Vincent Reinhart of Morgan Stanley has a fascinating note out today which reverse engineers US forecasts from the IMF’s World Economic Outlook to answer questions about headwinds to demand, the effectiveness of unconventional Fed policy and the potential growth rate.
His chart on the effectiveness of Fed policy is particularly neat. Essentially, he plots annual long-term real interest rates against short-term real interest rates for the years from 1980 to 2007, draws a regression line, and then adds on dots for 2008 to 2011. Read more
Sir Mervyn King’s address on BBC Radio4 tonight is the first by a Bank of England governor in peacetime since the 1930s.
An obvious opportunity, then, to step back and review where it all went wrong. Which — as far as the banks are concerned — the governor takes, detailing how they expanded, took on more risk, all the time their fates becoming more and more intertwined, until August 2007: “the moment when financial markets began to realise that the emperor had no clothes.”
However, as a history lesson into central banks’ less-than-stellar performance over recent years it’s pretty revisionist.
Do we get an apology on monetary authorities’ failure to prevent the crisis? Or the promise of a review into how the Bank has performed during the turmoil? Not quite. There is some admission of guilt, but more half-truths and excuses. Read more
Tension surrounding the European Central Bank’s monetary policy meeting in Barcelona, Spain, on Thursday will be higher than might have been imagined even a few weeks ago.
Eurozone economic woes have deteriorated noticeably, and Spanish police are on guard for possibly aggressive demonstrations. Here are some ideas on how ECB governing council members may be thinking: Read more
Five years ago today, Mervyn King, governor of the Bank of England, gave a lecture to mark the 10th anniversary of BoE independence. He also granted the Financial Times a rare interview on the same theme.
I will go into the details in a bit, but the bottom line of both was that the first decade of the monetary policy committee was a huge change that had brought economic stability to Britain. Moreover, the improved economic performance could not be luck because the UK’s performance had improved materially compared with the rest of the Group of Seven leading economies.
This post updates the evidence given by the BoE governor. Everyone knows Britain’s economic performance has deteriorated since 2007. It has also slipped badly relative to the rest of the G7. On the basis of Sir Mervyn’s 2007 logic, the deterioration must be a sign BoE independence has performed poorly and it cannot just be misfortune. Alternatively, I would argue that the 2007 lecture can represent a tutorial in hubris, the measures used were far from ideal and pride, did indeed come before a fall.
It will be interesting to see whether Sir Mervyn agrees in his BBC lecture tonight. Read more