Monthly Archives: July 2010

The Reserve Bank of New Zealand today raised the official cash rate 25 basis points to 3 per cent but said future increases were likely to moderate.

Governor Alan Bollard said: “The pace and extent of further OCR [official cash rate] increases is likely to be more moderate than was projected in the June Statement” Read more

Robin Harding

The Fed’s beige book is one of the less useful economic reports: it looks backward at what has been going on around the country and the qualitative information can be hard to compare to other times.

It’s quite fun to pick out some snippets of the detail, though. The sense this time is that economic conditions are, well, a bit beige.


The specific sales reports range from “extraordinary demand” at a semiconductor firm to less-than-anticipated demand at two firms making life science equipment and medical devices. In particular, the semiconductor firm reports sales in the second quarter were 17 percent above their pre-recession peak.

A New Hampshire contact says that some types of homes are still selling well, notably those in convenient locations near major highways. Meanwhile, prices in rural New Hampshire are “plummeting.”

 Read more

Chris Giles

Many at the Treasury Select Committee were left baffled by Mervyn King’s use of a motoring metaphor, which the governor extended well beyond its natural life.

Associating the position of a driver’s feet with setting monetary policy, Mr King said “at present it is right to keep our foot firmly on the accelerator”, but “there is a debate about quite how hard we should be pressing on the accelerator” and “it may be” that the situation “warrants pushing down even harder or that we should ease back somewhat” without “applying the brakes”, but “there will come a point when we will certainly need to ease off the accelerator” because “it will probably be a signal that there is a smoother drive ahead”.

Any physicists present (or indeed people who did applied maths) were left musing exactly which derivative of position with respect to time Mr King was talking about. On my reckoning, he was talking about the rate of change of acceleration. It is pretty impressive to have policy makers confident enough to talk about the third derivative at the same time as they bleat on about how uncertain everything is. Entertainingly, the technical term for the third derivative of position with respect to time is a jerk.

UPDATE 16:30 Read more

Ralph Atkins

Eurozone housing markets are springing back to life. The European Central Bank reported on Tuesday that mortgage lending grew in June at the fastest annual rate for almost two years. Its latest bank lending survey, based on responses from 120 banks, showed second quarter demand for mortgages was the strongest since early 2006.

All of which tells a positive story about the eurozone—at least for eurozone optimists. While attention has focused on the problems of Greece, Spain and Portugal, households elsewhere have spotted that mortgage interest rates are at exceptionally low levels, and have been sufficiently confident about their economic prospects to buy a house.

A less positive interpretation is that consumers are worried about the stability of the euro and see bricks and mortar as a better investment. Gilles Moec, European economist at Deutsche Bank, warns that the ECB might also be less than pleased. He points out the sharp contrast between the revival in mortgage lending and the lifelessness of lending to companies. Read more

What’s in a word? Quite a lot if it comes from the People’s Bank of China. Shares in Shanghai are up over 2 per cent today after the central bank said the state of the Chinese economy was “good”.

The People’s Bank of China said on its website yesterday that the nation’s economic fundamentals remained “good”. China’s decreasing dependence on exports meant the European debt crisis was unlikely to have a large impact, the central bank said in its report for the second quarter. It said it was cautiously optimistic about the Chinese economy. Read more

Australian consumer price inflation rose above target in the second quarter, to 3.1 per cent year-on-year from 2.9 per cent in March.

The Reserve Bank of Australia is unlikely to be too concerned. First, because the target of 2-3 per cent is explicitly intended to hold in the medium-term, rather than for every quarter. Second, because the duration of this above-target period is likely to be short: quarter-on-quarter inflation actually fell, from 0.9 to 0.6 per cent. So changes in the 2009 comparison quarter used (“base effects”) are affecting the yearly numbers. Third, the weighted median index, based on seasonally-adjusted prices, has just fallen below 3 per cent for the first time since its peak at 4.7 per cent in September 2008.

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 Read more

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: Read more

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: Read more