and credit cards. In addition, spreads are not everything -- levels of real interest rates matter as well.
Continue reading "Credit Spreads and How Lax Is Monetary Policy?"
Posted by Menzie Chinn at 11:12 PM permalink | Comments (9)
Some encouraging developments
Plenty of gloom out there if you're hungry for more. But I wanted to pass along a couple of developments this week that give me some hope.
Continue reading "Some encouraging developments"
Posted by James Hamilton at 09:59 AM permalink | Comments (36)
October 14, 2008
The global recession
IMF research economist Prakash Loungani reports some statistics on the extent to which housing price declines are being seen worldwide.
Continue reading "The global recession"
Posted by James Hamilton at 12:46 PM permalink | Comments (12)
October 07, 2008
Balance sheet of the Federal Reserve
I was astonished when I heard that the Fed is contemplating increasing the Term Auction Facility to $900 billion. I wanted to take another look at the ever-changing balance sheet of the Fed to see how logistically Bernanke might be able to perform such a feat.
Continue reading "Balance sheet of the Federal Reserve"
Posted by James Hamilton at 08:51 PM permalink | Comments (51)
October 06, 2008
How Bad Will the Downturn Be? Stylized Facts
The IMF released several chapters of the World Economic Outlook; one chapter entitled Financial Stress and Economic Downturns provides some insights into the ramifications of the current financial turmoil.
Continue reading "How Bad Will the Downturn Be? Stylized Facts"
Posted by Menzie Chinn at 10:52 PM permalink | Comments (7)
Roundtable discussion on the financial crisis
I participated on Friday with several other UCSD faculty members (including Nobel laureate Harry Markowitz) in a discussion about the current economic crisis. If you have RealPlayer, you can view the discussion here, though I recommend fast-forwarding to skip the first 8 introductory minutes to get to the actual discussion. If you just want my slides, I've posted them here.
Posted by James Hamilton at 03:19 PM permalink | Comments (9)
September 28, 2008
Understanding the TED spread
One measure that is being used to summarize the strain in financial markets is the TED spread. This is calculated as the gap between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. The size of this gap presumably reflects some sort of risk or liquidity premium. I was interested to break the TED spread down into identifiable components to try to get a better understanding of what may be responsible for its recent behavior.
Continue reading "Understanding the TED spread"
Posted by James Hamilton at 09:09 PM permalink | Comments (29)
Gross domestic income and recessions
The "final" values for 2008:Q2 GDP released by the Bureau of Economic Analysis on Friday were more disappointing than the earlier estimates. Still, the 2.8% annual growth rate for real GDP that we're now told characterized the second quarter doesn't sound like a recession. Or does it?
Continue reading "Gross domestic income and recessions"
Posted by James Hamilton at 02:06 AM permalink | Comments (7)
September 25, 2008
Does House Republican Resistance Make Sense for Their Constituency?
From the Justin Fox, regarding House Republicans' plan:
...that of the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to "encourag[e] corporations to sell unwanted assets." But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?
Eric Cantor, the Republican chief deputy whip, has a more reasonable-sounding if still pretty vague plan to insure more mortgages rather than buy mortgage securities. ....
I'm in agreement with Justin that guaranteeing even more mortgages won't be any better than the original Paulson plan.
My observation here is that the obstructionism of this group is either a manifestion of denial of reality, or a sheer indifference to the needs of their constituents -- to the extent that House Republicans purport to represent small business Main Street.
Continue reading "Does House Republican Resistance Make Sense for Their Constituency?"
Posted by Menzie Chinn at 09:10 PM permalink | Comments (35)
September 24, 2008
The Financial Crisis and Entrepreneurship
Most of the discussion surrounding the current crisis has focused on the implications for major businesses and their hiring and investment decisions, or households and their employment possibilities, or consumer behavior. One overlooked (or underemphasized) aspect of the issue is the impact on small firms. Fortunately, my former colleague (and coauthor), Rob Fairlie has just published a book that can inform one's thinking on this subject.
Continue reading "The Financial Crisis and Entrepreneurship"
Posted by Menzie Chinn at 09:13 PM permalink | Comments (10)
September 23, 2008
Who'll Be the Next Treasury Secretary?
As the Congress was debating how much power and how many hundreds of billions to the US Treasury, I was pondering who would be in charge of all that come January 20th.
Continue reading "Who'll Be the Next Treasury Secretary?"
Posted by Menzie Chinn at 10:55 PM permalink | Comments (25)
September 22, 2008
"The government's bailout efforts" on MPR
This morning, I had the pleasure of discussing this issue with GMU's Russell Robert on Minnesota Public Radio's Midmorning show. The link is here.
Posted by Menzie Chinn at 05:03 PM permalink | Comments (5)
Brad DeLong on Bernanke and Paulson
Brad DeLong had some insightful and amusing observations on the priorities of Federal Reserve Chair Ben Bernanke and Treasury Secretary Henry Paulson. I can't resist reproducing Brad's comments with some annotations of my own.
Continue reading "Brad DeLong on Bernanke and Paulson"
Posted by James Hamilton at 11:51 AM permalink | Comments (24)
September 21, 2008
Paulson bailout
Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke-- it is hard to overstate just how scary this week's developments in financial markets could be.
Continue reading "Paulson bailout"
Posted by James Hamilton at 02:17 PM permalink | Comments (68)
September 20, 2008
The housing meltdown: Why did it happen in the US?
From a timely BIS working paper by Lucy Ellis released on Thursday:
Mortgage lending standards eased in many countries in recent years, but the limited available cross-country evidence does suggest that the process went further in the United States. Standards are difficult to measure because different aspects need not all move together (Gorton 2008), but the observed increase in early payment defaults in the United States (but not elsewhere) provides direct evidence that it occurred (Kiff and Mills 2007); Gerardi, Lehnert, Sherlund and Willen (2008) provide additional detail on the easing in lending standards.
Two developments seem to have spurred the easing in US standards. First, a range of legislative and policy changes had been made to encourage the development of a non-conforming (Alt-A and subprime) lending sector, lying outside the model defined by the government-sponsored enterprises (GSEs, Fannie Mae and Freddie Mac). Part of the motivation for this was a desire to ensure that home ownership was accessible to households who had historically been underserved by mortgage lenders (Gramlich 2007). In addition, the administration had wanted to reduce the GSEs' domination of the mortgage market. Following problems with accounting and governance at both institutions, the GSEs' capacity to expand lending was capped by new regulatory limits on their activities (Kiff and Mills 2007, Blundell-Wignall and Atkinson 2008). [emphasis added -- mdc]
Continue reading "The housing meltdown: Why did it happen in the US?"
Posted by Menzie Chinn at 10:40 PM permalink | Comments (37)
September 19, 2008
Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again
There's a lot of commentary -- more comprehensive and up to date than I can provide -- on the crisis and the attempts to resolve the logjam in the financial markets.[0], [1] But I stilll have a couple of thoughts about the causes, and the implications, of the process that has resulted in so much turmoil this week.
Continue reading "Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again"
Posted by Menzie Chinn at 07:15 PM permalink | Comments (36)
September 18, 2008
Implications of Repricing of Dollar Denominated Assets
In the wake of global financial events, a couple of articles have caught my attention in terms of implications for the dollar. First was this Reuters account of a People's Daily editorial, suggesting "diversification". But it's hard to discern the underlying message given the low signal to noise ratio in official publications. Today's article in the IHT is a little more informative, not just about what's going on in China but in Asia (where a lot of that "saving glut" was alleged to come from):
Continue reading "Implications of Repricing of Dollar Denominated Assets"
Posted by Menzie Chinn at 08:21 AM permalink | Comments (15)
September 08, 2008
Palin, on the Ongoing Financial Crisis
In response to the largest de facto nationalization in US history, we have this example of Governor Palin's comprehension of this issue (ABC News):
Saturday in Colorado Springs, Colo., Alaska Gov. Sarah Palin said, "The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."
Continue reading "Palin, on the Ongoing Financial Crisis"
Posted by Menzie Chinn at 06:41 PM permalink | Comments (156)
August 10, 2008
Current Account Adjustment Redux? What's Different this Time Around
The dollar is on the rebound against the euro [0], [1]. The non-oil trade deficit is shrinking as a share of GDP [2]. Is this a replay of the 1980's adjustment process?
Continue reading "Current Account Adjustment Redux? What's Different this Time Around"
Posted by Menzie Chinn at 10:00 PM permalink | Comments (10)
August 06, 2008
Synergies of the unpleasant kind: recessions, credit crunches and housing busts
From the abstract of a new paper by Stijn Claessens, M. Ayhan Kose and Marco E. Terrones, entitled "What Happens During Recessions, Crunches and Busts?" (paper now online here):
We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. We document a rich set of stylized facts about the behavior of key macroeconomic and financial variables during these various events. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of a recession. In particular, we show that recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are. In light of our findings, we examine the implications of recent macroeconomic and financial developments in the United States for the future path of its economy.
Continue reading "Synergies of the unpleasant kind: recessions, credit crunches and housing busts"
Posted by Menzie Chinn at 12:45 PM permalink | Comments (24)
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession [0], and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
Continue reading "Taylor rules, exchange rates, and the speculation about the dollar/euro rate"
Posted by Menzie Chinn at 06:17 AM permalink | Comments (11)
July 23, 2008
Implications of adjustment to riskier dollar assets in a portfolio balance framework, illustrated in three steps
Consider a hypothetical world economy with assets denominated in dollars and euros.
Posted by Menzie Chinn at 10:13 PM permalink | Comments (21)
July 15, 2008
Did Fannie and Freddie cause the mortgage crisis?
Some thoughts about the role played by the GSEs in the run-up in mortgage debt and house prices.
Continue reading "Did Fannie and Freddie cause the mortgage crisis?"
Posted by James Hamilton at 08:04 PM permalink | Comments (26)
July 13, 2008
The Fannie and Freddie assistance plan
I see much to like about this.
Continue reading "The Fannie and Freddie assistance plan"
Posted by James Hamilton at 07:53 PM permalink | Comments (17)
July 12, 2008
Fannie Mae and Freddie Mac
How did we get into this mess, and how do we get out of it?
Continue reading "Fannie Mae and Freddie Mac"
Posted by James Hamilton at 07:08 PM permalink | Comments (28)
July 07, 2008
Janet Yellen on risks and prospects for the U.S. economy
This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. Her complete speech is available from the FRB SFO Here are some excerpts.
Continue reading "Janet Yellen on risks and prospects for the U.S. economy"
Posted by James Hamilton at 10:19 AM permalink | Comments (12)
May 30, 2008
Commodity futures speculation
More on the possible contribution of index fund investment to recent commodity price moves.
Continue reading "Commodity futures speculation"
Posted by James Hamilton at 05:59 AM permalink | Comments (6)
May 25, 2008
How Effective Will Monetary Easing Be? The Bank Lending Channel and the Implications of Increasingly Internationalized Banks
As I noted in a previous post, monetary policy works through various channels, one of which is the "bank lending channel". Lower policy rates, as witnessed in the past few months and shown below, should induce greater lending.
Posted by Menzie Chinn at 10:00 AM permalink | Comments (5)
May 13, 2008
Credit crunch: how we got here and how to get out
Fed Chair Ben Bernanke on Tuesday offered his perspective on the appropriate response of the Fed to the ongoing turmoil in financial markets. I still think he's overlooking a key element of what's been happening.
Continue reading "Credit crunch: how we got here and how to get out"
Posted by James Hamilton at 08:16 PM permalink | Comments (19)
May 02, 2008
Fast and Easy Fannie
The Wall Street Journal had a very disturbing story on Wednesday about the "Fast and Easy" loan program of Countrywide Financial Corporation, many of whose mortgages were bought up by Fannie Mae.
Continue reading "Fast and Easy Fannie"
Posted by James Hamilton at 06:20 AM permalink | Comments (22)
April 17, 2008
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
Continue reading "Why new oil price highs?"
Posted by James Hamilton at 08:45 PM permalink | Comments (74)
April 16, 2008
Commodity arbitrage
Scott Irwin is the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois. He has been doing some fascinating research on the relation between spot and futures prices in agricultural markets that may shed some light on the role of speculation in recent commodity price movements. We are delighted that Scott agreed to share some of the results of his research with Econbrowser readers.
Continue reading "Commodity arbitrage"
Posted by James Hamilton at 11:07 AM permalink | Comments (19)
April 14, 2008
The G-7 Communique and the Dollar
Was this the new (reverse) "Plaza Accord"? From Bloomberg:
Continue reading "The G-7 Communique and the Dollar"
Posted by Menzie Chinn at 09:30 PM permalink | Comments (20)
April 11, 2008
Some more unwelcome developments
New bankruptcies as consumer sentiment deteriorates.
Continue reading "Some more unwelcome developments"
Posted by James Hamilton at 12:00 PM permalink | Comments (26)
April 08, 2008
Distressing Table of the Day
Here's the basis for the $945 billion estimate of losses to the financial sector. From the IMF's Global Financial Stability Report:
Continue reading "Distressing Table of the Day"
Posted by Menzie Chinn at 08:52 AM permalink | Comments (18)
March 25, 2008
Recoupling, Monetary Policy Divergence, and the Dollar
At the risk of losing my audience by skipping over the the record housing price decline, and an outsized drop in the consumer confidence index, I'm going to focus on what seems like old news (but is being reflected in current news on the dollar), namely the OECD reduction in growth forecasts for the G-7 economies. The euro area economy is slated to do better than the US economy in 2008H1, but that's not saying much.
Continue reading "Recoupling, Monetary Policy Divergence, and the Dollar"
Posted by Menzie Chinn at 07:28 AM permalink | Comments (9)
March 24, 2008
Kicking the Can down the Road
Inspection of the Administration's approaches to previous policy issues provides some instructive precedents [0], [1], [2], [3], [4] to consider in light of current policy challenges in the financial markets.
Continue reading "Kicking the Can down the Road"
Posted by Menzie Chinn at 12:01 AM permalink | Comments (50)
March 21, 2008
More bad news
More confirmation that the slowdown in housing has spilled over to manufacturing.
Continue reading "More bad news"
Posted by James Hamilton at 10:46 AM permalink | Comments (6)
March 18, 2008
Not a bailout
How shall we describe what happened this weekend with Bear Stearns? The first big casualty of the credit crisis, yes. Bailout, no.
Continue reading "Not a bailout"
Posted by James Hamilton at 12:26 PM permalink | Comments (38)
March 17, 2008
President Bush Discusses Economy
THE PRESIDENT: Mr. Secretary, thank you very much for coming by today to talk about the economic situation -- we'll be meeting later on this afternoon with the President's Task Force on Financial Markets.
Continue reading "President Bush Discusses Economy"
Posted by Menzie Chinn at 04:01 PM permalink | Comments (4)
March 11, 2008
Asking too much of monetary policy
I remember a Federal Reserve economist once recounting a conversation with his young daughter, who asked him, "What do you do at work, Daddy?" He answered, "I help make important decisions." "What kind of decisions, Daddy?" "Oh, things like how much money the government needs to print."
Continue reading "Asking too much of monetary policy"
Posted by James Hamilton at 07:47 PM permalink | Comments (40)
March 07, 2008
Commodity prices and the Fed
If the Fed thinks that recent commodity price moves have nothing to do with their own actions, perhaps they should think again.
Continue reading "Commodity prices and the Fed"
Posted by James Hamilton at 07:10 AM permalink | Comments (22)
March 05, 2008
Tabulating the Credit Crunch's Effects: One Educated Guess
In a recent paper, David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin exposed us outsiders to the inside workings of those estimates we see of how the credit crunch affects output. The paper, entitled "Leveraged Losses: Lessons from the Mortgage Market Meltdown", was widely covered ([1], [2], [3], Calculated Risk, Big Picture) but I still think that the conclusions, as well as the methodology, bear some repeating for emphasis. And in any case, it's a long paper, and different people have focused on different aspects.
Continue reading "Tabulating the Credit Crunch's Effects: One Educated Guess"
Posted by Menzie Chinn at 08:00 PM permalink | Comments (8)
February 27, 2008
Musings on the Dollar: PPP and Thresholds
As the dollar hits a new low against the euro [0], some thoughts on what arguments make sense, given our knowledge of the statistical properties of real exchange rates.
Continue reading "Musings on the Dollar: PPP and Thresholds"
Posted by Menzie Chinn at 09:38 PM permalink | Comments (16)
February 25, 2008
What Explains Deviations from Interest Rate Parity in Emerging Markets?
Some people have the impression that financial capital zips to wherever the returns are highest. Maybe that's the case. But I'm not sure.
Continue reading "What Explains Deviations from Interest Rate Parity in Emerging Markets?"
Posted by Menzie Chinn at 09:20 PM permalink | Comments (6)
February 23, 2008
Crony Capitalism Comes (Returns?) to America
By Menzie Chinn
Or, who will be the Keating 5 of the 2000's? Perspectives from those of us who remember the East Asian crises of the 1990's.
From the NYT:
Continue reading "Crony Capitalism Comes (Returns?) to America"
Posted by Menzie Chinn at 10:10 PM permalink | Comments (39)
February 13, 2008
International Aspects of Tax Policy in the 2008 Economic Report of the President
The tax policy chapter of the ERP is quite interesting, in part because I have a sense of deja vu [1], [2] when reading the cross-country/international sections.
Continue reading "International Aspects of Tax Policy in the 2008 Economic Report of the President"
Posted by Menzie Chinn at 09:32 PM permalink | Comments (5)
February 08, 2008
No-doc loans
Just an anecdote, but an interesting one.
Continue reading "No-doc loans"
Posted by James Hamilton at 06:52 AM permalink | Comments (15)
January 31, 2008
Thinking about Monetary Policy Efficacy: Back to the Textbooks
As the Fed drops interest rates, I've been trying to sort out all the channels that monetary policy will affect output, and which ones are likely to be short circuited this time around.
Continue reading "Thinking about Monetary Policy Efficacy: Back to the Textbooks"
Posted by Menzie Chinn at 11:18 AM permalink | Comments (15)
January 30, 2008
Fed rate cut
Today the Federal Reserve announced a further 50-basis-point cut in its target for the fed funds interest rate, bringing it down to 3.0% for a total reduction in January of 125 basis points. How long should it take before this has an effect on the economy?
Continue reading "Fed rate cut"
Posted by James Hamilton at 03:25 PM permalink | Comments (11)
January 22, 2008
Another day, another dollar
It was a fun day to be a macroeconomist, don't you think?
Continue reading "Another day, another dollar"
Posted by James Hamilton at 02:52 PM permalink | Comments (13)
January 16, 2008
Will inflation fears restrain the Fed?
I think not, and here's why.
Continue reading "Will inflation fears restrain the Fed?"
Posted by James Hamilton at 02:31 PM permalink | Comments (24)
January 13, 2008
How low will Ben go?
Was 25, now we have 50. Do I hear 75?
Continue reading "How low will Ben go?"
Posted by James Hamilton at 11:13 AM permalink | Comments (33)
January 11, 2008
Mortgage securitization
I thought it might be helpful to summarize some of the background on how we got into our present mortgage mess.
Continue reading "Mortgage securitization"
Posted by James Hamilton at 06:07 AM permalink | Comments (16)
January 04, 2008
Economic indicators take a turn for the worse
No cheer for the New Year from the numbers released this week.
Continue reading "Economic indicators take a turn for the worse"
Posted by James Hamilton at 05:51 PM permalink | Comments (15)
January 01, 2008
The Dollar in the New Year
Is there (an "equlibrium" exchange rate) model for all seasons?
Continue reading "The Dollar in the New Year"
Posted by Menzie Chinn at 09:40 AM permalink | Comments (10)
December 24, 2007
A Thought on the Sub-prime Debacle
Most of the NYT's recent coverage of the subprime mess focused on Greenspan and the Federal Reserve System.
Continue reading "A Thought on the Sub-prime Debacle"
Posted by Menzie Chinn at 11:42 AM permalink | Comments (11)
December 21, 2007
Earning excess returns
Mark Thoma calls attention to this Washington Post article by Wharton Professor Dean Foster and Oxford Professor Peyton Young:
Continue reading "Earning excess returns"
Posted by James Hamilton at 07:31 AM permalink | Comments (14)
December 01, 2007
Risk premia creeping higher
Since Halloween, financial markets seem to be getting spooked again.
Continue reading "Risk premia creeping higher"
Posted by James Hamilton at 11:11 AM permalink | Comments (11)
November 29, 2007
The Euro as the World's Reserve Currency: A Progress Report
Back in 2005, Jeff Frankel and I presented a series of projections about the dollar's role as the world's dominant reserve currency. We concluded:
...Whether the euro might in the future rival or surpass the dollar as the world's leading international reserve currency appears to depend on two things: (1) do enough other EU members join euroland so that it becomes larger than the US economy, and (2) does US macroeconomic policy eventually undermine confidence in the value of the dollar, in the form of inflation and depreciation.
Continue reading "The Euro as the World's Reserve Currency: A Progress Report"
Posted by Menzie Chinn at 08:08 AM permalink | Comments (19)
November 21, 2007
Freddie Mac and Fannie Mae back in the news
So how worried should you be?
Continue reading "Freddie Mac and Fannie Mae back in the news"
Posted by James Hamilton at 03:55 PM permalink | Comments (20)
November 12, 2007
The Credit Crunch Continues, and the Conundrum Is History
The credit crunch seems to be worsening, rather than lessening, and the conundrum seems to have disappeared.
Continue reading "The Credit Crunch Continues, and the Conundrum Is History"
Posted by Menzie Chinn at 09:03 PM permalink | Comments (4)
October 21, 2007
Distressing Picture of the Day
From the IMF's September Global Financial Stability Report:
Continue reading "Distressing Picture of the Day"
Posted by Menzie Chinn at 07:10 PM permalink | Comments (68)
October 17, 2007
Deteriorating lending standards
What is the significance of the fact that the most recently issued subprime mortgages are the ones that are running into the biggest problems?
Continue reading "Deteriorating lending standards"
Posted by James Hamilton at 05:39 AM permalink | Comments (25)
October 14, 2007
Superconduit
The Wall Street Journal describes it as a "superconduit", the New York Times refers to it as a "super-SIV", and the Washington Post is calling it a "Master-Liquidity Enhancement Conduit". Whatever you call it, does it make any sense?
Continue reading "Superconduit"
Posted by James Hamilton at 08:35 AM permalink | Comments (29)
October 12, 2007
The World Inverted: Does It Matter That Yield Curves Are Sloping Downward?
In glancing at Table 4 the last issue of the Economist (sub. req.), I was surprised that so many countries had downward sloping yield curves. Should we worry?
Continue reading "The World Inverted: Does It Matter That Yield Curves Are Sloping Downward?"
Posted by Menzie Chinn at 09:35 PM permalink | Comments (12)
October 11, 2007
Inferring market expectations from changes in fed funds futures prices
I recently completed a new research paper studying how interest rates of different maturities change with market expectations of what the Fed is going to do next.
Continue reading "Inferring market expectations from changes in fed funds futures prices"
Posted by James Hamilton at 06:13 PM permalink | Comments (6)
October 10, 2007
IMF World Economic Outlook on Managing Large Capital Inflows
The IMF has just released several chapters of its semi-annual World Economic Outlook. One chapter is entitled "Managing Large Capital Inflows".
Continue reading "IMF World Economic Outlook on Managing Large Capital Inflows"
Posted by Menzie Chinn at 03:16 PM permalink | Comments (5)
October 08, 2007
What's a "Strong Dollar"?
I used to wonder about the use of this term a lot, at least in the context of government pronouncements. Here's my answer. First, the use of the term in context. From Bloomberg:
Weak Dollar Boosts Growth Without Fueling Inflation (Update1)
By Matthew Benjamin and Vivien Lou Chen
Oct. 8 (Bloomberg) -- Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.
Continue reading "What's a "Strong Dollar"?"
Posted by Menzie Chinn at 07:03 PM permalink | Comments (15)
October 01, 2007
Pick a finger
Princeton Professor Alan Blinder offers his thoughts in the New York Times on who's to blame for the mortgage mess, getting the attention of Mark Thoma, Dave Iverson, Brad DeLong, and Greg Mankiw. Here are my two cents.
Continue reading "Pick a finger"
Posted by James Hamilton at 12:00 PM permalink | Comments (25)
September 30, 2007
Foreign Exchange Market Transactions and Reserves: Recent Statistics
There's been a cornucopia of forex market information released in the past week, which I'm only now getting to. First, the BIS has released the preliminary results from its Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, conducted in April of this year. The results are interesting, insofar as they confirm trends evident in the previous survey in 2004. Second, the IMF released its most recent tabulation of foreign exchange reserve holdings (COFER).
Continue reading "Foreign Exchange Market Transactions and Reserves: Recent Statistics"
Posted by Menzie Chinn at 11:03 AM permalink | Comments (3)
September 25, 2007
More troubles for housing
New data released today portend continued weakness for housing.
Continue reading "More troubles for housing"
Posted by James Hamilton at 01:23 PM permalink | Comments (12)
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
Continue reading "What would be the implications of stagflation for the dollar?"
Posted by Menzie Chinn at 09:41 PM permalink | Comments (29)
September 20, 2007
Forward rates and inflation expectations
Forward rates on Treasury bonds tell an interesting story about the market's reaction to the Fed's interest rate cut on Tuesday.
Continue reading "Forward rates and inflation expectations"
Posted by James Hamilton at 04:21 PM permalink | Comments (17)
September 19, 2007
Divining the Dollar
The dollar declines in response to the drop in the target Fed Funds rate. What next?
Continue reading "Divining the Dollar"
Posted by Menzie Chinn at 09:30 PM permalink | Comments (20)
September 18, 2007
50 it is
For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday's fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
Posted by James Hamilton at 05:36 PM permalink | Comments (35)
September 13, 2007
Saving Glut Redux
Bernanke recaps his interpretation of the explanation for global imbalances. Is it any more convincing than the first time?
Continue reading "Saving Glut Redux"
Posted by Menzie Chinn at 08:10 AM permalink | Comments (20)
September 11, 2007
The Decoupling Scenario: Pre-Assessment
The U.S. economy appears to be slowing. Predictions of continued growth probably rely on assumptions the rest of the world continues to grow. How reasonable is this view?
Continue reading "The Decoupling Scenario: Pre-Assessment"
Posted by Menzie Chinn at 07:31 AM permalink | Comments (10)
September 10, 2007
By how much will the Fed cut rates?
Once again we're seeing a big divergence between what the markets expect the Fed to do and what the Fed expects the Fed to do.
Continue reading "By how much will the Fed cut rates?"
Posted by James Hamilton at 08:23 AM permalink | Comments (25)
September 06, 2007
Borrowing short and lending long
Here I elaborate on the description of the nature of current problems in financial markets that I offered at the Fed's Jackson Hole conference last week.
Continue reading "Borrowing short and lending long"
Posted by James Hamilton at 03:06 PM permalink | Comments (6)
September 04, 2007
Another suggestion for the GSEs
George Washington University Professor Richard Green has another suggestion for addressing the market distortions generated by Freddie Mac and Fannie Mae that I mentioned in my comments at Jackson Hole.
Continue reading "Another suggestion for the GSEs"
Posted by James Hamilton at 09:01 AM permalink | Comments (5)
September 01, 2007
Comments on Housing and the Monetary Transmission Mechanism
Here are the comments that I delivered this morning at the Fed Jackson Hole conference.
Continue reading "Comments on Housing and the Monetary Transmission Mechanism"
Posted by James Hamilton at 12:30 PM permalink | Comments (39)
Bernanke and Gramlich on the subprime issue
Also featured yesterday at the Federal Reserve conference in Jackson Hole were speeches by Fed Chair Ben Bernanke and former Fed Governor Edward Gramlich.
Continue reading "Bernanke and Gramlich on the subprime issue"
Posted by James Hamilton at 05:44 AM permalink | Comments (12)
August 31, 2007
Report from Jackson Hole
Here are some brief impressions about this morning's papers at the Federal Reserve conference.
Continue reading "Report from Jackson Hole"
Posted by James Hamilton at 10:54 AM permalink | Comments (12)
August 29, 2007
Update on the fed funds market
As noted by Calculated Risk and William Polley, the last few days we've seen the return of slightly more normal behavior in the overnight market for fed funds.
Continue reading "Update on the fed funds market"
Posted by James Hamilton at 01:19 PM permalink | Comments (25)
One perspective on approaching the current situation
Since Jim laid out some of the proposals for addressing the mortgage problem, I thought I'd put in my two cents worth.
Continue reading "One perspective on approaching the current situation"
Posted by Menzie Chinn at 08:16 AM permalink | Comments (11)
August 28, 2007
Solutions to the mortgage problem
Quick links to a few of the suggestions out there on what to do about pending mortgage defaults.
Continue reading "Solutions to the mortgage problem"
Posted by James Hamilton at 07:08 AM permalink | Comments (48)
August 24, 2007
Latest economic indicators
New home sales picked up in July, and new orders for durable and capital goods grew strongly. But that was then and this is now.
Continue reading "Latest economic indicators"
Posted by James Hamilton at 10:14 AM permalink | Comments (13)
August 21, 2007
Worse than 1998?
From IDEAGlobal, FX Alert, August 21:
Continue reading "Worse than 1998?"
Posted by Menzie Chinn at 09:01 PM permalink | Comments (20)
August 18, 2007
Where's the risk?
Usually an economic downturn is associated in a big increase in the spread between corporate and Treasury yields. This spiked pretty dramatically last week, but still has a long way to go.
Continue reading "Where's the risk?"
Posted by James Hamilton at 04:08 AM permalink | Comments (26)
August 11, 2007
Another roller coaster week
Glad I wasn't trying to provide a play-by-play explanation of fed funds futures last week. But whatever was going on, we seemed to end up with the same conclusion with which the week began.
Continue reading "Another roller coaster week"
Posted by James Hamilton at 10:00 PM permalink | Comments (6)
August 10, 2007
What is a liquidity event?
It was an exciting week in financial markets, including some dramatic central bank interventions in short-term money markets.
Continue reading "What is a liquidity event?"
Posted by James Hamilton at 11:14 PM permalink | Comments (22)
August 04, 2007
Interpreting fed funds futures
Despite what you may have read elsewhere, the probability of a fed funds rate cut has increased significantly over the last few weeks.
Continue reading "Interpreting fed funds futures"
Posted by James Hamilton at 10:58 PM permalink | Comments (31)
July 26, 2007
Ouch
No, this was not a good housing report.
Posted by James Hamilton at 05:17 PM permalink | Comments (15)
July 19, 2007
Bernanke on the economic outlook
In testimony before the U.S. Congress yesterday, Fed Chair Ben Bernanke continued his policy of greater openness and transparency for Federal Reserve policy, trying to lay out clearly what the Fed is most worried about.
Continue reading "Bernanke on the economic outlook"
Posted by James Hamilton at 07:19 AM permalink | Comments (11)
July 16, 2007
More on the Yuan and the Chinese Trade Balance
More speculation on the Yuan's prospects. From Bloomberg:
Continue reading "More on the Yuan and the Chinese Trade Balance"
Posted by Menzie Chinn at 06:04 AM permalink | Comments (2)
July 13, 2007
Import prices surge...
...but mostly due to increasing oil prices.
Continue reading "Import prices surge..."
Posted by Menzie Chinn at 06:14 AM permalink | Comments (0)
July 12, 2007
A Tipping Point for the Dollar?
In a post over a year ago, I observed that the relative stability of the dollar would come to an end as a confluence of events occurred. Those would be the end to rises in the US interest rates, and the continued increases in policy rates abroad, especially in the euro area and the UK, against a backdrop of a massive current account deficit that requires large and continuous infusions of saving from the rest of the world (and indeed consumes most of the world's excess saving).
Continue reading "A Tipping Point for the Dollar?"
Posted by Menzie Chinn at 07:10 PM permalink | Comments (20)
Are your inflation expectations well-anchored?
Fed Chair Ben Bernanke's comments Tuesday about anchors for expected inflation left some analysts unsettled and others mystified. Bernanke was speaking to a group of academic researchers, and I believe his message was intended to provide some insights from practical policy-making to help improve the quality of academic research. So let me offer my interpretation of his message.
Continue reading "Are your inflation expectations well-anchored?"
Posted by James Hamilton at 08:40 AM permalink | Comments (13)
July 08, 2007
The Compleat UberNerd
An UberNerd, Tanta tells us, is
someone who is compelled to understand how things work in grim detail, even if the things in question are tedious in the extreme, like mortgage insurance policies.
A Compleat UberNerd is then
Someone who has read all these posts already and quotes them at tailgate parties.
She kindly provides all the links necessary to become the Compleat UberNerd over at Calculated Risk.
Posted by James Hamilton at 12:00 PM permalink | Comments (1)
July 05, 2007
Maybe the Euro Isn't the Competition
Typically, people think of the euro as the most likely competitor to the dollar. And maybe it is in the long run (see these posts [1], [2], and this paper). But in the short term, maybe it's the British pound.
Continue reading "Maybe the Euro Isn't the Competition"
Posted by Menzie Chinn at 01:12 PM permalink | Comments (6)
July 02, 2007
The yield curve dis-inverts, sort of
Long term yields have jumped up, as Jim noted. The spread between the 10 year and 3 month interest rate has moved positive.
Continue reading "The yield curve dis-inverts, sort of"
Posted by Menzie Chinn at 11:15 AM permalink | Comments (0)
June 29, 2007
CDOs: what's the big deal?
Here are my two cents on concerns about possible systemic financial problems.
Continue reading "CDOs: what's the big deal?"
Posted by James Hamilton at 01:57 PM permalink | Comments (15)
June 28, 2007
The 2006 Net International Investment Position
The BEA released the end-2006 net international investment position (NIIP) today.
Continue reading "The 2006 Net International Investment Position"
Posted by Menzie Chinn at 01:50 PM permalink | Comments (1)
June 24, 2007
Following yields up and down
A quick follow-up on a point I made last week ([1], [2]) about the factors behind recent interest rate moves.
Continue reading "Following yields up and down"
Posted by James Hamilton at 11:46 AM permalink | Comments (16)
June 22, 2007
Econoblog on interest rates
I was pleased to participate in the latest Wall Street Journal Econoblog with Mark Zandi, Chief Economist and co-founder of Moody's Economy.com. Here's a brief preview of what you can find over at the WSJ.
Continue reading "Econoblog on interest rates"
Posted by James Hamilton at 06:31 AM permalink | Comments (4)
June 20, 2007
Thinking about import prices, the dollar, and inflation
Some delayed reflections on the May import/export price release, and how to interpret the data in light of the empirics of exchange rate pass through.
Continue reading "Thinking about import prices, the dollar, and inflation"
Posted by Menzie Chinn at 09:08 PM permalink | Comments (2)
June 18, 2007
Rejoice! The 2006 current account to GDP ratio has been revised up by 0.3 percentage points
There's a temptation to view the upward revision to the current account balance, and the components thereof, as yet more evidence that the US external situation is in better shape than commonly perceived.
Posted by Menzie Chinn at 10:30 PM permalink | Comments (6)
June 17, 2007
More on those rising interest rates
Rising rates look scary, but I still read it as good news.
Continue reading "More on those rising interest rates"
Posted by James Hamilton at 07:08 AM permalink | Comments (16)
June 14, 2007
Lessons from the yield curve
The dramatic upward move of long-term interest rates gives me an opportunity to look back on some of the predictions made on the basis of the inversion of the yield curve, and what might be in store next.
Continue reading "Lessons from the yield curve"
Posted by James Hamilton at 08:14 PM permalink | Comments (11)
May 10, 2007
Oops. Or Trade Deficit Stabilization Deferred
The March trade figures are in at BEA, and many are surprised. Bloomberg reports:
Continue reading "Oops. Or Trade Deficit Stabilization Deferred"
Posted by Menzie Chinn at 10:36 AM permalink | Comments (10)
April 26, 2007
Further implications of the productivity slowdown for the dollar
In a previous post, I noted that the slowdown in economic growth in the US relative to rest-of-OECD would have a number implications for the dollar's value in nominal and real terms.
Continue reading "Further implications of the productivity slowdown for the dollar"
Posted by Menzie Chinn at 09:27 AM permalink | Comments (10)
April 21, 2007
Weekend links
Assorted links to updates on some of the stories we've been following at Econbrowser, including declining Saudi Arabian oil production, the role of mortgage-backed securities, and pressures on public pension funds to take on additional risks.
Continue reading "Weekend links"
Posted by James Hamilton at 07:10 AM permalink | Comments (23)
April 17, 2007
The Coming (?) US Current Account Adjustment: Two Questions Inspired by Two Graphs
The IMF has recently released its Global Financial Stability report. Two figures inspired two questions from me.
Posted by Menzie Chinn at 08:08 AM permalink | Comments (13)
April 13, 2007
The Last Throes of PoMo Macro?
That is to say, is Post-Modernist Macroeconomic Policy over?
From Postmodernism:
Continue reading "The Last Throes of PoMo Macro?"
Posted by Menzie Chinn at 04:00 AM permalink | Comments (23)
April 12, 2007
Hedge fund regulation
Fed Chair Ben Bernanke yesterday explained why he sees no need for increased regulation of hedge funds.
Continue reading "Hedge fund regulation"
Posted by James Hamilton at 08:31 AM permalink | Comments (12)
April 02, 2007
The Subprime collapse and the housing market: a bubble or "looting"
Jim Hamilton's recent post "Bubble, bubble, toil, and trouble" elicited a tremendous amount of commentary -- and incredulity -- amongst the readers.
Continue reading "The Subprime collapse and the housing market: a bubble or "looting""
Posted by Menzie Chinn at 07:40 PM permalink | Comments (24)
March 27, 2007
Maybe we can't count on exorbitant privilege/dark matter/manna from heaven...
The new conventional wisdom is that the return foreigners obtain on U.S. assets is less than the return U.S. residents obtain on foreign assets. And that this means that the U.S. can build up a bigger foreign debt than traditional analyses; I've been skeptical [1], [2]. Now, we have more reason to ask how robust is the finding of a durable earnings differential in favor of U.S. investors?
Continue reading "Maybe we can't count on exorbitant privilege/dark matter/manna from heaven..."
Posted by Menzie Chinn at 07:52 AM permalink | Comments (9)
March 20, 2007
San Diego city pension fund
I earlier described some disturbing details about the assets held by the San Diego County Employees Retirement Association. Our separate pension fund for city employees, the San Diego City Employees' Retirement System, is another tale of local woe that I worry may have global implications.
Continue reading "San Diego city pension fund"
Posted by James Hamilton at 07:51 PM permalink | Comments (17)
March 15, 2007
Negative Net Income: The 2006 Balance of Payments
Most commentary on the 2006q4 current account balance release focused on the improvement in the overall balance. Little noted is the fact that 2006 is the first year in which the net income category has registered negative.
Continue reading "Negative Net Income: The 2006 Balance of Payments"
Posted by Menzie Chinn at 08:03 AM permalink | Comments (6)
March 13, 2007
The Term Spread, Cross Country
How does the term spread correlate with recession in other economies?
Continue reading "The Term Spread, Cross Country"
Posted by Menzie Chinn at 04:50 PM permalink | Comments (2)
March 11, 2007
Fannie, Freddie, and Ben
Fed Chair Ben Bernanke had some excellent suggestions last week for congressional action on Fannie Mae and Freddie Mac.
Continue reading "Fannie, Freddie, and Ben"
Posted by James Hamilton at 12:41 PM permalink | Comments (26)
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
Continue reading "WMDs in Iraq, "Last throes..." and... "deficits don't matter""
Posted by Menzie Chinn at 07:12 AM permalink | Comments (17)
March 06, 2007
Financial crises
Financial or banking panics were a recurrent theme in 19th-century U.S. economic history.
Continue reading "Financial crises"
Posted by James Hamilton at 03:11 PM permalink | Comments (15)
February 28, 2007
Recession watch
Recent data leave me significantly more bearish than I was a month ago.
Continue reading "Recession watch"
Posted by James Hamilton at 11:31 AM permalink | Comments (20)
February 27, 2007
The Fundamentals Are...
The equity indices take a dive. Is this in spite of -- or because of -- the fundamentals?
Continue reading "The Fundamentals Are..."
Posted by Menzie Chinn at 05:38 PM permalink | Comments (18)
The Fundamentals Are...
The equity indices take a dive. Is this in spite of -- or because of -- the fundamentals?
Continue reading "The Fundamentals Are..."
Posted by Menzie Chinn at 05:38 PM permalink | Comments (18)
February 23, 2007
San Diego County pension fund
I have been developing concerns about the possibility that hedge fund investment flows have become a destabilizing force in world financial markets. Following the maxim "think globally, act locally," I decided to take a look at how the behavior of our local pension funds may be one small part of that phenomenom. And I have some recommendations to make on behalf of San Diego County residents and the world at large.
Continue reading "San Diego County pension fund"
Posted by James Hamilton at 05:40 AM permalink | Comments (46)
February 15, 2007
The market reads Bernanke's lips
The Fed Chair speaks, and the market jumps. But why?
Continue reading "The market reads Bernanke's lips"
Posted by James Hamilton at 09:01 AM permalink | Comments (17)
January 25, 2007
Exchange rates, output gaps and inflation rates
Is there any role for the Taylor rule in helping predict exchange rates?
Continue reading "Exchange rates, output gaps and inflation rates"
Posted by Menzie Chinn at 04:00 PM permalink | Comments (2)
January 21, 2007
Commodity speculation
Two stories this week give me some concern.
Continue reading "Commodity speculation"
Posted by James Hamilton at 06:56 AM permalink | Comments (19)
January 09, 2007
International Economics at the AEA/ASSA: Selected Items
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
Continue reading "International Economics at the AEA/ASSA: Selected Items"
Posted by Menzie Chinn at 08:04 AM permalink | Comments (7)
January 02, 2007
Low Real Rates Disappear...but the Deficit Remains
I've been looking at real long term interest rates as proxied by nominal rates minus expected inflation. The problem of course is finding measures of expected inflation. Subtracting off the ex post rate (appropriate under the rational expectations hypothesis) can lead to misleading inferences -- and is not practicable for current measures of long term rates. Using ten year constant maturity rates and the Society of Professional Forecasters 10 year horizon CPI inflation rates yields the following picture.
Continue reading "Low Real Rates Disappear...but the Deficit Remains"
Posted by Menzie Chinn at 09:10 AM permalink | Comments (9)
January 01, 2007
What will the Fed do next?
Probably nothing.
Continue reading "What will the Fed do next?"
Posted by James Hamilton at 10:44 AM permalink | Comments (3)
December 20, 2006
The term premium and reduced volatility
I earlier discussed the role that foreign government purchases of U.S. Treasury securities may have played in reducing long-term bond yields. A study by Fed researchers Glenn Rudebusch, Eric Swanson, and Tao Wu that is soon to appear in Monetary and Economic Studies explores an alternative explanation based on reduced volatility of underlying macroeconomic and financial fundamentals.
Continue reading "The term premium and reduced volatility"
Posted by James Hamilton at 08:56 PM permalink | Comments (8)
The RMB: Where's it been and where's it going?
Faster appreciation against the dollar. And apparently against a broad basket of currencies.
Continue reading "The RMB: Where's it been and where's it going?"
Posted by Menzie Chinn at 08:45 AM permalink | Comments (12)
December 18, 2006
Econoblog on "Dollars, Debt and the Trade Gap"
Thoughts on the Dropping Dollar
Continue reading "Econoblog on "Dollars, Debt and the Trade Gap""
Posted by Menzie Chinn at 04:00 PM permalink | Comments (17)
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
Continue reading "Bernanke in China"
Posted by Menzie Chinn at 12:24 PM permalink | Comments (17)
December 03, 2006
The yield curve and foreign purchases of U.S. debt
A few weeks ago I discussed some new research that suggests that the current negative spread between long-term and short-term yields may be a little less worrisome than earlier studies had led us to conclude, to the extent that the negative spread in part results from an unusually low term premium on U.S. bonds rather than an expectation of future declines in short-term yields. One factor that may be depressing that term premium is foreign holdings of U.S. securities.
Continue reading "The yield curve and foreign purchases of U.S. debt"
Posted by James Hamilton at 12:00 PM permalink | Comments (26)
November 26, 2006
Housing: speculative bubble or fundamentals?
Caclulated Risk had some interesting observations this week about why forecasts for housing differ so widely across analysts.
Continue reading "Housing: speculative bubble or fundamentals?"
Posted by James Hamilton at 11:26 AM permalink | Comments (22)
November 25, 2006
Will the Dollar Plunge? Would that Be So Bad?
Yesterday's dollar plunge unnerved markets. What's the likelihood of a sustained, drastic decline?
Continue reading "Will the Dollar Plunge? Would that Be So Bad?"
Posted by Menzie Chinn at 08:30 AM permalink | Comments (21)
November 13, 2006
The yield curve and the term premium
Some new studies suggest that the yield curve inversion might not be quite as ominous as some of us have been assuming.
Continue reading "The yield curve and the term premium"
Posted by James Hamilton at 02:22 PM permalink | Comments (17)
November 02, 2006
Federal Reserve policy and mortgage rates
I've recently completed writing a research paper titled Daily Monetary Policy Shocks and the Delayed Response of New Home Sales. The paper develops some new measures of the delay between changes in Fed policy and the impact on the economy. In this, the second of three posts on the paper, I describe the paper's findings about how the Federal Reserve affects mortgage lending rates.
Continue reading "Federal Reserve policy and mortgage rates"
Posted by James Hamilton at 06:53 PM permalink | Comments (3)
October 31, 2006
Accuracy of futures prices as predictors of the fed funds rate
I'm just finishing writing a new research paper whose goal is to come up with a better measure and understanding of the lagged effect of monetary policy on the economy. One of my claims is that the public's expectations of what the Fed is going to do next play a key role in that process. In this, the first of several posts based on that paper, I describe some of the properties I've found for fed funds futures prices as predictors of subsequent Fed policy changes.
Continue reading "Accuracy of futures prices as predictors of the fed funds rate"
Posted by James Hamilton at 07:10 PM permalink | Comments (13)
October 19, 2006
One way or the other
Mixed signals this week leave Bernanke still needing to earn his pay.
Continue reading "One way or the other"
Posted by James Hamilton at 03:10 PM permalink | Comments (12)
October 16, 2006
How Strong Is (Was) the Dollar?
An alternative view on the dollar's strength and trend over time.
Continue reading "How Strong Is (Was) the Dollar?"
Posted by Menzie Chinn at 05:30 PM permalink | Comments (18)
October 03, 2006
And they all lived happily ever after
Can high-flying stocks be reconciled with an inverted yield curve? David Rosenberg of Merrill Lynch, via Felix Salmon and Business Week thinks "it is highly doubtful that both asset classes can be getting the story right." But here's one scenario under which both markets in fact might be telling the same story.
Continue reading "And they all lived happily ever after"
Posted by James Hamilton at 08:28 PM permalink | Comments (30)
September 29, 2006
Amaranth hedge fund losses
How in the world did hedge fund Amaranth Advisors manage to lose $6 billion in September on natural gas trading?
Continue reading "Amaranth hedge fund losses"
Posted by James Hamilton at 10:00 AM permalink | Comments (26)
August 25, 2006
How Mobile Is Capital Internationally?
The issue of international capital mobility comes up time and time again. There is the worry of capital and associated production capacity moving abroad to China for lower wage rates, and if not to China, to the rest of the world to escape environmental regulations or to avoid corporate taxation. So how mobile is capital?
Continue reading "How Mobile Is Capital Internationally?"
Posted by Menzie Chinn at 11:19 AM permalink | Comments (10)
August 19, 2006
The yield curve: Mid-August 2006
What to make of the newest inversion?
Continue reading "The yield curve: Mid-August 2006"
Posted by Menzie Chinn at 02:41 PM permalink | Comments (5)
August 04, 2006
A pause it shall be
The last month has been something of a cliffhanger for Fed watchers. But today the market seemed to make up its mind.
Continue reading "A pause it shall be"
Posted by James Hamilton at 11:41 AM permalink | Comments (15)
July 24, 2006
Reading the yield curve
What are the implications of the current shape of the yield curve?
Continue reading "Reading the yield curve"
Posted by James Hamilton at 04:38 PM permalink | Comments (28)
July 13, 2006
Out of sample prediction of the euro, pound and CAD
Once more unto the breach.
Continue reading "Out of sample prediction of the euro, pound and CAD"
Posted by Menzie Chinn at 08:00 AM permalink | Comments (1)
July 10, 2006
One picture from the 2005 International Investment Position release (and one from the NIPA)
Amid all the relief (see here and -- kind of -- here) over the improvement in the U.S. net international investment position (NIIP) despite the record current account deficit, the trend in one ratio was unremarked upon -- namely the ratio of U.S. Government securities held by non-residents, divided by GDP.
Posted by Menzie Chinn at 08:00 AM permalink | Comments (2)
July 02, 2006
The Fed speaks and markets listen
Tim Iacono at The Mess That Greenspan Made had some interesting graphs this week.
Continue reading "The Fed speaks and markets listen"
Posted by James Hamilton at 01:18 PM permalink | Comments (21)
June 07, 2006
The dollar and interest rate expectations
What can one read from asset responses to "news"
Continue reading "The dollar and interest rate expectations"
Posted by Menzie Chinn at 01:05 PM permalink | Comments (11)
May 31, 2006
Does a new economic team mean a new economic policy?
Henry Paulson has been nominated to the position of Secretary of Treasury. Will it matter?
Continue reading "Does a new economic team mean a new economic policy?"
Posted by Menzie Chinn at 07:53 PM permalink | Comments (8)
May 16, 2006
Commodity price inflation
Commodity markets have been a little too exciting recently for my quiet tastes.
Continue reading "Commodity price inflation"
Posted by James Hamilton at 02:49 PM permalink | Comments (14)
May 11, 2006
The portfolio balance effect and reserve diversification
Implications from the debate over the Renminbi. And the Won. And the...
Continue reading "The portfolio balance effect and reserve diversification"
Posted by Menzie Chinn at 08:30 AM permalink | Comments (5)
May 01, 2006
New research on the current account adjustment process
Insights on how global current account imbalances might be resolved
Continue reading "New research on the current account adjustment process"
Posted by Menzie Chinn at 11:05 PM permalink | Comments (7)
April 08, 2006
Who's grumpy about this week's good economic news?
People who bought long-term Treasuries at 4.3%, that's who.
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Posted by James Hamilton at 11:14 AM permalink | Comments (12)
April 04, 2006
What's moving long-term yields?
Long-term interest rates continue to creep up.
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Posted by James Hamilton at 09:30 PM permalink | Comments (20)
March 28, 2006
Chinese revaluation
What would be the important effects?
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Posted by Menzie Chinn at 07:03 PM permalink | Comments (13)
March 23, 2006
The dollar and purchasing power parity
In my post on the dollar's trajectory, one person asked about purchasing power parity (PPP). Here is a brief discussion of the relevance of this concept to exchange rate forecasts.
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Posted by Menzie Chinn at 08:45 PM permalink | Comments (8)
March 08, 2006
Rising long-term yields
The yield on 10-year U.S. Treasuries is up almost 40 basis points so far this year, which means it's been gaining on the fed funds rate and reducing the prospect of full inversion of the yield curve. Why have rates been going up?
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Posted by James Hamilton at 08:18 PM permalink | Comments (7)
February 16, 2006
Open Economy Macro in the 2006 Economic Report of the President
Beryl Sprinkel meets Ben Bernanke
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Posted by Menzie Chinn at 07:05 AM permalink | Comments (6)
February 06, 2006
Gold and inflation
What's behind the ongoing run-up in gold prices? One popular interpretation is that investors fear a resurgence of U.S. inflation. But that story just doesn't square with the facts.
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Posted by James Hamilton at 11:51 AM permalink | Comments (25)
February 01, 2006
Should the Fed worry about going too far?
I wanted to weigh in on the exchange between Kash Mansori at Angry Bear and Dave Altig at Macroblog.
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Posted by James Hamilton at 08:20 PM permalink | Comments (16)
January 09, 2006
What's the Fed waiting for?
The Fed is likely to stop raising rates soon. What will be the final signal that enough is enough?
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Posted by James Hamilton at 06:17 PM permalink | Comments (9)
December 29, 2005
Who's afraid of the big bad yield curve?
Lots of talk this week of an inverted yield curve, such as Macroblog, Big Picture, Economist's View, Hypothetical Bias, and Mises Economics Blog. What's the big deal?
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Posted by James Hamilton at 10:37 AM permalink | Comments (17)
December 17, 2005
The real yield curve
Economist's View reported last week on a letter from Alan Greenspan that addressed some questions about monetary policy posed for the Fed Chair by Representative Jim Saxton (R-NJ). I was particularly interested in Greenspan's explanation of why he is not concerned about the seemingly bearish connotations of the slope of the yield curve.
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Posted by James Hamilton at 07:37 PM permalink | Comments (20)
December 04, 2005
Investing in gold
Should you be looking at gold as an investment?
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Posted by James Hamilton at 06:34 AM permalink | Comments (41)
November 30, 2005
Facing the latest economic data
Here are a few thoughts about some of the economic news that's been coming in over the last few weeks.
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Posted by James Hamilton at 05:54 AM permalink | Comments (15)
November 27, 2005
Inverted yield curve edges closer
If you haven't been worrying about the possibility of an inverted yield curve, now might be a good time to start.
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Posted by James Hamilton at 02:17 PM permalink | Comments (17)
November 20, 2005
Hedge fund risk
Psst-- want to earn a 41% annual return over a decade? Then read on.
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Posted by James Hamilton at 02:44 PM permalink | Comments (30)
