Monthly Archives: June 2014

Chris Giles

There are many uses of the phrase “new normal” in economics these days. Usually, it is used to signify lower growth or a different type of growth than in the pre-crisis period. Mark Carney went onto the radio this morning to talk about the “new normal” in monetary policy.

Interest rates would be materially lower in future than the 5 per cent rate widely seen as normal before the crisis. The Bank of England governor’s words have been widely reported as a big new statement of policy.

Is this a new policy?

No. Carney first talked about future interest rates being “well below historical norms” in his January speech at the World Economic Forum in Davos, which confirmed the BoE had ditched its original forward guidance linking interest rates solely to unemployment. The important passage was reported clearly in the FT at the time and is copied below. 

Claire Jones

Last month, students from four continents joined forces to call for reform of the economics curriculum.

In an open letter, the students said they wanted their courses to delve into a wider range of economics theories and methodologies than the standard neo-classical model that dominates undergraduate teaching, and to learn more about the implications of policy-making.

Speaking to those students was a heartening experience – all of them struck me as extremely thoughtful and articulate. Their desire for reform seemed driven by a curiosity about the world and what economics could do to improve it.

I suspect they’ll be encouraged by comments made in a speech today by the similarly thoughtful and articulate Benoît Cœuré, who sits on the European Central Bank’s executive board. 

John Aglionby

Mark Carney, the governor of the Bank of England, presented the Financial Policy Committee’s report on how it intends to keep the UK economy on an even keel. Most of the press conference was on what it intends to do about the booming housing market and which of its macro prudential tools it intends to use to cool it.

By John Aglionby and Claer Barrett

 

As Iraq appears to be descending into all-out sectarian war, the implications for the oil-dependent economy are huge. Iraq is Opec’s second-largest crude exporter, so markets are already feeling a little jittery, sending crude oil to its highest since September on Friday. Here are five charts showing how Iraq’s economy has developed since the 2003 US-led invasion of Iraq and where its vulnerabilities lie. 

Emily Cadman

Those hoping for a rapid pickup in UK productivity shouldn’t hold their breath.

That’s the message from a new Bank of England paper which suggests the UK’s dismal figures are more likely to be the result of “persistent effects” from the financial crisis, rather than temporary, cyclical factors which will fade away as the economy recovers.

Just under half (around 6 to 9 per cent) of the UK’s productivity gap can be explained by the hypothesis that the crisis resulted in underlying damage to the UK’s productive capacity:

 

Emily Cadman

Institutional weaknesses are mainly to blame for Greece’s dire trading performance, with exports around a third smaller than they should be, according to a new paper from staff at the European Commission.

Aside from being the world’s largest shipping nation, Greece sits at the cross road between three continents and on one of the world’s busiest sea routes.

Yet, researchers estimate its exports are approximately 33 per cent lower than would be expected based on the size of the Greek economy, its trading partners and its geographic position. The Commission staff dubs this “the puzzle of the missing Greek exports.” 

Claire Jones

Throughout its campaign to convince everyone that the eurozone is not about to fall into deflation, the European Central Bank has drawn a distinction between two different sorts of episodes of falling prices.

The first involves a short period during which prices fall. In its monthly bulletin, published on Thursday, the ECB tries to define it, not as deflation, but as “negative annual inflation”. In the ECB’s view, a few months of falling prices will do little long-term damage to the economy. Indeed, the eurozone has already experienced this sort of deflation in the autumn of 2009.

The more dangerous sort of deflation, which the bulletin labels “outright deflation”, can, however, cause lasting pain. If what Mr Draghi has recently dubbed a “pernicious negative spiral”, triggered by ever weaker demand, was to emerge, all hope of the currency bloc’s economy returning to health anytime soon would be shot.

So how can you tell one from the other? 

Emily Cadman

It’s crunch time for the ECB. After more than six months of talking, the governing council has finally eased policy:

  • Deposit rates have gone negative decreasing by 10 basis points to -0.10%
  • The main refinancing rate has been cut by 10 basis points to 0.15%
  • The marginal lending facility rate has been cut by 35 basis points to 0.40%

The changes all take effect from June 11

ECB president Mario Draghi will take questions from the press at 1.30pm to explain the thinking behind the cuts

Follow all the action and market reaction here with economics reporter Emily Cadman and Lindsay Whipp in London, with Eurozone economy correspondent Claire Jones in Frankfurt.

 

Claire Jones

It’s crunch time for the European Central Bank. After more than six months of jawboning, pretty much every seasoned ECB watcher thinks the governing council is finally going to ease monetary policy on Thursday.

Disappointing growth, worryingly weak inflation, and the rise of anti-establishment parties in the European Parliamentary elections have only added to the sense that rate-setters must do something to stave off the threat of deflation and help stimulate lending in the real economy. What can we expect from the ECB and how will it work? 

Claire Jones

Lithuania looks set to become the 19th member of the euro in January 2015 having met all the requirements demanded by the European Commission. Were the Baltic state to join the single currency, as is widely expected, that would trigger a big change in the way the European Central Bank’s governing council votes on monetary policy.