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Tag Archives: financial markets

“International Spillovers of Monetary Policy: Conventional Policy vs. Quantitative Easing”

That’s the title of a fascinating new paper with important policy implications. This paper evaluates the popular view that quantitative easing exerts greater international spillovers than conventional monetary policies. We employ a novel approach to compare the international spillovers of conventional and balance sheet policies undertaken by the Federal Reserve. In principle, conventional monetary policy affects bond yields and financial conditions by affecting the expected path of short...

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“A Third of a Century of Currency Expectations Data: The Carry Trade and the Risk Premium”

That’s the title of a new paper, coauthored with Jeffrey Frankel, using data extending back to August 1986. For four decades economists have been finding that the forward discount is a very biased forecast of future changes in the exchange rate. The carry trade makes money, on average. For just as long, they have been debating the appropriate interpretation of the bias. Is it evidence of an exchange risk premium? Under that interpretation, a currency that sells at a forward discount does...

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Happy New Year!

Figure 1: Baker Bloom and Davis Economic Policy Uncertainty index, centered 7 day moving average (gray, left scale), and ten year – three month Treasury spread, % (blue, right scale) and ten year – two year spread, % (red, right scale). Source: policyuncertainty.com, FRED and author’s calculations.

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Perspective on the stock market

Some people are getting a little spooked by recent stock market movements. Here I offer a few thoughts. Although there has been a dramatic drop in the S&P500 since October, the market had been up pretty significantly from the start of the year up to that point. As of Friday, the net change between the start of the year and now has been inconsequential. Cumulative change since start of year of U.S. S&P 500 (green), Shanghai composite (blue) and German DAX (purple). Source Yahoo...

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Who Could’ve Known “Crash Brexit” Would Be Problematic?

In the aftermath of the Salzburg summit, where the Chequers plan was dismissed by the EU, and PM May demanded “respect”, the pound has plunged. Source: TradingEconomics.com. Deutsche Bank (Harvey, et al., “Deep impact: DB forecasts in a crash Brexit”) yesterday lays out why: In our analysis, we calculate that UK growth will be around 4% cumulatively lower than under our baseline scenario by end-2020. The UK will enter a two year recession, with output shrinking -0.3% and -0.6% in 2019 and...

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Guest Contribution: “International Macroeconomics in the wake of the Global Financial Crisis”

Today, we are pleased to present a guest contribution written by Laurent Ferrara (Banque de France), Ignacio Hernando (Banco de España) and Daniela Marconi (Banca d’Italia), summarizing the introductory chapter of their book International Macroeconomics in the wake of the Global Financial Crisis. The views expressed here are those solely of the author and do not reflect those of their respective institutions. A decade after the eruption of the Global Financial Crisis (GFC), the world economy...

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Recalling the Beginning of the Lost Decades

Lehman Brothers, the global financial crisis and ensuing great recession, plus ten. In our book, Lost Decades: The Making of America’s Debt Crisis and the Long Recovery (Norton, 2011), Jeffry Frieden and I undertook a historically and economics based assessment of what went wrong. Here are some graphs that underpin our analysis: Figure 1: Government borrowing and borrowing from abroad. Figure 2: Low real interest rates encouraged borrowing Figure 3: More importantly, perceived risk...

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At the Current Pace, the 2-10 Will Invert in December

Holding to the Old Faith Figure 1: Ten year-3 month Treasury yield spread (bold dark blue), and ten year-two year Treasury yield spread (bold dark red), and projections at current pace using 2017M01-18M08 sample (light blue and pink lines), in percentage points. August 2018 observation through August 27th. NBER defined recession dates shaded gray. Light orange denotes Trump administration. Source: Federal Reserve Board via FRED, Bloomberg, NBER, author’s calculations. While the August ten...

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