Tag Archives: macro

Markets versus economics

The turbulent financial markets in early 2016 can be seen as a battle between two groups of ideas – the economists see little reason for sudden concern but the markets are worried about hidden risks * Global stock markets performed worse in the first few weeks of 2016 than in living memory. Since markets are supposed… Continue Reading

The true story of the Euro crisis

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, sovereign debt crises and bailouts and above all a protracted recession and mass unemployment –… Continue Reading

Thinking about the risks to global economic growth

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 equilibrium rate of interest that makes savings and investment equal may be negative. That means… Continue Reading

The elements of macro-finance

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 finance. I’ll apply these concepts in a follow-up blog to try to explain why there… Continue Reading

The fortunes of nations: how long term growth rates change countries

Countries that had similar levels of economic prosperity two or three generations ago have diverged spectacularly. Getting economic growth right makes a huge difference to the lives of people. Here are two examples: The US and Argentina, and South Korea and Ghana. I recently came across the Maddison Project website, which has estimates of long… Continue Reading

Liberalising the Chinese banking system: necessary but dangerous

I recently gave a presentation to the Cambridge China Business Network, a student club. The title is “Like dismantling a nuclear bomb: liberalising the Chinese financial system”. The slides are shown below. Summary Liberalisation of a market means removing most or all regulatory and legal restrictions on market forces. Most countries that have liberalised their financial… Continue Reading

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 interest rates from the European Central Bank (ECB) but nothing like the quantitative easing we… Continue Reading

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 rates could fall again, but yields are at historically low levels still so the scope… Continue Reading

On the difficulties of using macroeconomic data for policy advice

The economics blogosphere and now the mainstream financial press are full of discussion about the flaws in widely cited research done by Professors Ken Rogoff and Carmen Reinhart. These authors produced an excellent and path-breaking book This Time Is Different which surveyed in detail several centuries of financial crises. This book, which suggested, unfortunately correctly, that… Continue Reading

US healthcare spending as the central budgetary problem

I make the point in classroom discussions of the US fiscal outlook that, simplifying only a little, the problem of US federal spending reduces to the problem of the US health care system. All rich countries face an increase in public spending arising from a combination of a higher proportion older people and a rise… Continue Reading

Chinese investment – too much of a good thing?

A key feature of macroeconomic analysis is the relationship between a country’s savings and investment rates. Savings represent income that is not consumed. Investment means spending on assets that will last for some period of time, such as factories, houses, cars and infrastructure. Savings are resources – you cannot invest if you don’t set aside… Continue Reading

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