Macro From the Web: Nature Or Nature Helps Econ Outcomes?, Piketty’s EU Critique and China’s Rare Element Weapon
This week’s curated list features some good articles on the dynamics of inflation-less strong labour markets such as helping poorer people more than rich people. Then there’s an interesting article on how temperature affects economic growth – it seems like cooler climates are optimal.
On the markets side, a good piece on how positive corporate bond returns are due their embedded optionality, the noise of ETF rebalancings and the lack of contagion after the ECB’s OMT operation. On the politics front, we have articles on how being anti-China is the common stance amongst populist right-wing parties around the world, Piketty writes how the EU is pro-elites and the economic effects of Germany’s recent waves of immigration.
the Business Cycle, Mid-May 2019 Several
key series look like they have peaked; nowcasts indicate slowing growth.
Forward looking indicators look “iffy”.
Changing Mix of Light Vehicle SalesIn the 1970s, 80% of sales were passenger cars and
only 20% SUVs in the US. Today it has
flipped to 30% of sales are passenger cars and 70% are SUVs.
U.S. Economic OutlookBrad
DeLong’s outlook presentation, includes some slides on San Fran economy “possible
loss of hardware innovative dominance to Shenzhen, but software/network
Illusions of GrowthJeffrey Sachs argues that current US
growth masks issues like falling life expectancy.
What is behind the recent
financial conditions tighten, very long and elaborate global value chains [GVCs]
will no longer be viable economically…around 80% of bank trade financing was denominated in
US dollars.. fluctuations in the trade-to-GDP ratio closely
track the strength of the dollar, with a stronger dollar associated with
subdued GVC activity”
The RBA’s Economic
Outlook and Monetary PolicyGovernor
Lowe writes “looking forward, the global picture looks a little brighter” and “the
decline in housing prices is a factor here [in lowering household consumption],
but the more important factor is the long period of weak growth in household
growth and productivityClimatic Constraints on Aggregate
Economic Output Authors look at longitudinal data
on economic output from over 11,000 districts across 37 countries. They find
that output peaks at cooler climates (<10°C) and declines steeply after. They
estimate that since 2000, warming has already cost both the US and the EU at
least $4 trillion in lost output, and tropical countries are >5% poorer than
they would have been without this warming.
International Business Travel and
Technology Sourcing Technology
sourcing through in-person business travel is statistically and economically
significant, accounting, for example, for 20% of the higher patenting in
Germany’s Greater Stuttgart area, compared to Portugal’s Algarve region.
and state capitalism: Assessing the effects of Vietnam’s WTO entryThe recent success
of China and Vietnam over the past three decades has triggered a debate over
‘state capitalism’ as a viable growth and development model. Comparing
state-owned companies and private ones in Vietnam, the authors find that ”productivity
gains from trade after WTO entry might have been 66% higher in the absence of
and intergenerational effects of education Oover
61,000 primary schools were built by the Indonesian government between 1973 and
1979. The evidence shows that the people who accessed education provided by the
construction programme benefited from significant improvements in their
educational and later life outcomes. So too did their children.
We Need New Measures of Potential Output—and What They Tell UsUses a version of Okun’s output gap measure rather
than NAIRU to measure output gaps.Argues that currently the economy can
“respond positively to a lasting expansion in demand” without inflation.
The Risk of Returning to the Zero Lower BoundSan Fran Fed writes “that there currently appears to be a low risk of the economy returning to the zero lower bound for at least the next several years.”. They use a bunch of yield curve models to determine probabilities (see chart at top of email)
Credit Where Credit Is Due: What Explains Corporate Bond Returns?AQR paper finds finds that options markets explain a
great deal of credit returns. Two features of corporate bonds generate option
exposure. The first is thata corporate bond is economically equivalent to a
short put option on a firm’s assets. The second is that many corporate bonds
include call provisions, which are basically options granted to the bond
The sound of many
funds rebalancingAuthors results
suggest that it is possible to predict if stock Z will be
affected by an ETF rebalancing cascade, but not how stock Z
will be affected. In short, susceptibility to ETF rebalancing cascades predicts
Measuring euro area monetary policy [impact on rates markets] ECB uses tick data to analyse the market response around ECB decision days. They find the policy decision affects mostly the very short-end of the yield curve, the information conveyed in the press conference window when related to forward guidance affects intermediate maturities of the term structure news relating quantitative easing affects longer maturities. The ECB has also created Euro Area Monetary Policy Event Study Database (EAMPD)
Changes in Economic Expectations Foreshadow Swings in the 2018 Elections?Yes according to NY Fed (or you can read 1800 words
before they tell you)
and the class cleavageOn anti-EU
sentiment of the less well-off,Thomas Piketty notes that while “according
to those who are better off, the working classes are nationalist and xenophobic”
the “simpler explanation is that the EU is based on widespread competition
between countries, [and] favours the most mobile economic actors and functions
objectively to the benefit of the most privileged.”
Can Ramaphosa Do It? Former deputy director-general of South Africa’s
National Treasury gives the laundry list of issues South Africa faces including
“South Africa’s biggest challenge is restoring its vertically integrated
electricity monopoly, Eskom, to financial health”
Has Germany’s Economy Been Affected by the Recent Surge in Immigration? NY finds per capita income growth
has held up and unemployment has declined after the two waves of recent immigrations
(2011 from EU and 2015 from Syria)
True Winners and Losers of Financial Regulation“the number of regulatory restrictions and mandates
related to credit intermediation quadrupled between 1970 and 2010, from around
10,000 to just over 40,000.”. Blog argues that regulation is leading to
consolidation in banking.
Duty and the Market for Financial Advice Looks at whether extending fiduciary duties to broker-dealers would help
consumers. The paper uses state-level differences in the US (some states force
broker-dealers to have those duties, others don’t) and finds that “extending fiduciary
duty to broker-dealers causes their clients to purchase products with lower
fees…broker-dealers steer customers towards products with a
larger and more diverse set of investment options”