Q&A: What do we need to know about output gaps?
Q&A: For AS macroeconomics, what do we need to know about output gaps?
read more...»Eurozone Crisis - Lessons Learnt
Last week I attended a very interesting lecture at the LSE on the Eurozone crisis, given by Leszek Balcerowicz, a Polish economist who is former chairman of the National Bank of Poland and Deputy Prime Minister.
The following blog outlines his thoughts, but also includes useful links to articles to read.
Using the crisis as a case study will hugely benefit A2 students as it encompasses many of the topics covered in the syllabus.
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing
It is now over three years since the Monetary Policy Committee of the Bank of England cut policy interest rates to 0.5% and subsequently introduced a policy of quantitative easing (or an asset purchase programme) now worth £325 billion.
These have been difficult times for the Bank. The average rate of CPI inflation since 2008 has averaged 3.5% - well above the official target - and the Bank has faced pressures from many sectors of the economy not least the millions of pensioners and other net savers whose incomes have been dragged lower by this period of ultra-low interest rates.
Has conventional monetary policy lost its effectiveness in the aftermath of the global financial crisis? Bank lending continues to fall, consumer and business confidence is fragile, many people have seen interest rates on unsecured credit rise not fall, and the depreciation of sterling seems to have had a muted expansionary effect on demand, profits and jobs.
Here are a few evaluation slides on Monetary Policy and the Bank of England from our recent A2 macroeconomics revision workshop together with some links to recent news reports on the Bank of England’s strategy and the impact of policies such as QE.
read more...»A return to Glass-Steagall to prevent another crash? A lesson from economic history.
At the World Traders’ Tacitus lecture last night, Terry Smith proposed a return to the provisions of the Glass-Steagall Act in order to reform the banking sector. The title of his lecture was ‘Is Occupy right?’, and while he clearly didn’t go along with some of the propositions of the Occupy movement, such as the imposition of a financial transaction tax, he did say that they have a serious point to make about the financial system.
read more...»Stephanie Flanders explains Quantitative Easing in 60 seconds
This has to be amongst the best 60 seconds of Economics you’ll ever see on television. The superb Stephanie Flanders takes a leaf out of the RSA playbook to explain the basic theory behind quantitative easing. Wonderful!!
read more...»Unit 4 Macro: France loses her AAA credit rating
It is perhaps a moment of more political than economic significance, but on Friday 13th January 2012 Standard and Poors, a leading credit rating agency announced that France was losing her triple A (AAA) credit rating for sovereign debt. It was part of a larger downgrading of government bonds among a sizeable chunk of Euro Zone countries, the argument being that plans to achieve deficit reduction lacked credibility. France was downgraded, S&P also lowered the long-term ratings on Austria, Malta, Slovakia, and Slovenia, by one notch. The rating levels for Cyprus, Italy, Portugal and Spain were dropped two notches.
Here is a brief Channel 4 report on the news and some other links to the story. Only four Euro Zone countries now have an AAA rating. Do you know who they are?
read more...»Unit 4 Macro: Who is to blame for the Crisis?
The new series of Stephanomics is being filmed and made available on the BBC web site. In this episode, Stephanie Flanders asks who is to blame for the global financial crisis? She is joined by the billionaire investor George Soros, Sir Howard Davies, former chairman of the Financial Services Authority and former deputy governor of the Bank of England, and Dr DeAnne Julius, chairman of Chatham House and a former member of the Bank of England’s monetary policy committee. This is gold-dust for unit 4 macro students who want some tremendous evaluation on causation of the crisis from three incredibly well-placed figures.
World Collapse explained in 3 minutes
A nice summary of the world economy situation…... compressed into three minutes .... click on the You Tube link below
read more...»UK Unemployment in October 2011
There were some desperately disappointing unemployment and employment numbers published for the UK economy today. Even taking due note of the need not to focus too much on one set of data the UK labour market looks to be weakening as fast as the autumn leaves are falling. The human and social cost of the high jobless figures is enormous and the macroeconomic effect of fewer people in work and paying taxes will dent further hopes of a solid recovery.
read more...»Unit 1 Micro: Rice market intervention
A good example to discuss of government intervention into agricultural markets - in this case Thailand’s government have intervened in the market to buy unmilled rice at 15,000 Thai baht per metric tonne, which is a 50% premium on the current market rate. A good discussion of the possible impacts can be found, with a discussion of the economic rationale/consequences of it, here.
Will Jean-Claude Trichet be missed?
JCT is no longer president of the European Central Bank and he leaves, after eight years at its helm, with as many detractors as there are supporters. The ECB is widely perceived as being ‘genetically’ close to the German
Bundesbank following the neo-classical school where inflation is the route of all problems and so needs to be controlled no matter the cost.
A2 Micro: Concentration Ratio for the US Smartphone Market
We´re going to be looking at this part of the syllabus very soon and the two graphics below from here and here look at how the US market for smartphone operating systems is split between the major firms and also how global market share for mobiles as well as smartphones is split.
read more...»King on QE2
The Govenor, Mervyn King, explains how he hopes that by injecting 75 billion of newly printed cash into the economy Aggregate Demand will be stimulated enough to avoid a double dip. See video below and the full article here.
read more...»Fat tax: Denmark
Earlier this year, the Royal Economics Society had the Young Economist of the Year competition with one of the titles being to debate the use of a Fat Tax. This week, Denmark have announced exactly such a tax on some of its foods! Read more here.
Supporting article on the Danish fat tax from Time Magazine
And this feature on the efficiency and equity arguments surrounding the fat tax from Steve Sexton writing in the Freakonomics blog.
Fuel for Thought
When teaching elasticities, fuel always seems to have been a favourite example of a good with very inelastic demand in response to price changes. However, this AA research adds further to the evidence that suggests that even fuel has now reached it’s limit in terms of quantity demanded remaining firm at it’s market price.
read more...»Ali G and demerit goods
When discussing demerit goods, it is always good to be able to show a few examples. In these youtube clips, Ali G interviews a police superintendent about offensive weapons and a US federal agent about illegal drugs.
read more...»Unit 1 Micro: Producing Coffee - Kenya in Pictures
If you are teaching the economics of commodity prices and coffee in particular - this resource - will appeal strongly to your visual learners! The Guardian Pictures web site has a quite stunning set of photos of Kenyan coffee producers - growers who are hoping that rising world prices will bring respite after years of difficulty including volatile crop yields, poverty prices and incomes and a long term decline in investment.
3 for 2 no more
The book world was shaken this month when it emerged that Waterstone’s, the UK’s largest book chain, is going to ditch its decade-old 3-for-2 offer. Good for A2 micro when discussing firms’ strategies for growth and profit. Read more here.
Unit 2 Macro: Homework Assignment on Consumer Spending
I have attached below an example of a homework assignment for my Unit 2 macro economic group which focuses on some of the main drivers of consumer demand for goods and services. It is available for free download as a pdf file. Discussion in class will centre on income, wealth, interest rates, confidence and expectations as key determinants. This is a particularly important stage of the economic cycle and there are many influences constraining household demand as we head towards the end of 2011.
Unit 1 Micro: Homework Assignment on Market Prices
I have attached below a homework assignment for my Unit 1 AS Micro students on market prices. The assignment focuses on the global markets for coffee and also for steel and is attached below as a pdf file for download if teaching colleagues might like to use and adapt it!
China - helping or hindering economic development in Africa?
If Africa was a physical battleground between east & west during the cold war of the 20th Century, it can arguably be seen today as the ideological 21st Century battleground between the difference approaches to promoting economic development: the western aid model versus the Chinese trade model. Is the Sino-Africa relationship mutually beneficial? I certainly don’t claim to have a comprehensive answer to this but it has been interesting talking to Africans on my journey so far about their perception of this, particularly in Zambia…
read more...»AS and A2 Macro: Exchange Rates and “Safe Haven” Currencies
This article from the WSJ highlights one determinant of exchange rates that we may not be too familiar with, whether or not a particular currency is regarded as a “safe haven” i.e. if a particluar investor fears that a currency will not hold its immediate or future value, then said investor may choose to exchange it for one which is more likely to.
read more...»Economics Resources: Best of Today Podcasts
A hat tip to my fellow blogger Graham Carter for suggesting this handy resource. The BBC web site maintains a regularly-updated selection of podcasts drawing on some of the best stories covered by the Today programme. Here is the link. Dip in once in a while to see if there is an audio-resource connected to relevant business, economic and financial news stories.
Economics at the Movies - Too Big to Fail
A big thank you to my former student Mike Dawes, who recommends the film of the book ‘Too Big to Fail’. The made-for-TV film has recently been shown on Sky Anytime, where you may have caught it, but if not there are some trailers and extracts available here on HBO’s website, as well as a synopsis.
Mike has also found a YouTube extract of a scene in the movie where US Treasury officials (Hank Paulson, Neel Kashkari, Jim Wilkinson) are deciding how to break the news of the AIG bailout in a press release and, in his words “there is a Scooby-Doo style unravelling of the recession which for 2 minutes is possibly one of the best explanations I have heard. They also neatly explain Credit-Default Swaps which is equally simple and may help those who were struggling to understand it.”
Andrew Ross Sorkin’s book which led to the film is available from Amazon’s US store here.
Unit 4 Macro: IMF Flags up Risks of Double Dip
Here are some of the salient points from the gloomy World Economic Forecast from the IMF which argues that the global economy has entered a dangerous phase.
The IMF report highlights many of the vulnerabilities facing both developed and emerging economies. In Britain the media is emphasising a sizeable reduction in the forecast rate of growth for the UK for 2011 and 2012. Real GDP in the UK is likely to expand by just 1.1% in 2011 and 1.6% next year and the IMF economists say that there is a one in five chance of a double dip recession.
Weak growth is terrible news for the Chancellor who is hoping for a significant expansion of the private sector to offset fiscal cuts and to meet the targets for fiscal deficit reduction. It is also awful for prospects of a meaningful reduction in unemployment and prospects of tackling the structural issue of very high youth unemployment rates.
Incidentally that risk of a double-dip is thought to be much higher in the United States where the probability of a second recession following a partial recovery is put at 40%.
read more...»What might happen on August 2nd?
Well- it’s the day the United States might go bankrupt! Read on to find out more and for links to some useful resources to aid a class discussion of this fascinating topic.
read more...»Global Economy: Increased risk of future shocks
A new OECD report on the risks of external shocks to the global economy looks like being really useful for teachers preparing fresh materials for their courses. “The interconnectedness of the global economy makes it more vulnerable to major shocks…...these shocks include cyber attacks, pandemics, geomagnetic storms, social unrest and financial crises.” The report can be downloaded here.
A Weekend at Bretton Woods
John Cassidy is always worth reading. His recent book ““How Markets Fail: The Logic of Economic Calamities” is one of the very best around for understanding important contributions to the development of economic thought and policy during the last fifty years. (I reviewed it here) In this article from the New Yorker, John Cassidy reports from the annual conference of the Institute for New Economic Thinking held at the Bretton Woods Hotel in New Hampshire, USA. It is a review of some of the keynote presentations and discussions and is recommended reading for A2 economics students wanting more background on some of the key policy dilemmas existing at present.
Tracking the effects of the recession on GDP
An excellent resource for Unit 2 and Unit 4 macroeconomics. Vishnu Padmanabhan from Timetric has this excellent look at the impact of the recession on real GDP growth in OECD countries. Which countries did best and worst in the recession? It turns out that Australia, Poland, Israel and South Korea were the countries least affected by the crisis and all avoided a full-blown recession - experiencing instead a soft landing. Here is Vishnu’s article. Our own growing selection of Timetric charts can be found by scrolling down to the bottom of this blog entry.
The OECD has just produced their annual review of Going for Growth - a largely supply-side look at policies designed to promote long-term growth in productive potential in the world economy. Details can be found here.
The Scale of Remittances
Remittances are the sending of money to people in another country. Despite a recent dip because of the global recession, total remittance flows have grown in the world economy over the longer-term as the scale of migration between countries has grown. For many lower-income nations, remittance income is now a sizeable contribution to their Gross National Income (GNI) The World Bank estimates that there are over 250 million people living overseas who send some of their earned income back - remittances to all countries topped $305bn in 2008. The biggest single recipients of remittances are India, Mexico and China but measured as a share of national income is probably a better way of considering their relative importance. The World Bank calculated that in 2007, remittances as a share of GDP was particularly high in these countries:
Tajikistan (45%)
Moldova (38%)
Tonga (35%)
Lesotho (29%)
Honduras (25%)
Our Timetric charts provide some data background to the importance of remittances
