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What is Optimal Monetary Policy, Anyway?
WHAT IS OPTIMAL MONETARY POLICY, ANYWAY? Ever since the important contributions of new classical economists Finn E. Kydland and Edward C. Prescott during the 1970s and 80s, modern macroeconomics seeks optimal rules for monetary policy. Indeed, Milton Friedman had previously emphasized the importance of a binding rule for monetary policy. He recommended a constant but […]
The Relevancy of Probability in Economics
THE RELEVANCY OF PROBABILITY IN ECONOMICS Modern economics in addition to sophisticated mathematics also employs probability distributions. What is probability? The probability of an event is the proportion of times the event happens out of a large number of trials. For instance, the probability of obtaining heads when a coin is tossed is 0.5. This […]
The Looming Crisis in the Private Provision of Public Services Close Parallels With the Systemic Failure of Banks
THE LOOMING CRISIS IN THE PRIVATE PROVISION OF PUBLIC SERVICES CLOSE PARALLELS WITH THE SYSTEMIC FAILURE OF BANKS The collapse in January of Carillion PLC, the UK’s second largest construction and outsourcing company has attracted considerable media coverage. Carillion was principally engaged in public sector contracts to build (and in some cases operate) hospitals, prisons, […]
From the Moneyness Blog: Electronic Money Will Only Save Central Banks From Subjugation if it is Anonymous
FROM THE MONEYNESS BLOG: ELECTRONIC MONEY WILL ONLY SAVE CENTRAL BANKS FROM SUBJUGATION IF IT IS ANONYMOUS 50 SEK banknote issued by the Riksbank in 1960 “Do we need an eKrona?” asks Stefan Ingves, the Governor of the Riksbank, Sweden’s central bank. The Riksbank is probably the central bank that has advanced the furthest in discussions surrounding […]
A Warning Knell From the Housing Market–Inciting a Riot
A WARNING KNELL FROM THE HOUSING MARKET – INCITING A RIOT? Global residential real estate prices continue to rise but momentum is slowing Prices in Russia continue to fall but Australian house prices look set to follow After a decade of QE, real estate will be more sensitive to interest rate increases As anyone who […]
Can We Ascertain the Facts of Reality in Economics by Means of Mathematics?
CAN WE ASCERTAIN THE FACTS OF REALITY IN ECONOMICS BY MEANS OF MATHEMATICS? It is generally held that by means of statistical and mathematical methods one can organize historical data into a useful body of information, which in turn can serve as the basis for the assessments of the state of the economy. It is […]
Homos Economics: A Largely Irrational Animal
HOMOS ECONOMICUS: A LARGELY IRRATIONAL ANIMAL Or ‘How Expected Utility Theory was Successfully Challenged by a Nobel Prize-winning Hypothesis’ 2002’s Nobel prize-winning economist Daniel Kahneman wrote about Prospect Theory, which is hard to summarise succinctly because he wrote an entire thesis to explain it. He and his academic partner Amos Tversky examined how economic decision-making […]
A Brief (and Messy) History of Modern Gold Standards
A BRIEF (AND MESSY) HISTORY OF MODERN GOLD STANDARDS Although gold prices hit a new high in mid-January, Americans, by and large, are still reluctant about gold. They don’t quite “get it.” This incomprehension is different than that of Americans not “getting,” for example, bitcoin (as few seem to). They may understand gold as a safe haven […]
Central Banks Put a Safety Net Under Financial Markets
CENTRAL BANKS PUT A SAFETY NET UNDER FINANCIAL MARKETS Most early business cycle indicators suggest that the global economy is pretty much roaring ahead. Production and employment are rising. Firms keep investing and show decent profits. International trade is expanding. Credit is easy to obtain. Stock prices keep moving up to ever higher levels. All […]
MONEY AND THE STOCK MARKET: IS THERE ANY RELATION?
MONEY AND THE STOCK MARKET: IS THERE ANY RELATION? Is it true that changes in money supply are an important driving force behind changes in the stock price indexes? Intuitively it makes sense to argue that an increase in the growth rate of money supply should strengthen the growth rate in stock prices. Conversely, a […]
The Risk of a Correction in the Equity Bull Market
THE RISK OF A CORRECTION IN THE EQUITY BULL MARKET Rising commodity prices, including oil, are feeding through to PPI Unemployment data suggests wages may begin to rise faster Federal Reserve tightening will continue, other Central Banks may follow The bull market will be nine years old in March, the second longest in history Since […]
The Truth About Trade
THE TRUTH ABOUT TRADE The one subject, which became a headline issue last year, and even divides experts is trade. It will become increasingly important in 2018 as the US develops her trade policy, particularly with respect to China, and as the UK negotiates her Brexit terms with the EU. Ignorance dominates this subject. Surely, […]
Are Inflationary Expectations the Heart of Inflation?
ARE INFLATIONARY EXPECTATIONS THE HEART OF INFLATION? For most economic commentators the underlying driving force of inflation is inflationary expectations[1]. For instance, if there is a sharp increase in the price of oil, individuals may form higher inflationary expectations that could set in motion spiraling price inflation, or so it is held. If somehow expectations […]
Our Outlook For 2018 Interest Rates to Stay Low. The Consensus View is That Europe’s Banks Are Recovering But We Are Not So Sure.
OUR OUTLOOK FOR 2018 INTEREST RATES TO STAY LOW. THE CONSENSUS VIEW IS THAT EUROPE’S BANKS ARE RECOVERING BUT WE ARE NOT SO SURE. The Interest Rate Outlook Despite their shortcomings, European banks do not seem on the verge of collapse and few commentators, analysts or policymakers think that there will be any systemic wobbles […]
