Archive for August, 2010

Swiss Tourism Suffers as Franc Value Rises

August 21, 2010

Jack Ewing of Economix reports this interesting development.

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Australia enters 20 years of consecutive growth!!

August 21, 2010

This must be news to most. Ric Battellino, Deputy Governor of RBA in this insightful speech shares this fact.

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Primer on Clearing part of financial exchange

August 20, 2010

Chicago Fed economists have this useful primer on one of the least understood and appreciated areas on financial sector – Clearing.

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Role of finance from a historical Australian perspective

August 20, 2010

Glenn Stevens, Governor, Reserve Bank of Australia has a superb speech on the topic.

He looks at history of finance and how it has evolved over the years. And then there is a mention of Australian financial system history as well.

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The global revival of industrial policy

August 17, 2010

The evergreen topic again. Economist has a nice discussion on the topic. It looks at recent instances which show a revival. In the end points to lessons:

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For Larry Summers, Milton Friedman was a devil figure in his youth

August 17, 2010

Continuing with the PBS series..

Larry Summers in this interview discusses the battle of ideas, globalization and its backlash, the Asian financial crisis, and Clinton’s economic strategy.

First the topic of the post:

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Profile of Elizabeth Warren

August 17, 2010

There is a lot of controversy over something that you thought was settled. When The Frank-Dodd bill approved creation of – The Consumer Financial Protection Bureau – it was assumed that Elizabeth Warren will head the agency. After all, she was the brain behind the idea (see this paper). She was one of the few (non-economist though) who was ahead of the time and thought really well the problems we are seeing now.

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When Keynes rejected Friedman’s paper

August 16, 2010

Again going back to the PBS sourcepointed earlier on this blog.

Ok now here is a must read interview of Milton Friedman. It talks about Friedman’s views of markets, quantity theory of money, Friedman’s rejection of Keynes theory of great depression, though he had great respect for Keynes the economist, on Nixon, on Ronald Reagan, his role in Pinochet’s Chile etc etc.

First the topic of the post:

INTERVIEWER: On a personal level, what contact did you have with him?

MILTON FRIEDMAN: With Keynes? The only contact I had with him was to submit an article to theEconomic Journal, which he was editor of, which he refused and rejected. I had no  personal contact with him other than that.

INTERVIEWER: What did the rejection say?

 

MILTON FRIEDMAN: Well, it was an article that was critical of something that A.C. Pigou, a professor in London and at Cambridge, had written. And Keynes wrote back that he had shown my article to Pigou. Pigou did not agree with the criticism, and so he had decided to reject it. The article was subsequently published by the  Quarterly Journal of Economics, and Pigou wrote a rejoinder to it.

🙂 So there was just one piece of talk between the two great great economists!!

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WPI Inflation – July 2010 update

August 16, 2010

WPI index increased from 259.8 in Jun-10 to 262.5 in Jul-10. This implied inflation for Jul -10 at 9.97% (YoY), lower than market expectations of 10.39-10.43%% (as per several newswire polls). Inflation was also lower than expectations in June.

Inflation was lower as market participants expected a higher figure for the manufactured products sub-sector. In a previous post, we had shown that to forecast monthly inflation, we need to understand trends in manufacturing products as it is an unknown number. The numbers in other 2 sub-groups are known in advance. So, for July-2010 markets forecasted the index to increase from 219.5 in Jun-10 to 220.9 in Jul-10. Thos would have led overall inflation to 10.42% levels. However, the index declined to 219.6 levels leading to overall inflation of 9.97%. Again the numbers were widely different from market expecations.

For May-10, inflation was revised upwards from 9.59% to 11.23%.  Once again inflation has been revised upwards significantly. May 2010 numbers were revised upwards from 10.16% to 11.14%. 

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Can the Nation Stimulate Its Way to Prosperity?

August 16, 2010

This is the title of this interesting short paper written by Jason Saving of Dallas Fed. It is also a much discussed paper in the blog world (see this, this).Somehow Paul Krugman has not noticed the paper 🙂

The summary is:

While the overall weight of the evidence suggests the stimulus plan has provided a short-term boost, it’s unclear exactly how large this boost has been. What is clear is that stimulus funds have exacerbated near-term fiscal imbalances.

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Assorted Links

August 16, 2010

A short note on German hyperinflation (1920-23)

August 14, 2010

Going by the same PBS source….Here is a short note on Germnay’s hyperinflation episode in 1920-23.

Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry, and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc, and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914. In 1923, at the most fevered moment of the German hyperinflation, the exchange rate between the dollar and the Mark was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper. Most Germans were taken by surprise by the financial tornado.

“My father was a lawyer,” says Walter Levy, an internationally known German-born oil consultant in New York, “and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread.” The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin bank with the cook as beneficiary, the bank to administer and invest the dollar.

Interesting throughout. This one is superb:

the printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. “If you want to save money,” he was told, “and you want two cups of coffee, you should order them both at the same time.”

 

IIP Update — June 2010

August 13, 2010

IIP for June 2010 was at 7.1% (y-o-y). It was lower than market expectations of 8.1% (various newswires). The figure for April was revised lower from 16.7% to 16.5%.

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Impact of current recession on environment

August 13, 2010

Matthew Kahn and Matthew Kotchen have written this insightful paper on the topic.

The main thought behind the paper is as recession deepens and hits unemployment, people become less worried over global warming and environment concerns. The worries instead  shifts to unemployment and job issues. This they track using three sources of data – Google analysis, A national survey and a California state specific survey. The questions are asked before and during the crisis. So, one can see that a higher % of people were concerned about environment before the crisis.

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Teaching Modern Macroeconomics at the Principles Level – Pre crisis

August 13, 2010

I had pointed to this interesting Blinder paper on the changes he will make to his textbook after the crisis. 

Here is a John Taylor paper on teaching Modern Macroeconomics at the Principles Level. This was written before the crisis. 

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Assorted Links

August 13, 2010

Managing Inflation in India: shift from supply driven to demand driven inflation

August 12, 2010

Subir Gokarn has this nice write up on India’s inflation issues (somehow most of the recent posts have been on India inflation). He shows how inflation has moved from a supply-side constraints driven trend to demand-side pressure one . 

And accordingly monetary policy has responded over the time period. He points to 4 issues that have “influenced the sequence and magnitude of the monetary actions”:

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Was FDR influenced by Keynes?

August 12, 2010

I had pointed to this wonderful resource PBS- a few days back.

I was reading this interview of John Kenneth Galbraith placed on PBS website. It has some excellent Q&A with the great economist

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Forecasting WPI monthly inflation methodology

August 12, 2010

I wanted to write this post earlier but just could not because of lack of proper timing.

Before I come to the main topic, there is a need to give a brief background.

Till 17 October 2009, WPI Inflation was released weekly. It was released with a lag of fortnight. As inflation became highly volatile in 2008-09 period, it also led to volatility in markets especially bond markets. Every week the numbers were eagerly anticipated.

So from 17 October 2009, the govt (Economic Advisor to Commerce Ministry) decided it would publish the data on a monthly basis. Now WPI Inflation is divided into three broad sub-sectors:

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Assorted Links

August 12, 2010

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