Daily Archives: July 7, 2010

… or coins from a truck. Two million euro coins have spilled on to a motorway in Southern Italy, thanks to an overturned lorry. Accident? Possibly. Or could it be the ECB reintroducing quantitative easing on the sly…?

Robin Harding

Larry Meyer, a Federal Reserve governor from 1996 to 2002 and now at Macroeconomic Advisers, recently put out a great report summing up who the doves and the hawks are on the Fed’s open market committee.

One of the things that comes across is the informal rules that govern the committee’s voting behaviour (I’ve heard similar descriptions of these rules from other people as well). You might summarise them as:

(1) The Board of Governors shall vote with the Chairman (7 out of the 12 voting members).
(2) The President of the New York Fed shall also vote with the Chairman (another voting member).
(3) No more than two members shall dissent in any one vote (so two of the other four).
(4) Any regional Fed president who is not a monetary policy expert shall defer to the chairman. Read more

Ralph Atkins

The European Central Bank will be back in the spotlight tomorrow (Thursday), when Jean-Claude Trichet, president, gives his regular post-council meeting press conference. But what will he have new to say?

The central bank’s main interest rate seems firmly stuck at 1 per cent, and the global economic outlook has changed little since June’s meeting (Germany doing better, China perhaps worse). There will be questions about European bank stress tests, but these are primary the responsibility of bank regulators (which don’t include the ECB). Greece’s rehabilitation efforts have been given an official thumbs up today.

The action recently has been on the ECB’s open market operations. The euro’s monetary guardian was pleased with its success last week in withdrawing, without upset, some €442bn in one year loans. With the amount of excess liquidity it has pumped into the financial system falling further this week, market interest rates have risen – in effect, tightening monetary policy.

That has prompted speculation Mr Trichet might announce further offers, perhaps for six month liquidity. But Read more

Are Bulgaria and Luxembourg unsung heroes of the global recession? Estonia has received wide praise for its fiscal position, and Poland’s economy is likewise admired for its refusal to contract. But this useful graphic from the Economist shows two additional players for the fiscal saints.

Public debt in Bulgaria and Luxembourg is between 0 and 19 per cent of GDP – a distinction shared only with Estonia. Both countries also share low deficits, as proportions of their GDP. But unlike Estonia, Bulgaria and Luxembourg enjoy below-average unemployment rates: 9.7 and 5.2 per cent respectively, compared to 19 per cent for Estonia. Read more

China has repeated its commitment to US debt (as though they’d do anything else when they’re long an estimated $2,450bn). But the data back them up. Figures show the drop in US holdings was among advanced economies; emerging economies increased their holdings, in aggregate, between Q409 and Q110. Indeed, emerging markets’ increase more than offset advanced countries’ decrease, leading to a small net increase overall. Data from IMF.

Related post: Advanced economies destock dollar by $5.5bn (July 2)

Old models of inflation work best, researchers in Australia have found: the Phillips curve came out on top in an RBA study of the three key single-equation inflation models. Expectation-adjusted mark-up models showed comparable results, but the New Keynesian Phillips curve did not fare so well.

Our results show that either the unemployment rate alone, or a combination of growth in unit labour costs and the output gap help to explain the deviation of inflation from measures of inflation expectations in Australia, once we have controlled for import price shocks. After controlling for the variables discussed above, we find little role for some other variables – notably commodity prices, excess money growth – that have sometimes been suggested as important determinants of inflation.

The paper also found that both the standard error and the explanatory power of these single-equation models have fallen since the introduction of inflation targeting in 1993. Read more

By Simon Roughneen in Bangkok. The Bank of Thailand’s new governor just can’t wait to get started. Long before he officially takes up the post on October 1, Prasarn Trairatvorakul launched into action today, surprising reporters with a statement that Thailand’s interest rate would jump to 2 per cent by the end of 2010.

An interest rate hike had been mooted, with current governor Tarisa Watanagase saying last month that interest rates are too low at the current 1.25 per cent. But she is unlikely to take offence at Prasarn’s dawn salvo. Rather, she will be pleased by the clear promise of continuity of monetary policy. A seamless handover is in prospect.

Prasarn, who steps down as head of Kasikorn Bank next week, said that with the board meeting next week (on July 14) he believed the key interest rate will increase in August, weeks before he is scheduled to take up his new post on October 1. Read more