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My A2 macro students are now looking at some fascinating macro policy challenges facing a range of countries. This week they choose one from two set assignments.
The first offers them an opportunity to analyse some of the causes of high inflation in India and consider how much of a threat it is to India's continued growth and development.
A second assignment looks at Abenomics in Japan and whether it can lift the Japanese economy out of over two decades of slow growth and deflationary pressures. I am hoping that there will be some interesting insights allied to good A2 macro analysis as students crack on with their independent research.
Download the assignment sheet below and I have added in some suggestions for further reading on the two topicsread more...»
Students looking for a good example of a supply-side policy for improving the economic performance of the UK may be interested in this news article about how increasing the labour participation rates of women in the UK could lead to an increase in GDP by up to a staggering 10%. This growth could be achieved by encouraging the number of women wishing to provide their labour (or increase the provision of their labour) to the same level as men.
The common view now is that legislation is no longer good enough in itself to provide this encouragement. The Equality Act of 2010 combined the various equal opportunity laws together to penalise businesses that operate unequally. What appears to be needed is an improvement in the accessibility, availability, cost and quality of childcare facilities to allow more mothers to work (or work longer).
A further article (follow this link) explores how this principle is equally true of the Japanese economy. This article has a fantastic graph comparing the female participation rates for many of the major economies which might be a fantastic data example for teachers to use as a compare and contrast exercise.
As for the costs on society of such a policy....... That's a different question!
Economic commentators love their acronyms and abbreviations - they come in handy when reaching character capacity limits on a tweet and also for students fighting the exam clock to complete a timed essay. Two new ones have come to my attention in recent days. What does ZIRP and PLOG mean to you?read more...»
Are you following important macroeconomic developments in Japan? The new government of Shinzo Abe is reforming monetary policy - including a change to the inflation target - and undertaking more aggressive fiscal measures. Will it work in lifting the Japanese economy to a higher growth plane after two decades and more of sluggish growth and the debilitating effects of price deflation?read more...»
It has suddenly become fashionable to be concerned about China’s growth rate slowing down. This is not a matter of a short-run cyclical downturn, with normal service being resumed shortly as the economy roars ahead once more. It is a worry that there will be a permanent slowdown by the end of this decade. Instead of annual growth rates around 10 per cent and even more, the Chinese economy will settle down to the much more sedate rates seen in the West in the 1950s and 1960s in the range 3 to 5 per cent.
The OECD's world economic outlook is published twice and year and is a heavyweight publication with plenty of great relevant macro for ambitious A2 students. I have linked below to their latest report - including a streamed presentation on their key data forecasts and emphasis on some of the underlying challenges facing OECD countries.read more...»
The balance of economic power is expected to shift dramatically over the coming half century, with fast-growing emerging market economies accounting for an ever-increasing share of global output, according to new OECD research. Here are some links to their report and to media coverage.
I am launching into a short course in international trade, balance of payments and links to economic development issues. The standard fare is inescapable and there will be plenty of opportunity to cover theories of comparative and competitive advantage, evaluate the costs and benefits of protectionism and look at key trends in the balance of payments, terms of trade and capital accounts for developed and developing countries.
This time, in an attempt to freshen things up I am starting by looking at the work of Cesar Hidalgo and Richard Hausman at the MIT Media Lab and the Observatory of Economic Complexity. I first came across their work whilst reading Tim Harford's last book Adapt. They are mapping vast amounts of trade data from across the world to explore the extent to which export complexity, dynamic advantage and per capita incomes are connected. The data visualisations are tremendously interesting and I will be asking my Year 13 students to explore their site and choose some data of their own that sheds light on revealed comparative advantage in the world economy.read more...»
Japan’s high speed rail network has been for decades one of the world’s benchmark industries for rapid mass transport. Their safety record over the last forty years has been impeccable with not one single passenger fatality from a derailment.
The FT news video report available below captures the cutting edge technology and quality of infrastructure that makes Japan the envy of many other rich nations. But competition is growing especially from France and China notably in the battle to win export contracts to licence the technology and hardware used in investing in new rail capacity.read more...»
Last night’s edition of Newsnight should be required viewing for all AS and A level economists - and it is a huge shame that it is only available on i-player for another 7 days. Introduced on the shock news that even Tesco is vulnerable to the downturn, it included reports from Andrew Verity looking at whether the British economy will ever wean itself off shopping and the City, and an excellent (and all-female!) discussion including Deborah Meaden and the FT’s Gillian Tett. Try challenging your students to watch and listen to this while noting down every aspect of the syllabus which is mentioned or referred to - that will keep them busy!
There was also a debate between Employment Minister Chris Grayling and disability campaigner Sue Marsh about the government’s welfare reforms, defeated in the House of Lords the night before, and finally Tokyo correspondent Roland Buerk looking at Japanese economic stagnation of the late 1980s and 90s, to consider whether it was a “lost decade” and what could be learnt from it.
The updated presentation on prospects for the UK economy that we delivered in Madrid yesterday is available here as a streamed presentation and also as a downloadable pdf handout. All of the data charts are up to speed and we have included some comments on the importance of context for AS and A2 students (in particular) when discussing UK developments in the context of external events and shocks in the international economy.
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.
BBC Business News has an excellent report and supporting video which assesses why the Yen has strengthened following the sad disasters besetting Japan.
An example of how financial flows impact on exchange rate volatility. The normal suspect, currency speculation, may not be the major driver here.
Or are speculators ‘gambling’ that repatriation of funds to finance reconstruction means the Yen will rise in value so ‘buy cheap, now’ and ‘sell later, dear’?
And how can the world’s central banks respond? And why?
Much to debate in classread more...»
One aspect of globalisation is that manufacturers source their supplies from around the world. This will depend on the comparative advantage those countries have developed in producing various types of components. Japan produces about 30% of the global output of ‘flash memory’ used in electronic cameras and smartphones, and about 15% of the DRAM memory used in PCs. If something happens to disrupt that supply chain, as is clearly the case after the horrific events in Japan, there will be global effects.read more...»
The terrible news coming out of Japan reminds one of the fragility of human life in the face of overwhelming natural forces. The thoughts of everyone at Tutor2u are with the people of the region affected by the earthquake and subsequent tsunami.
The narrow economic impact of the natural disaster will take many months to calibrate - Japan is one of the richest countries in the world and ought to have the resources to cope with the immediate aftermath. But her macro-economy has been weak for many years - the country has been struggling to shrug off a lost decade of slow growth and - more recently - one of the deepest recessions in her post war history.
Does the third largest but most indebted government in the world have any fiscal freedom to react? What will happen in the short term to industrial production, energy and food supplies and her export sectors?
Earthquakes have a special power to create hugely damaging economic consequences. Japan suffered losses of 10 trillion Japanese yen in the 1995 Kobe quake, 2.5 percent of the country’s GDP the previous year. Over time a rebuilding process will help to stabilise economic activity but there is an opportunity cost of having to devote scarce resources to rebuilding. The Japanese economy has endured a period of relative stagnation in part because many Japanese companies have out-sourced their manufacturing production to China and other countries where unit labour costs are lowest.
I have produced a series of charts below tracking some of the recent key changes in macroeconomic indicators for Japan and linked to some news coverage and audio-visual resources on how the earthquake may affect the Japanese economy
Hamish McRae: The cost of catastrophe and unrest is huge in both human and economic terms
BBC News (Feb 2011): Japan is no longer the world’s second largest economy
BBC News (Nov 2010): Japan grapples with deflation and demographics
BBC news: (Nov 2010): G20: Currency War and Japan
Guardian: Japan’s economy heads into freefall after earthquake and tsunami
Telegraph: Japan shuts down as economic fears grow
In this Timetric chart blog we look at unemployment rates for a selection of country groups - these automatically updated charts will track what is happening to the standardised jobless rates for clusters of countries starting with one that includes the Euro Area, Germany, USA, UK and Japan. The second chart is the unemployment rates in the so-called PIIGS - Portugal, Italy, Ireland, Greece and Spainread more...»
The BBC’s Hugh Pym has been in Japan to understand better the deep problems facing a country that has been struggling with persistent deflation, slow growth and rising unemployment for many years. There is a link below to an excellent video piece which focuses on the challenges facing Japan given a rapidly ageing population. Here is the written article.
Japan grapples with deflation and demographics
What do 20 years of economic stagnation look like? (Aditya Chakrabortty writing in the Guardian)
We started our teaching this year by looking at issues related to measuring living standards and now we are moving onto aspects of the causes and consequences of economic growth.
I like to put growth into some kind of context by drawing on recent UK cyclical data and growth information for a range of other countries. I have attached a brief powerpoint of such charts with this blog which may be of some use for colleagues.
One of the interesting trends for many OECD countries is that estimated trend growth (the % change in potentail) GDP has fallen sharply in recent years. Indeed for Spain and Ireland, trend growth estimates have dropped into negative territory. Mo’s recent blog on hysteresis links in part to why this is happening.
Download the A2 Macro Growth Charts
Movements in the external value of currencies have direct and indirect effects on plenty of macroeconomic variables such as inflation, exports, output, profits and - ultimately - jobs. This week we have seen the Japanese central bank intervening in the foreign exchange market in an attempt to drive the value of the Yen lower. Japan is struggling to sustain a recovery after the global financial crisis and a weaker currency is seen as a vital part of the attempt to prevent another draining bout of price deflation.
And the long-running dispute between the United States and China about the alleged under-valuation of the Yuan against the US dollar continues to rumble. This BBC news video takes a swing through New Jersey to find trade unions lobbying government for more action on the exchange rate issue.
This speech from the Japanese Prime Minister reported on the BBC news website could not be starker. He argues that the Japanese economy is so riddled with debt that it risks causing a new economic implosion - worth reading ahead of the Unit 4 AQA paper this June as supporting for evaluation on the economics of budget deficits and sovereign debt.
Food for thought from the changing world of Sumo
Here are two useful update articles on some of the issues facing the Japanese economy.
First, the BBC reports on an IMF study that urges the Japanese to take immediate steps to cut their national debt which “at nearly 230% of GDP, is the highest of any industrialised nation.” The IMF believes that economic growth is sufficiently robust at present to take some of the tough fiscal consolidation measures needed. (In contrast to the situation in the UK?). Second, a report that finds that Japanese exports are providing a kick-start to hopes of a recovery in GDP as “emerging Asian markets such as China have been driving Japan’s economy.” Faster growth will be key to Japan breaking free from the latest bout of consumer price deflation.
The UK too is hoping for an export-led recovery in the second half of 2010 and well into 2011 but a dark cloud on the horizon are fears that financial turbulence in the Euro Zone will cause the Euro Zone economy to fall back into recession and the pound to appreciate against the Euro - both factors would hit British exporters looking to grow sales in a region that accounts for well over fifty per cent of our trade in goods and services.
Government failure in Japan?
Statistics about the speed of China’s development never cease to be amazing, no matter how many times you read them. Here is another one; in the dark days of 2009 the Chinese economy grew by yet another 8.7% (10.7% in the final quarter of the year) so that it is now set to overtake Japan, which probably shrank by 6% over the same period, to be the world’s second largest economy. And yet, according to Ma Jiantang, head of the National Bureau of Statistics, there are still 150 million people in China living on $1 a day and so poor according to the UN’s standard rating. This gives a remarkable contrast as the world’s second or third largest economy is also a developing nation with enormous conflicts and trade-offs in macroeconomic policy to resolve. Mr Ma also referred to the concerns about inflation in China - he said price rises were “mild and under control”, but over recent days the government has tried to limit the amount of loans made by the country’s banks in order to avoid a ‘domestic bubble’ of growth. This is the focus of the Times’ report, which highlights expectations that there may be a rise in interest rates in China in the next two months.read more...»
Ambrose Evans-Pritchard has a provocative piece in the Telegraph today on the demographic timebomb ticking underneath many Asian economies. The Japanese government has borrowed enormous sums in a bid to sustain aggregate demand and keep the economy afloat and avoid yet another deflationary slump. But the ratio of government debt to GDP is now - according to the author - perilously high.
“Japan is about to go bankrupt. It is on the cusp of a fiscal crisis that will change perceptions of Asia dramatically. The IMF says gross public debt will reach 218pc of GDP this year. This is compounding very fast. It will be 246pc in 2014…But I am absolutely certain that pundits consigning the dollar to its death have missed an even more dramatic currency and debt story in Japan.”
The Japanese Yen has hit an eight month high vs the US Dollar according to BBC news BBC News Article. This has prompted a lot of hand wringing from the Japanese ruling party and has sent share prices in Tokyo tumbling. But why should having a strong currency against the greenback equate to economic turmoil?read more...»
A fascinating short video from the BBC takes us behind the scenes of a Japanese electronic components business that is having to handle demand that is around 60% lower than last year. Japanese business culture is fundamentally different from the UK & USA, and redundancies are almost unheard of…until now. Having invested huge sums in capital equipment the business - like many in an economy that is struggling to emerge from a deep manufacturing slump - has an extraordinary amount of spare capacity… but there appears to be a silver lining!
Japan may have edged out of technical recession in recent weeks but deflationary pressures continue to bear down on their economy.read more...»
The depth of the Japanese economic recession is quite staggering. Annualised growth of real national output is now -15% with exports and manufacturing output down by more than 25% over the last year alone. Real GDP has shrunk back to the level it was at in 2003.read more...»
The export-dependent Japanese economy looks to be in free-fall at the moment. The IMF is forecasting a 6 per cent decline in real GDP this year and exports have collapsed - down 50 per cent on the same time last year. Japan is used to recessions - the lost decade slashed their trend growth rate to one per cent or less. But the pressures on Japanese industry are almost unprecedented.read more...»