Archive for March 11th, 2008

Great Moderation revisited

March 11, 2008

I have written quite a few posts on the subject (here and here). It basically means that volatility in GDP and inflation has become lower over the years. Hence there is a huge research on the factors responsible for the same.

I had mentioned about the Bank of France symposiumon globalisation and monetary policy. I had covered Dr Reddy’s speech as well.

I went through this speech by Janet Yellen where she discusses a paper by Bill White on Great Moderation (GM).

White points to 4 possible reasons for GM- monetary policy, domsetic deregulation, global savings and globalisation. Yellen adds:

Because no single hypothesis adequately explains the full set of “stylized facts”, Bill advocates a global aggregate demand-aggregate supply approach in which all four explanations matter to inflation to varying degrees and at varying times. Demand-side factors, driven mainly by tighter domestic monetary policy, were central to the decline of inflation in the 1980s and 1990s. Supply-side factors, associated with both domestic deregulation and globalization, as well as lower aggregate demand associated with excess global saving, all have played a role in restraining inflation  more recently.

However, Yellen says she would add more importance to monetary policy and less to globalisation. Yellen provides a lot of references on the subject as well. 

Overall, a nice read.

Assorted Links

March 11, 2008

1. Krugman writes a great post analysing the subprime mess.  It is a must read.

2. WS Blog says analysts  say rate cuts would not be enough. I said the same long back. I said it is a valuation problem and the US authorities need to sort it.

3. Meanwhile, analysts also predict a 75 bps rate cut in the next Fed meeting on 18 March 2008.

4. MR points to the aggregate cost of trying to beat the stock market

5. Mankiw points to Fed vs ECB. He also points to the gains from trade. Is this true?

6. Rodrik points to a new webpage that lists all the papers on growth diagnostics framework.

7. PSD Blog points to an article which says “If Bill Gates had started Microsoft in a garage in Brazil, it would still be in the garage”!

8. Econbrowser says possibility of there being two recessions in Bush presidency looks quite good.

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