VoxEU have recently launched a book on forward guidance and it has demonstrated wonderfully my ignorance of central banking. I thought that when bankers issued ‘forward guidance’ they were doing it to escape the zero lower bound by promising to keep rates lower for longer than they normally would. Something like this:
The ‘Odyssian’ guidance seeks to lift nominal expectations by promising not to tighten policy in future. For a while, the bank’s policy rate will dip below the level you’d expect if they were never at the ZLB. That is the sort of guidance that the Bank of England has explicitly disavowed. Read more
Am I the only one who spends a lot of time trying to translate RBNZ communication into English? Below is a quick take in 200 fewer words what I think the key messages are from the October OCR announcement: Read more
Every time the statistical authority releases new data there is a surge in economic commentary. Not analysis, but commentary. A thoughtful analysis would usually say that a single new data point doesn’t provide enough information to change anything we thought previously. There’s just too much randomness and error in point estimates to be able to tell much from them. Commentary is different because it creates a narrative and fits the data into that narrative.
A good example is the narrative about double and triple-dips in the UK. Commentators made much of the ONS’ revisions to the GDP series that ‘revised away’ the triple-dip, ‘vindicating Osborne’. The revisions may have eliminated a slight dip in GDP but they didn’t change anyone’s understanding of what had happened in the macroeconomy. That data was important for commentary but not for analysis. In fairness to commentators, distinguishing genuine trends from randomness is not easy. Our eyes are drawn to ‘streaks’, whether in football games or economic time series, even when the series is essentially random. Economists are always looking for techniques to separate the streaks from the randomness. The problem we face is that many of the tools are fairly impenetrable to casual observers and hard to explain.
Edward Tufte has suggested using randomised sparklines to visually distinguish genuine trends from deceptive streaks, so I thought I’d give it a go with the last four years of UK unemployment data. Here is the monthly change in the UK unemployment rate since June 2009: . We think that a recovery has begun so the recent years’ falling unemployment looks good. Now let’s try randomising the values and see if the ‘streak’ disappears. Read more
The article covers a lot of ground, discussing monetary policy, “one-off” money financing, and seigniorage. These areas are all related, but all involve special elements.
Following the concerns about botulism and Fonterra, there have been increasing calls for New Zealand to be “diversified” or even for the NZ government to “pick winners”. Gareth Kiernan touches on these ideas, and why we should be careful with them here. A choice quote:
Although economic diversity is useful in terms of limiting the volatility of GDP growth, it needs to be remembered that “picking winners” is generally a costly and futile exercise – politicians will usually be worse than entrepreneurs at where to invest resources, and are worse at letting poor performers go.
Remember, it is folly to look at the failures of markets and entrepreneurs without recognising the failures of institutions and government (as a large institution) as well. In that context, aiming to help out certain firms looks more like taking risk off businesses and putting it on the taxpayer – a shift that hardly seems fair.
What do you think?