Archive for February 8th, 2008

Fisher gives macroeconomics lessons

February 8, 2008

Richard Fisher of Dallas Fed is has given yet another superb  speech. He starts by giving some basic lessons on macroeconomics and says why Central Bank independence is very important.

He defends his dissent to the rate cut by Fed pretty well:

Monetary policy acts with a lag. I liken it to a good single malt whiskey or perhaps truly great tequila: It takes time before you feel its full effect. The Fed has to be very careful now to add just the right amount of stimulus to the punchbowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in.

……My dissenting vote last week was simply a difference of opinion about how far and how fast we might re-spike the monetary punchbowl. Given that I had yet to see a mitigation in inflation and inflationary expectations from their current high levels, and that I believed the steps we had already taken would be helpful in mitigating the downside risk to growth once they took full effect, I simply did not feel it was the proper time to support additional monetary accommodation.

 Read the speech for humour and some excellent analogies.

Indian economy: advanced estimates (2007-08)

February 8, 2008

Just a couple of days ago, the growth of Indian economy for 2006-07 was revised upwards from 9.4% to 9.6%.

Now CSO in its advanced estimates for 2007-08 has suggested that growth rate of Indian economy is likely to be 8.7%. The media has used variety of terms for this – slowdown, moderation, etc. The FM is disappointed but expects the revisions to move the growth rate to 9%. Moderation is still fine but can we call it a slowdown? I would say the growth is still pretty robust considering the global scenario. It is not right to expect economy to continue to grow above 9% especially in such jittery global economic conditions.

So, how do the analysts fare? RBI’s Q3 report (2007-08) gives analysts’ projections:

Latest Projection

Earlier Projection

Rate

Month of proj

Rate

Month of proj

Citigroup

9.3

Sep-07

9.3

Apr-07

CMIE

9.1

Jan-08

9.1

Dec-07

ASSOCHAM

9

Dec-07

8.5-8.7

Aug-07

ICRA

9

Sep-07

8.5

Apr-07

NCAER

8.9

Oct-07

8.5

Aug-07

Economic Advisory Council

8.9

Jan-08

9

Jul-07

Merrill Lynch

8.8

Sep-07

8.5

Mar-07

IMF

8.7

Feb-08

8.9

Oct-07

JP Morgan

8.6

Sep-07

8

Mar-07

CRISIL

8.6

Dec-07

7.9-8.4

March/ June 2007

UNCTAD

8.5

Sep-07

-

-

ADB

8.5

Sep-07

8

Mar-07

RBI

Around 8.5

Oct-07

Around 8.5

Jul-07

Indicus Analytics

8.4

Oct-07

8.4

Mar-07

Hence, out of the 14 agencies, 6 are expecting lower than 8.7% and 7 above 8.7%. IMF has exactly the same projections as CSO. (IMF recently revised the growth rates in its India report)

And as we know agriculture estimates are usually conservative and revised upwards so we should expect growth to be around 8.8% – 9.0%.

However, projections of economy is really tough and even the best can be caught off guard. I had covered Fed’s and Riksbank’s experience with forecasting.

Assorted Links

February 8, 2008

1.WSJ Blog points Trichet saying no fiscal stimulus in Euroarea.

2. WSJ Blog points to a new speech from Dallas Fed president, Richard Fisher. He defends his opposition to rate cuts in last FOMC

3. WSJ Blog has a nice debate on whether recession will be good for the environment or not.

4. Rodrik points to a new blog by Jeff Frankel (of Harvard).

5. TTR on subprime lessons for regulators

6. Ajay Shah on real estate as an asset class. I don’t know whether more capital will depress prices. Too much is being made out of the fact that foreign capital will come, lead to more real estate projects and prices will fall. First, capital should actually create more projects and it shouldn’t just speculate in the real estate markets. Second, it is also important that there is no cartel in the real estate market and information asymmetry is reduced.


Follow

Get every new post delivered to your Inbox.

Join 1,230 other followers