For those who have followed the scrap between Raghuram Rajan, governor of the Reserve Bank of India, and his counterparts at the European Central Bank and the Federal Reserve on the ill-effects of Fed tapering, Benoît Cœuré’s thoughtful speech today is worth a read.
In Mr Rajan’s view, the way the Fed conducts its monetary policy is irresponsible. The US central bank acts merely on the basis of national interest, with scant regard for the ramifications of mass dollar printing in a world where the dollar remains the dominant reserve currency.
These attacks have usually been parried with remarks that central banks such as the Fed (and, given its role as issuer of the only other real reserve currency, the ECB) have little choice but to act within the national interest given the scope of their mandates. From Mr Coeure’s boss Mario Draghi earlier this year:
Draghi: Mr Rajan is really an excellent economist. What one would have to demonstrate to speak of selfishness is the following. One would have to show that monetary policy actions within the United States, the ECB and so on were decided for reasons other than for the sake of the mandate and that, as a result, they were harmful to other countries. As I said, the priority for all of us is compliance with our mandate, which for us is maintaining price stability and for the Federal Reserve Board is the dual mandate.
Mr Cœuré’s speech is interesting as, while he does not go so far as to side with Mr Rajan, he is not so intellectually dishonest as to say that all is fine with the pre-crisis orthodoxy. In short, this said that if everyone just sticks to their inflation targeting mandate and flexible exchange rates everything will be just great. Read more
The FT reported this morning that China will overtake the US as the world’s largest economy this year. This is a historic moment since the US has been the global economic powerhouse since about 1872. As Jamil Anderlini, the FT’s Beijing bureau chief explains, the news is an important geopolitical moment. Everyone has known the moment was coming (the IMF’s projections suggested 2019) but the report from the International Comparison Programme came as a shock, saying the Chinese economy was already 87 per cent of the US size in 2011. The figures are based on new estimates of Purchasing Power Parity (PPP) and inevitably raise a lot of questions. I will attempt to answer them here.
1. I’ve never heard of the International Comparison Programme. What is it?
The ICP is a loose coalition of the world’s leading statistical agencies, hosted by the World Bank in Washington. Eurostat and the Organisation for Economic Cooperation and Development produce the data for advanced countries and a series of regional offices, usually national statistical agencies, provide the equivalent data for the rest of the world. In total 199 countries are covered. The results are therefore much more comprehensive than any other comparable study. Read more
Next week’s policy meeting at the Bank of Japan is expected to be much like the 14 others since the dawn of “quantitative and qualitative easing” (QQE) last April: plenty of upbeat talk about recovery, but no change to the scale or the pace of easing.
And some think the inaction will extend a lot longer. Expectations of another shot of stimulus – “QQE2” – have been shifting back all year. According to the latest Nikkei survey, almost one-tenth of market participants now expect no further action at all. Here are four reasons why: Read more
With the eurozone facing the threat of a prolonged period of “low-flation”, the European Central Bank has been urged to stretch its monetary policy toolkit further and deploy more unconventional measures. One widely flagged option would be to cut the interest rate that banks receive for parking their money with the central bank to below its current zero level. Frankfurt would then replicate an experiment first tried by Denmark’s central bank, which in 2012 cut its deposit rate to -0.20 per cent.
As of Thursday, however, Denmark is no longer a valid comparison. The Danish National Bank has announced that, with effect from Friday, it will raise its deposit rate by 15 basis points to 0.05 per cent (it had already increased it to -0.10 per cent in January). Meanwhile, the central bankers in Copenhagen left the lending and the discount rate unchanged at 0.2 and 0 per cent respectively. Read more
Undergraduate economics teaching has taken a (deserved) bashing since the crisis from some high-profile names in academia and officialdom. And, most importantly, the students themselves.
Among those leading the reform effort is an impressive group at the University of Manchester, the Post-Crash Economics Society. Today it has published a manifesto that is well worth a read for anyone with the slightest interest in why the discipline failed so spectacularly to spot the financial crisis.
The manifesto is all the more important as the group’s attempts to install an optional course on alternative theories on financial crises on the undergraduate syllabus were rejected earlier this month. The bashing, it appears, has not been bruising enough to trigger root-and-branch reform of the way economics is taught. Read more
Despite politicians of all hue stressing the importance of business lending in rebalancing the economy, net lending to UK businesses has now been falling for nearly seven years, according to the Bank of England’s latest Trends in Lending report.
For consumers the picture is very different: mortgage lending is on the up, as is unsecured lending (such as credit cards).
But before assuming this means a consumer debt-fuelled recovery is underway, it is worth taking a look at how low levels are by historical standards – and signs business lending maybe starting to return.
More than five years after the start of the great QE experiment, agreement about what the asset buying scheme achieved is still thin on the ground. A new Bank of England paper from external MPC member Martin Weale released today tries to put a figure to how much QE boosted national output and inflation in the UK and the US. Its results are as follows:
“At the median, an asset purchase shock that results in an announcement worth 1% of nominal GDP, leads a rise of about .36% (.18%) of real GDP and .38% (.3%) in CPI in the US (UK). These findings are encouraging, because they suggest that asset purchases can be effective in stabilising output and prices” Read more
The UK’s labour market figures have sparked a lot of excitement – and a certain amount of confusion – on the hot topic of real wage growth. Here are six charts that explain what has happened and what it means.
The UK has spent years fretting about its dismal productivity performance in the wake of the financial crisis, but it’s no closer to figuring out what has gone wrong or what (if anything) should be done about it.
Perhaps it should look further afield. The UK is not the only place with a “productivity puzzle” on its hands: New Zealand is scratching its head too. For a developed country with seemingly supportive policies on tax, regulation and education, New Zealand’s workers are surprisingly unproductive, and they don’t seem to be improving very quickly either. Read more
By Roman Olearchyk and Lindsay Whipp
Ukraine’s economy and Kiev’s financial position were deteriorating rapidly even before the political crisis gripped the country last year. But as the interim government grapples with Russia’s annexation of Crimea, spreading separatist unrest in the east and gas bills that will almost double, Kiev is slipping closer towards financial breaking point. The government is awaiting a multibillion dollar loan International Monetary Fund and on Monday night the central bank raised key interest rates as it embarks on reform of the way it conducts its monetary policy. Read more
Many US citizens are proud of their Irish roots and have a great affinity for the Emerald Isle. In an otherwise rather dull International Monetary Fund fiscal monitor, this table might make them reconsider.
It shows the level of financial support given to banks in the financial crisis and the level of recovery to date. All the figures are in terms of percentages of national income so they show the relative burden of the support and the recovery. Read more
(c) Getty Images
Looking for a cheap flight to jet off to warmer climes over Easter? This time you may have left it too late.
The best window for cheaper fares – on Ryanair at least – is between 21 and 14 days prior to departure, according to a new academic paper by Marco Alderighi at Bocconi University, Marcella Nicolini at the University of Pavia and Claudio Piga at Keele University set to be presented at the Royal Economic Society’s conference on Wednesday.
Researchers scraped the Ryanair website to build a database of how fares change as the date gets closer and the plane fuller, looking at over 80 routes of flights departing from the UK. Read more
Britain’s finance minister George Osborne is off to Washington this week to give an “I told you so” speech about the merits of his austerity programme.
But if a paper to be presented today is to be believed, the credit for lowering Britain’s budget deficit should really go to his Old Etonian boss David Cameron. Read more
Last Friday marked the one-year anniversary of QQE – the aggressive monetary easing regime launched by Bank of Japan governor Haruhiko Kuroda. Under the new policy, dubbed “quantitative and qualitative easing,” the BoJ hoovers up just about every long-term bond the market is offering, with the aim of keeping interest rates low and stable enough to drive investors into riskier assets.
So far it has mostly done the job, with the currency down, stock markets up, and signs of a pick-up in lending. Meanwhile the drop in the yen has pushed core inflation to 1.3 per cent – apparently on course to hit the 2 per cent target within the original time-frame outlined last April.
But over the weekend Twitter seemed more interested in a long speech by Masaaki Shirakawa, Mr Kuroda’s predecessor, delivered last September but published (with footnotes) last week on the Bank for International Settlements website. Read more
Guest post by Eswar Prasad, Karim Foda, and Arnav Sahu on the latest Brookings Institution-Financial Times Tracking Indices for the Global Economic Recovery (Tiger), which combines measures of economic activity, financial variables and indicators of confidence
The global economic recovery remains uneven and wobbly but finally appears to have built up some staying power.
The worst may be over, but prospects for a durable and sustained recovery hinge on whether national governments demonstrate their commitment to substantive structural reforms.
The Brookings-FT Tiger index shows advanced economies are gradually gathering growth momentum while emerging market economies are cooling off. This has led to some degree of convergence in the short-term growth prospects of these two groups of economies. Reflecting this, financial markets in emerging economies took a beating in recent months, although equity markets in some countries like India and Indonesia are on the rebound.
Welcome to our live coverage of ECB president Mario Draghi monthly press conference. Earlier the ECB kept its rates on hold for the fifth month in the row, despite inflation falling to its lowest level in more than four years. Follow the questions and reaction live here with deputy FT.com news editor Lindsay Whipp and economics reporter Emily Cadman.