Demography and economics: Look past the past

Charles A.E. Goodhart, Philipp Erfurth 04 November 2014

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Introduction

Our history is our database. When seeking to peer dimly into the future, our normal response is to examine what happened in (similar) past episodes and then to extrapolate those outcomes into the future. This assumption, that the future will mimic the past, is hard-wired into almost all our forecasting exercises, from the most simple to the econometrically and technically most complex.

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Topics:  Global economy Labour markets

Tags:  forecasting, demographics, Ageing, fertility, globalisation, savings, consumption, life cycle, old age, healthcare, Retirement, investment, interest rates, labour productivity, technology, technology transfer

Monetary policy and long-term trends

Charles A.E. Goodhart, Philipp Erfurth 03 November 2014

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Introduction

There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy

The impact of the maturity of US government debt on forward rates and the term premium: New results from old data

Jagjit Chadha 02 November 2014

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Revisiting the supply effect

The question of the impact of the stock and maturity of net government debt on longer-term US Treasury yields, and the potential implications for central bank balance sheet policies, matters for monetary policy.

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  public debt, yield curve, debt maturity, term premia, interest rates, open market operations, monetary policy, QE, US, Federal Reserve, market segmentation, Greenspan Conundrum, debt management, fiscal policy, unconventional monetary policy

“Mensch tracht, und Gott lacht” – what’s the best guidance on monetary policy?

David Miles 22 October 2014

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“Mensch tracht, und Gott lacht” is a Yiddish proverb – men plan and God laughs. Woody Allen puts the same thought this way: “If you want to make God laugh tell him about your plans”. Some people might see these words as a fitting epitaph for forward guidance on monetary policy. The Bank of England has certainly faced a good deal of criticism for the guidance that it has recently been giving, as has the Federal Reserve in the US.

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Topics:  Monetary policy

Tags:  forward guidance, unconventional monetary policy, monetary policy, Central Banks, central bank communication, interest rates, uncertainty

Quantifying the macroeconomic effects of large-scale asset purchases

Karl Walentin 11 September 2014

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Central banks have used various unconventional monetary policy tools since the onset of the financial crisis yet the debate continues regarding their efficiency. This column attempts to shed light on the ‘bang for the buck’, or the macroeconomic effects, of one such unconventional monetary policy – the Federal Reserve’s large-scale asset purchases of mortgage-backed securities employed during the Fed’s QE1 and QE3 programs.

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Topics:  Global crisis Monetary policy

Tags:  monetary policy, unconventional monetary policy, large-scale asset purchases, central banking, financial crisis, Federal Reserve, quantitative easing, mortgage-backed securities, term premia, zero lower bound, interest rates, US, UK, Sweden, mortgages, global crisis

The role of corporate saving in global rebalancing

Philippe Bacchetta, Kenza Benhima 24 August 2014

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The increase in global imbalances in the last decade posed a theoretical challenge for international macroeconomics. Why did some less-developed countries with a higher need for capital, like China, lend to richer countries? The inconsistency of standard open-economy dynamic models with actual global capital flows had already been stressed before (e.g. by Lucas 1990), but the sensitivity to this issue became more acute with increasing global imbalances. This stimulated the development of several alternative theoretical frameworks.

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Topics:  International finance International trade

Tags:  interest rates, global imbalances, capital flows, saving, global crisis, credit constraints, savings glut, zero lower bound, corporate saving, global rebalancing

Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin 10 September 2014

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Teaser from original column posted on 15 August 2014

Six years after the Crisis and the recovery is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? This column introduces an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser, and a dozen others. It is too early to tell whether secular stagnation is really secular, but if it is, current policy tools will be obsolete. Policymakers should start thinking about potential solutions.

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  interest rates, US, Europe, Japan, investment, macroeconomics, Great Recession, zero lower bound, savings, secular stagnation, SecStag debate

Low interest rates and secular stagnation: Is debt a missing link?

Claudio Borio, Piti Disyatat 25 June 2014

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Today, the US government can borrow for ten years at a fixed rate of around 2.5%. Adjusted for expected inflation, this translates into a real borrowing cost of under 0.5%. A year ago, real rates were actually negative. With low interest rates dominating the developed world, many worry that an era of secular stagnation has begun (Summers 2013).

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Topics:  Financial markets Global crisis Monetary policy

Tags:  interest rates, monetary policy, global crisis, debt, secular stagnation, risk-taking channel of monetary policy, natural rate of interest, monetary non-neutrality

The LIBOR scandal: What’s next ? A possible way forward

Vincent Brousseau, Alexandre Chailloux, Alain Durré 09 December 2013

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After the first allegations of LIBOR manipulation in May 2012 – which eventually resulted in investigations into banks and individuals in various countries as of June 2012 – the reliability and credibility of unsecured reference rates in various currencies (the LIBOR in pounds, dollars, euros, and yen, and also the EURIBOR) have been severely questioned. With a view to restoring the credibility of these important reference interest rates, financial regulators have launched a broad consultation to study possible options to avoid similar manipulation in the future.

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Topics:  Financial markets

Tags:  interest rates, LIBOR, financial regulation

To cut or not to cut, that is the (central banks') question: In search of neutral interest rates in Latin America

Nicolas Magud, Evridiki Tsounta 16 January 2013

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An increasing number of Latin American countries have been strengthening their monetary policy frameworks, using the monetary policy rate as their main instrument since the late 1990s. To decide whether to ease or tighten monetary conditions, policymakers typically compare the policy rate to the (short-run) neutral-interest rate – the rate that is consistent with stable inflation (at the central bank’s target) and a closed output gap. However, this rate can be time-varying as it is affected by changes in macroeconomic fundamentals and global interest rates.

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Topics:  Institutions and economics Macroeconomic policy Microeconomic regulation

Tags:  interest rates, Central Banks, Information

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