Exchange rates are among the most important macrofinancial prices, influencing many aspects of an economy. This post introduces exchange rates and their importance for macroeconomic adjustment * What is an exchange rate? An exchange rate is a ratio, the price … Continued
A condition for any market to work well is that consumers have enough information to make good decisions. This is rarely the case with services such as finance. * Theory, backed up by a lot of practical evidence, suggests that … Continued
Exchange rates are ratios of the price of one currency to another. We should be careful about saying “the” exchange rate without being clear as to which particular ratio we mean and why. * Exchange rates often dominate the financial news. … Continued
David Bowie, among his many other creative achievements, was an innovator in finance, with the first ever intellectual property rights securitisation. * Nearly everyone seems to have been affected by the death of David Bowie, a uniquely creative and influential … Continued
On 30 November 2015 the IMF voted to include the RMB (the Chinese “people’s currency” denominated in yuan) in the basket of currencies it uses to calculate the value of the Special Drawing Rights, from October 2016. This is largely … Continued
Most economist agree on the causes of the repeated crises of the Eurozone but that explanation is not the one that many governments, and the European Commission, want you to believe. * The problems of the Eurozone – bank failures, … Continued
The Federal Reserve, the US central bank, is making some changes to the measurement and monitoring of the short term interest rate between banks, which is its key target for monetary policy, * Most central banks have goals such as low inflation … Continued
Despite the increasing ease of electronic payments, cash remains popular in the UK, according to the Bank of England. * Money is anything that fulfils the three functions of money: i) a means of payment; ii) a unit of account; … Continued
The foreign exchange reserves held by governments, having risen for over a decade, have recently fallen. This is mainly because they are being used, as intended, to protect against turbulence in financial markets that would otherwise hurt the developing economies. … Continued
For years there has been pressure on China to allow its exchange rate to be determined by market forces rather than by the central bank. Now that seems closer to happening but it might mean a fall in the RMB, … Continued
The fundamentals of global economic growth seem broadly positive but there are some reasons for caution, which can be understood through the savings-investment framework described in the previous blog. If savings are “too high” or investment “too low” then the … Continued
Macroeconomics is a complicated subject but it’s possible to understand quite a lot about the key questions in macro, and some of the policy challenges, by considering a few key concepts. This blog gives the elements of what ties macroeconomics to … Continued
Debt is a contract but sometimes contracts must be broken, either in the mutual interests of the contracting parties or in the interests of justice. But it’s hard to come up with general rules for this. The long-running arguments about … Continued
Evidence from Nigeria shows that access to finance can help households reduce the impact of bad luck, reducing the fall in consumption that they suffer. * Yesterday I was part of a group discussing a draft research paper on the ethics … Continued
Central banks have balance sheets like other banks and in theory their liabilities can exceed their assets, meaning they are insolvent. But they can always create new money so they can settle their debts. So can they really go bust? … Continued