Daily Archives: August 6, 2010

James Politi

Ben Bernanke may have a few sleepless nights over the weekend as he prepares for Tuesday’s crunch meeting of the Federal Open Market Committee. Clearly, today’s jobs figures will have given him cause for concern. Private sector job creation is anaemic – well below what it takes to keep up with population growth – and well below its pace in March and April. Could the labour market recovery have peaked just after it started ?

Looking to Tuesday, there is no doubt that the pressure is on for the FOMC to begin mapping out a strategy to deal with the “unusual uncertainty” in the US economy that was cited in Mr Bernanke’s congressional testimony last month. But no one is expecting the Fed to begin easing aggressively next week to jolt the sluggish recovery. After all, at its latest meeting, the FOMC set a high bar for easing : economic conditions would have to “worsen appreciably” – which they haven’t even considering today’s figures. Read more

This is the ECB’s opinion on short-selling, which contains a slight rap over the knuckles for Germany:

While it may be necessary to impose short selling restrictions in times of financial crises, they should be introduced in a coordinated manner and removed again as soon as normal market conditions are re-established

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I have commented before on how bad the Bank of England’s fan charts are as a tool for communicating its forecast at the quarterly inflation report. The Bank half accepts these criticisms and has made some small but very welcome steps towards improving the presentation and communication of its forecasts.

Today, in the last post before I go on holiday, I want to spend some time looking at a more fundamental issue for next week’s inflation report: the forecasts themselves. We will have another go at this in the Financial Times next week and comments in advance are really welcome, but here are some very interesting preliminary results. Quick summary – the Bank’s forecasts are not very good. In fact they are shocking. And this matters because the Bank tells us that the forecasts form the basis for UK monetary policy.

Every August, the Bank does its own evaluation of its forecasting record and always pats itself on the back. This tiresome tradition arises since the Bank gives the forecasts extremely easy tests to pass. It compares its central forecasts with its own subjective range of uncertainty.  Here are some other very basic tests of forecast accuracy, which do not give such an encouraging result to the Bank’s vast teams of economists and forecasters.

Persistent optimistic bias

If you look at the chart, the Bank’s central forecast for growth  (mode market rate) is, on average, too pessimistic by 0.2 percentage points in the quarter it is forecasting and it gets more erroneously optimistic as the Monetary Policy Committee peers further into the distance. Read more

Are economics bloggers a more gloomy bunch, or do they just lack the political constraints that force the smiles of policymakers?

Below is a word cloud of bloggers’ responses to the question: “How do you rate the assess the overall condition of the US economy right now?” posed in a quarterly survey by the Kauffman Foundation. The words ‘good’, ‘promising’ and ‘dynamic’ are present, but they are roughly the same size as ‘encrusted’ and ‘moribund’ – not, one imagines, popular choices in a free text field.

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A baby born today in Italy will be supporting almost twice the elderly population of a baby born in the UK by 2050. (Assuming that child doesn’t realise the problem, and emigrate.)

With all the perspective that 10,000 miles provides, the Reserve Bank of Australia has given a summary of conditions in Europe as part of its quarterly monetary review.

A fiscal tightening comparison is instructive: the tightening is inversely proportional to the size of the economy, with France and Germany only forecast to tighten by 0.5 per cent each by the end of next year. Read more

Peru’s central bank has raised its benchmark rate a more-than-expected 50bp to 2.5 per cent, to counter rising inflationary pressures. The economy grew 9.2 per cent in the year to May and is forecast to rise a “spectacular” 10 per cent in the year to June, central bank chief Julio Velarde said a couple of weeks ago. Peru was the second South American country to begin raising rates, after Brazil. Since then, Chile has also increased rates.

Related posts on Latin America