In the aftermath of the Salzburg summit, where the Chequers plan was dismissed by the EU, and PM May demanded “respect”, the pound has plunged.
Category Archives: financial markets
Guest Contribution: “International Macroeconomics in the wake of the Global Financial Crisis”
Today, we are pleased to present a guest contribution written by Laurent Ferrara (Banque de France), Ignacio Hernando (Banco de España) and Daniela Marconi (Banca d’Italia), summarizing the introductory chapter of their book International Macroeconomics in the wake of the Global Financial Crisis. The views expressed here are those solely of the author and do not reflect those of their respective institutions.
A decade after the eruption of the Global Financial Crisis (GFC), the world economy has finally returned to a more sustained pace of expansion (see Fig. 1).
Figure 1: World GDP annual growth (in %, constant prices). Source: IMF, World Economic Outlook, April 2018 and July 2018 update
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Recalling the Beginning of the Lost Decades
Lehman Brothers, the global financial crisis and ensuing great recession, plus ten.
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At the Current Pace, the 2-10 Will Invert in December
Holding to the Old Faith
Figure 1: Ten year-3 month Treasury yield spread (bold dark blue), and ten year-two year Treasury yield spread (bold dark red), and projections at current pace using 2017M01-18M08 sample (light blue and pink lines), in percentage points. August 2018 observation through August 27th. NBER defined recession dates shaded gray. Light orange denotes Trump administration. Source: Federal Reserve Board via FRED, Bloomberg, NBER, author’s calculations.
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The Term Spread and Dollar Diverge
With the election, and anticipation of a large fiscal impulse (tax cut, infrastructure spending), the dollar rose and the term spread increased. As expectations of the latter disippated, both the dollar and spread shrank. But recently, the comovement has broken down.
Not Quite Twin Peaks
Nominal asset prices, including S&P500 and home, continue to rise, but real prices have not regained prior levels (S&P500) or have plateaued (home prices).
Term Spreads as of Noon Today
Trending down.
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VoxEU: “The new Fama Puzzle”
That’s a new article at the outstanding web portal VoxEU, coauthored by Matthieu Bussière, Menzie Chinn, Laurent Ferrara, and Jonas Heipertz, and based on this paper:
The ‘Fama puzzle’ is the finding that ex post depreciation and interest differentials are negatively correlated, contrary to what theory suggests. This column re-examines the puzzle for eight advanced country exchange rates against the US dollar, over the period up to February 2016. The rejection of the joint hypothesis of uncovered interest parity and rational expectations still occurs, but with much less frequency. In contrast to earlier findings, the Fama regression coefficient is positive and large in the period after the Global Crisis, but survey-based measures of exchange rate expectations reveal greater evidence in favour of uncovered interest parity.
The Trade Policy Annotated Yield Curve
Down, down, down. 10yr-3mo at 0.86% at 2pm today. See Jim’s post for more on the spread.
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Worries about the yield curve
Several people have asked me if the flattening yield curve is a warning of impending weak growth or even a recession. My answer is not yet. Here’s why.
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