Daily Archives: July 27, 2010

Robin Harding

The Senate Banking Committee will vote on the three new nominees to the Fed’s board of governors tomorrow:

Executive Session to Vote on Nominations 

Robin Harding

I have a piece about the effects of the US fiscal stimulus in the paper today. My personal conclusion is that it very likely did have large effects (because of interest rates being at zero), but because one can’t test the counterfactual of no stimulus, the only evidence comes from models and historic surveys.

What’s depressing is that nothing has changed since before the stimulus began. The models of the people who said it would work say that it has worked. The models of the people who said that it wouldn’t work say that it hasn’t worked. There is no real evidence – and I suspect that will be the decisive point when economists argue for and against further stimulus.

Here are some links if you want to explore the issue in greater detail: 

If a sovereign default had been factored into the recent stress tests, which banks would have failed and how severe would the contagion have been?

Not too many and not too bad, says the Peterson Institute. They used the sovereign holdings provided by 84 of the 91 banks to model an additional shock: namely, a Greek default. Researchers find bank collapses to be relatively limited – Greek banks collapse, predictably, as do those in Cyprus, but: 

Chris Giles

Now that strong growth has returned to the UK economy, the chances of the Bank of England increasing its purchases of assets and pumping more money into the economy – known in the trade as QE2 – have correspondingly declined.

But today there are three tidbits worth noting about quantitative easing, which suggest the Bank is happier about the functioning of the corporate bond market; that it needs to articulate better its reasons for thinking QE works; and that it made an initial loss on the first £200bn of QE purchases.

  • The Bank did not purchase any corporate bonds today for the first time since April. This is second order stuff, but good news at the margin. It suggests the Bank did not find sufficiently attractive offers of corporate bonds for sale where the prices suggested stressed markets and a low level of liquidity in the market. According to the quantity of the Bank’s purchases, the signs of stress have declined from a recent peak in early June.
  • The point of QE. Robin’s interesting post yesterday

 

Ralph Atkins

Eurozone mortgage borrowing surged last month to the highest level in almost two years in a sign that bank lending across the 16-country region may be flickering back to life.

Lending for house purchases rose at an annual rate of 3.4 per cent in June – the fastest since September 2008, according to European Central Bank data. The acceleration pointed to a revival in consumer confidence and an increased willingness by banks to fuel the economic recovery with loans to the private sector. 

The Reserve Bank of India has raised the repo rate 25 basis points, and the reverse repo rate 50bp – more than expected. “The dominant concern that has shaped the monetary policy stance in this review is high inflation,” said the bank. Rates now stand at 5.75 and 4.5 per cent, respectively.

While the recovery has consolidated within India, the central bank notes a “significantly” altered global economy: