Archive for the ‘Financial Markets/ Finance’ Category

How Univ of Chicago is the most leveraged amidst peers

March 19, 2014

A superb article  by Bloomberg Columnists –  Michael McDonald and Brian Chappatta. 

They show how U of Chicago is the most leveraged univ amidst its private univ peers. This takes you back to the adage that before asking others to fix up, one should fix up his own self/home etc. Econs from UC lecture all around the world on prudent economics and finance policy. But seems to mess up their own univ accounts:

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Impact of Taper was more on countries with stronger fundamentals

March 18, 2014

The research on impact of taper on emerging world continues (see previous research as well - one and two).

This one is by Joshua AizenmanMahir Binici and Michael M. Hutchison and has a contrarian result. It looks at two kinds of countries – one with better macros and other with fragile macros. One would imagine the second group would have got hit harder because of taper. The authors say it was the opposite- the robust group got hit more:

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Bank based vs market based financial systems during crisis..

March 13, 2014

Leonardo GambacortaJing Yang and Kostas Tsatsaronis have a paper which is so called counter intuitive.

They say that during a normal recession bank based financial system do a good job. However, during a recession+fin crisis the economy having a market based financial system does a better job:. One would imagine the relationship to be interchanged..

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Three dimensions of a successful finance professional…

March 13, 2014

Rave Menon of Monetary Authority of Singapore speaks on finance sector and jobs in Singapore… He says fin professionals in Asia need three competencies:

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Irish exceptionalism in the world economy..

March 13, 2014

Patrick Honohan gives this nice historical perspective to Irish economy.

He says Irish economy keeps swinging from one side to other..thus the exceptionalism..

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How and why economic outcomes of Barbados and Jamaica differed post 1973?

March 12, 2014

Being a cricket follower, interest in Caribbean region remains high. One keeps hoping that West Indies team of yore comes back and we again get to see battery of pace bowlers. Cricket has become too much of a batters game as of now..

So, this paper by Matthew Clair, Peter Blair Henry and Sandile Hlatshwayo on the two countries within Caribbean is pretty interesting. They show economic outcomes for Jamaica and Barbados differed post 1973. Both regions had near similar kinds of institutions and structure but different economic policies changed the outlook in the two places. There was an earlier paper as well by Peter Henry on similar lines but it did not specifically look at the year where the two countries differed. (Plus another paper on Barbados vs Guyana which emphasises on the institutions).

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Forecast bias of government agencies – CBO and OMB (along with bluechip)

February 26, 2014

Robert Krol of California State University in the recent Cato Journal has this interesting paper.

There is always criticism over GDP forecasts by govt agencies. They are usually seen as upward biased in terms of growth and downward biased for inflation.

The author looks at GDP projections given by two US agencies – CBO and OMB:

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if finance continues to take a disproportionate number of the best and the brightest…

February 25, 2014

Howard Davies (Prof at Sciences Po in Paris) reflects on the continued growth in jobs at finance sector in UK.

Despite the crisis, policymakers continue to expect London to grow as a financial centre and absorb more jobs:

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Lessons for Asia from Europe’s History with Banking Integration…

February 24, 2014

One would imagine that post EZ crisis, experts would stop talking about economic/financial integration of neighboring countries. But this is not the case.

Douglas Elliot of Brookings in this paper looks at lessons for Asia from Europe’s banking integration history:

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How deflation/low inflation situations are different in US, Japan and Europe..

February 21, 2014

Mickey Levy, Chief Economist of Bank of America explains the topic in voxeu.

He says there are no real reasons for worry with respect to US. Though Europe has to prevent itself from becoming another Japan. For Japan, it has to continue to make efforts to come out if its nearly 25 year mess:

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How some companies are trying to manage their pension ..

February 20, 2014

Pensions is an area which requires deep knowledge of many things. It is a hugely fascinating sub-area in finance on which there is little research. 

HBSWK discusses this interesting case study on how GM has tried to pass its management of pension liabilities to a different company. Importantly, it says that despite defined benefit plans becoming history, they are still not dead as those liabilities still have to be paid. With interest rates at record low levels, they have to pump more funds in these funds. 

companies are still on the hook for paying benefits to those employees who have already been promised them. As their workers age, employers face the difficult question, How are we going to make good on those promises?

The question is particularly urgent now, says Viceira, who teaches in the area of investment management and capital markets. For starters, the financial crisis depleted many pension plans by dramatically reducing the value of investments, even while companies were still responsible for paying predetermined benefits.

Increasing the pressure are two other factors. Life expectancy has increased, adding to the length of time corporations are required to pay. And interest rates have fallen to historic lows, increasing the funding that companies must set apart to make up for the lower yield on the assets already in place.

“Companies have had to increase their contributions exponentially as interest rates declined,” says Viceira. That strain was a major factor in bankruptcies in the steel, airline, and car industries. More and more, companies are looking for a way out of pension plans, while still making good on their obligations.

They have three choices, says Viceira. The first is to do nothing and continue to invest in equities, hoping the numbers will work out. The second is to work a deal with employees for a lump-sum payment covering the value of their pension, walking away without further obligations. That number can be large, however, and few companies can afford to pay out all that money at once.

Third is to give the pension management to a professional firm:

The final option is for companies to “de-risk” their pension plan by putting assets into more predictable investments that generate enough income while still reducing the risk due to market or interest rate volatility. To do that, some companies are turning to the experts in evaluating risk: insurance companies.

In the HBS case study Prudential Financial-General Motors Pension Risk Transfer: Back to the Future?, Viceira, with Emily A. Chien, wrote about the historic de-risking of GM’s pension plan for salaried employees, a $25 billion deal negotiated last year. GM transferred its assets to Prudential, which then promised to make good on the benefit payouts in the form of guaranteed annuities.

Hmm..

Is Prof. Krugman a French war general?

February 18, 2014

Another round of debate on relevance of macro modelling.

It starts with NoahSmith’s poston macro modelling.  Prof Krugman reponds in his usual style connecting French war generals with macro modelling:

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The Greek financial crisis – from Grexit to Grecovery

February 14, 2014

A nice speech by Greece central bank head George A Provopoulos. He presents a complete and thorough picture on The Greece crisis.

He joined GCB just on the verge of the crisis:

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As RBI tries to become a BoE clone, BoE tries to become like RBI…

February 13, 2014

As RBI evades Government/Parliament to adopt the fancied inflation targeting regime, things are changing in the inflation targeting world.  They still say they are inflation targeters but are looking at all kinds of things. Call it flexible inflation targeting which is nothing but RBI’s now discarded multiple indicator approach.

One such case is Bank of England which is even more interesting as RBI is going to try and become like BoE over the years. The RBI committee report borrows heavily from Bank of England framework.

There has been lot of discussion on forward guidance of these central banks and more in case of BoE. The inflation targeting central banks have all kinds of targets (in the name of flexibility) like BoE has for unemployment. So it had this target that it will keep stimulating till unemployment touched 7%. As it touched 7.1% there were debates over whether BoE will stop its easy policy.

There were two solutions. One to lower the unemp threshold to say 6.5% like Fed did (though US unemp has touched tantalising close to 6.6%) or to revamp its fwd guidance statement. BoE chose the second option.

In its recent inflation report (which is also going to be taken out by RBI), BoE explained its changed stance. And interestingly, BoE will look at many indicators for its future policy just like RBI policy.

BoE head Carney explained:

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Two more sources of inequality…fiscal consolidation and capital account liberalisation

February 13, 2014

Davide Furceri and Prakash Loungani of IMF in voxeu add tw0 more sources of rising inequality – fiscal consolidation and capital account liberalisation.

They say research shows the evidence that these two actions lead to widening of inequality

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German constitutional court ruling on ECB’s OMT…

February 11, 2014

You can never really leave EZ out of action….It had been quiet for sometime and then comes this interesting verdict by German constitutional court. It says that ECB’s Outright Monetary Transactions are against the EU law. The EU law states that monetary financing of Eurozone governments is not allowed and OMT just does that.

Hans Werner Sinn and Marcel Fratzscher write their perspectivess for and against the decision.

Now not a penny has been spent on OMT since it was announced in 2012  but worked as a magic pill to stabilise the markets. But it took so long to produce the verdict which makes things look really crazy. If it was produced in 2012 itself, may be EZ would have struggled to stabilise.

Given the central bank activism, we need to have faster court verdicts in such cases. If a policy is against a certain law etc and court sits on it for months, it does not help. For instance, if money was spent on OMTs, what would ECB have done?

Why are we surprised by the decline of Emerging economies?

February 11, 2014

Because we thought this time is different.

Dani Rodrik says decline of emerging economies is on expected lines:

This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago.

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The watchdog that did not (and rarely) barks: business/financial journalism

February 7, 2014

Dean Starkman, a journalist and currently editor at the Columbia Journalism Review has written this interesting book called- The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism.

Hamza Shaban at New Yorker Review reflects on the book (HT: MR Blog):

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If Canada’s financial system was a person..

February 5, 2014

IMF recently released its report on Canadian Fin system.

In its press release IMF says:

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From James Bond’s licence to kill to central banker’s licence to lie

February 4, 2014

Anatole Kaletsky (chief economist of GaveKal Dragonomics) has this superb piece.

He says the central bankers have a licence to lie and they do the job really well.

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