At Long Last, the Feared (Portfolio) Crowding Out Has Materialized

The implication of a (massive) revision to the expected path of government debt relative to baseline is an increase in the slope of the yield curve. Some portion comes from the expectations hypothesis of the term structure, some from an increase in the risk premium. [lecture notes on portfolio crowding out] [lecture notes on expectations hypothesis of term structure]


Figure 1: Yield curve as of 8 November (blue), and 9 November (green). Source: US Treasury.

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New data sources for economic research

One of the exciting implications for economists of the digitization of everything is the ability to study economic relations and behavior at a level of detail far beyond anything that could have been attempted a decade ago. I’ve earlier called attention here to new measures of inflation obtained from millions of prices posted on the web, new insights into pricing behavior coming from scanner data on individual store transactions, and understanding of consumer behavior based on debit and credit transactions of 25 million Americans. Here I discuss another new study based on smart-phone apps.
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The Trilemma, Nuanced

I’ve just finished up the Mundell-Fleming model in my int’l finance course, and ended the section with a discussion of the “International Trilemma”, also known as “the Impossible Trinity”, which states that a given country can at any given time fully achieve only two out of three objectives of exchange rate stability, monetary autonomy, and financial integration (full capital mobility) at a time.


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