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Author Archives: James_Hamilton
On R-squared and economic prediction
Recently I’ve heard a number of otherwise intelligent people assess an economic hypothesis based on the R2 of an estimated regression. I’d like to point out why that can often be very misleading.
Links for 2014-01-19
Quick links to a few items I found of interest.
European monetary policy and the yield curve
From the Economist last week:
Since the financial crisis the European Central Bank (ECB) has ploughed a solitary course, reflecting its unique status as a monetary authority without a state. While other big central banks, notably America’s Federal Reserve, adopted quantitative easing– buying government bonds by creating money– to stimulate recovery, the ECB relied mainly on lowering interest rates and providing unlimited liquidity to banks on longer terms and against worse collateral. But as the Fed phases out its asset-buying programme in 2014, it may be the ECB’s turn to become unorthodox.
By one measure, the ECB may already be there.
Predictions for the New Year
From Tim Duy:
Pencil in somewhat stronger growth in 2014. Pencil in a steady reduction in the pace of asset purchases until the program winds down at the end of the year. Pencil in an extended period of low rates. But also recognize that the tide of monetary policy is now receding– albeit ever so slightly– with the Fed’s first step of ending the asset purchase program.
And from the invaluable Bill McBride: Ten questions for 2014.
A lack of ethics
David Kocieniewski of the New York Times is guilty of some outrageously bad journalism in the form of a groundless ad hominem attack on the reputation of two professors for the sole purpose of reinforcing the prejudices of his misinformed readers.
All quiet on the southern front
After a wild ride in 2011-2012, interest rates have settled down on European sovereign debt. For now.
U.S. tight oil production surging
The U.S. Energy Information Administration last week issued an early release of its Annual Energy Outlook 2014, which shows substantially more optimism about near-term U.S. crude oil production compared to the AEO 2013 assessment completed just eight months ago.
Links for 2013-12-19
Quick links to a few items I found interesting.
Federal Reserve control of the short-term interest rate
Once upon a time, U.S. monetary policy was conducted with its primary target defined in terms of the fed funds rate, which is the interest rate on an overnight loan of Federal Reserve deposits between private banks or other institutions that hold accounts with the Fed. A bank that ended the day with more deposits in its account with the Fed than needed to meet its required balances could lend those funds to another bank that found itself short. The interest rate on these loans was very sensitive to the total level of excess reserves in the system. The Fed’s direct control of available reserves gave it near control of the interest rate on loans of fed funds, which was what made the fed funds rate a credible target for implementation of the FOMC’s policy directives.