Meeting Merton
It is rare to meet your heroes. I wouldn’t exactly describe Professor Robert C. Merton as one of my heroes – I’m not sure I have any heroes actually – but he is somebody I admire greatly. He is probably … Continued
Getting money right
It must be puzzling and exasperating to the general public that economists still seem so clueless about perhaps the most important and central topic in economic policy, the money system. Yet a lot of economic news is about the problem … Continued
New evidence on the causes of the Eurozone problems
While the US and UK economies are both recovering quite decisively from their post-crisis recessions, the Eurozone is not. And unemployment is at appalling levels in much of “peripheral” Europe, particularly for young people. Current macroeconomic policy consists of low … Continued
The international impact of abolishing China’s capital controls
Perhaps a little lost in the Christmas shopping rush was an interesting article in the 2013 Q4 Bank of England Quarterly Bulletin about what might happen when China finally abolishes all controls on its international capital flows, consistent with its … Continued
The central importance of housing to the British financial system
In Britain we seem to have a love affair with the property market. Home ownership is 69%, not especially high, but average house prices are a constant topic of discussion, mainly because property in the prosperous south east of the … Continued
The international financial system isn’t going to be reformed any time soon
In a recent IMF working paper I came across the term “North Atlantic financial crisis”. I hadn’t heard this before and it was the first clue of several that the report was written by Indian economists with a well justified … Continued
Islamic banking: small but fast growing
In the wake of the financial crisis, which showed the surprisingly fragile state of conventional western banks, people have looked for alternative ways of delivering financial services, especially credit. The IMF recently compared two types of banking that may offer … Continued
Regulation leads to innovation
The Chinese government is in the process of deregulating interest rates. It took the first step in July 2013 when the People’s Bank of China (PBOC) freed the banks to set the rate charged to borrowers, other than some mortgage-related … Continued
The ever growing foreign exchange market
The Bank for International Settlements (BIS) produced its triennial detailed review of foreign exchange (FX) markets on 5 September 2013. What we learn from this is that the FX market is vast, growing and still dominated by dollar trading in … Continued
What has gone wrong with India?
The fall in the Indian rupee in the last few weeks is a result of three things: i) a current account deficit that made the country vulnerable to a sudden exit of funds; ii) the inherent volatility and instability of … Continued
Rebalancing the Chinese economy: not much progress
It is widely agreed, including by the Chinese government, that the Chinese economy needs to be rebalanced if economic growth is to continue in the long term, without severe tensions or a full blown crisis. The heart of the problem … Continued
Analysing changes in long term interest rates: the term premium in US Treasury bonds
Long term interest rates, as captured by the yield on long term US Treasury Bonds, have recently swung upwards after falling for three decades. It’s still too soon to say that the long bull market in bonds has ended, because … Continued
Commodities don’t help an investment portfolio
Investing in commodities (oil, gas, metals etc.) has gone from being a niche activity to a mainstream portfolio choice in the last fifteen years. This was driven by the long period of fast growth of commodity prices, which made a … Continued
How to bankrupt a bank
The aftermath of the global financial crisis left many people with an impression of modern finance as extraordinarily complex, a web of multi-layered securities financed through strange off-balance sheet vehicles and held together by impenetrable mathematical formulas. There is something … Continued