Archive for June 9th, 2014

England’s World Cup Decline Is Good for Economy..

June 9, 2014

So says Merv King former governor of BoE.

Even if sporting success in Brazil proves elusive, off the field, the U.K. economy is likely to be growing fasterthan any other in the Group of Seven. Annualized growth rates of gross domestic product are running at somewhere between 3 percent and 4 percent, and past data will probably be revised higher. Rebalancing, essential to sustained recovery, is happening, and the recent data for manufacturing output and orders are encouraging. Unemployment is falling back toward its pre-crisis level. Wage inflation remains at about 1 percent a year.

During my time at the Bank of England, I often commented on the inverse relationship between the success of Aston Villa and the performance of the U.K. economy. During the past three years, as the economy started to recover, Aston Villa struggled. Its current turmoil bodes well for the strength of the recovery. In the longer term, the U.K. will continue to benefit from its ability to attract talent from around the world, whereas the England football team suffers from being forced to select only English players.

This is part of a new series of articles by Bloomberg connecting football to economics (what else).

Jim O  Neil of BRICS fame picks his top two from each group. He also comments on the other articles. He says:

With the World Cup upon us, Bloomberg View has asked some special guests from competing nations to write about their teams, their chances of success in Brazil, and how their squad tells us something about their national economies. I will comment on each piece, pointing out where I agree or disagree with the guests. We’ve selected diverse contributors, one from each of the eight first-round groups. They are well-known experts about their countries, though from different fields. Excerpts are below, with links to the full articles as they are published, so check back in this space each day. To read my full World Cup preview, click here.

Like Merv King, there are articles on prospects of Nigeria and Japan in world cup and its economics. More articles on other countries to follow…

Nice stuff.

What if Texas had its own central bank?

June 9, 2014

Well, interest rates would have been much higher. Actually, they do not really need a new central bank. Dallas Fed could be made into one and the action would be the same.

Dallas Fed econs in this note compare the Fed policy  with a Texas central bank policy:

Computing a Taylor rule rate for Texas offers possible insight into the interest rate path a central bank of Texas Would a Texas Central Bank Set Rates Higher? By Janet Koech and Mark A. Wynne T might set in response to regional economic conditions. The implied monetary policy rate for Texas (Chart 1) shows a very different path than that set by the Federal Reserve’s rate-setting FederalOpen Market Committee (FOMC).

While the federal funds rate has been near zero for several years, a monetary policy calibrated to  Texas’ economic conditions would have calledfor an interest rate of zero for at most one year and rates of about 2 to 3 percent in 2011 and 2012. Indeed, for the entire period since the mid-1990s, economic conditions in Texas would have called for interest rates higher than the prevailing monetary policy rates. Conversely, as Texas recovered from the 1980s recession, it would have preferred interest rates lower than those set by the FOMC through the early 1990s.

Hmm… further they show that much of this difference in int rates is because of differences in output gap. Texas has a much higher GDP growth than US econ but inflation levels are near similar.

Ever since the EZ crisis, such research has become very fashionable. Why did European members adopt ECB as their central bank? If they continued with their own central banks, the adjustments would have been easier leading to a better econ performance.

Maybe econs should now call such research as econ geography of central banking. Whether it makes sense to have a central bank for the whole nation or some states should be allowed to have their own? Clearly there are large benefits of having one central bank for the whole country but what if econ performance differs between state and nation for  a prolonged period? This is what is happening in case of US and Texas.

I mean if instead of having one RBI, what if we had different central banks for each state? The policy across states could be much different. The interest rates could be lower for laggard economies and higher for better performing economies. Or interest rates could be higher for states having higher inflation and so on..

It will be an interesting thing to study actually. How do central bank rates percolate to the state level?

What is the use of central banks? Lessons from history

June 9, 2014

As this blog keeps saying, econ history is not just back in discussions but leading to some very interesting debates and conferences. It is just that the profession somehow has to start even teaching at rigorously.

Norges Bank recently held a conference titled — Of the uses of central banks: Lessons from history.

Conf.program has papers from all who’s who of econ and monetary history.

I just read this paper by Andy Haldane (of BoE) and  Jan Qvigstad of Norges Bank. They go specifically into history of BoE and Norges Bank and then extend it to central banking in general. They show how central banks have actually evolved  overtime and roles have changed/modified with time.

(more…)


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