Everyday the blogosphere offers an enormous amount of in-depth analysis on any imaginable topic. The world of macroeconomics and economic forecasting is no exception. To keep themselves updated on the latest information, our in-house team of economists scan the world wide web and gather what they consider the most interesting, appealing, informative or just curious blog posts from experts in the field of global economics. Here’s the list of the Top 4 posts from this week. Check it out!
- The Market Monetarist – Lars Christensen : ‘Putin’s hopes for monetary miracles‘
Russian President Vladimir Putin stated that the country has to keep inflation “at reasonable levels”, while recording strong GDP growth rates. Lars Christensen points out that the Central Bank cannot satisfy Putin’s demands because the only way to achieve stronger growth and subdued inflationary pressures is via a positive supply shock. A positive shock is, however, impossible as there are several factors that suggest a contrary view: lower investment due to capital outflows, increasing political uncertainty and a weak ruble. So Governor Elvira Nabiullina has to choose between lower inflation and stronger economic growth. According to Lars Christensen, the recent monetary tightening reveals political pressures from governments to exhibit a strong ruble as “currency weakness is seen as politically embarrassing for local rulers.” – Ricard Torné
- The Globalist – Diane Coyle: ‘Warfare and the Invention of GDP’
Gross Domestic Product, or GDP, is a measure that has only been used since the 1940s and has amassed an extraordinary following. Whole economic theories now depend on it. Diane Coyle has written an interesting book about the history of GDP and in this post she provides us a piece of it. Coyle starts writing that warfare is the mother of invention, as many technologies of today have been developed by the necessity of conflict, while funded by the military. She provides some examples, ranging from Teflon, electronic computers, the Internet and Gross Domestic Product. She adds that following WWII the devastated countries of Europe depended heavily on Marshall Aid to enable them to survive and rebuild. Throughout that period, everything was in short supply and tracking the use of resources was essential. Was, finally in Keynes’ General Theory of Employment, Interest and Money that GDP figures met their ultimate destiny. She argues, however, that the use of national accounts for the purposes of warfare started much earlier, with the aim to asses a country’s resources with regard to its ability to fight a conflict and finance it through taxes. – Ricardo Aceves
- Mainly Macro – Simon Wren-Lewis : ‘When the definition of a recession matters’
With the exception of the United States, a technical recession takes place when the economy faces two or more consecutive quarters of contraction. However, it is precisely the technical aim of the definition what makes it weak in some cases. Think, for instance in two consecutive readings of a 0.2% and a 0.1% contraction that are revised up to tiny expansions (something similar happened in the UK recently). Should we think that the economy is in a very different shape? Wren-Lewis bases his post in an academic paper that explains how businesses and consumers react to the changes in economic headlines. They find that businesses do not necessarily change their behavior when numbers are revised slightly (as well as headlines). However, consumers appear to alter their consumption patterns depending on “what the journal says” about the economy, regardless of the size of the revision. The post includes interesting reflections about the role of rational expectations in economic theory. – Enrique Jorge
- Zero Hedge- Tyler Durden: ‘The Paul Craig Roberts Dilemma: World War Or The End Of The Dollar‘
In his quite polemic blogpost, Tyler Durden elaborates on the United State’s weakening position as global economic power. He identifies a potential strong devaluation of the U.S. dollar and the unwillingness of some major countries, such as China and Russia, to trade in dollar terms as main threats to the hegemony of the dollar. As alternative scenario, the author sees the poosibility of armed conflict between the US and Russia and China that would have devasting economic and social consequences. – Teresa Kersting
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