BLOG MASH-UP OF THE WEEK

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!

  1. China Financial Markets –  Michael Pettis : ‘Why a savings glut does not increase savings

    Although global savings gluts should result in higher global savings, empirical data show that global savings have been broadly stable in the last few decades. According to GDP identities, savings are equal to investment. So, a surge in savings must result in a simultaneous adjustment in the investment component. In this post, Michael Pettis argues that there are only four ways to fully offset a savings glut: an increase in productive investment; an expansion in non-productive investment (although it will be only temporary); a “consumption glut” due to the wealth effect on rising asset prices; or higher unemployment to compensate for lower production as a result of reduced consumption. According to Pettis, “a savings glut must combine with a consumption glut or with a surge in unemployment so that there is no net increase in savings.” – Ricard Torné

  2. A Fistful of Euros – Edward Hugh: ‘Firmly Anchored Expectations, No Postponement of Purchases?’

     Edward Hugh questions former European Central Bank board member Jürgen Stark’s opinion, as expressed in the Financial Times article titled Doomsayers risk a self-fulfilling prophecy. According to Stark, “we are living in an extended period of price stability” and “warnings about outright inflation and calls for ECB action are misguided and irresponsible.” Hugh challenges Stark’s reasoning by giving counter examples of rising inflation expectations as derived from the swaps market and purchase postponement evidence from the Spanish housing market.  Teresa Kersting

  3. Mainly Macro – Simon Wren-Lewis : ‘Inflation risks’

    In this blog post, Simon Wren-Lewis considers the issue of when interest rates should start rising. He uses the paper title “Modal path for output growth, unemployment and inflation in the alternative scenarios for slack” published by the Bank of England (BoE) to explain the risks of overestimating/underestimating the spare capacity in an economy. The BoE’s model describes two scenarios around its central projections for GDP, the unemployment rate and CPI inflation. In the first scenario, the Bank underestimates the existing slack in the economy. As a result, the unemployment rate falls faster, but GDP growth seems smaller than the Bank’s projections. In the second scenario, the Bank overestimates the existing spare capacity in the economy. Consequently, the unemployment rate behaves “sticker”, but the GDP growth is lower than the central projections. Regarding CPI inflation, in the second scenario the Bank manages to bring it back to the target; while the inflation rate remains always below target in the first scenario. These simulations suggest that the upside risks to inflation are small, because monetary policy can respond quickly. Wren-Lewis suggests that this explains why the Banks are so relaxed when it comes to increasing interest rates.  – Dirina Mançellari

  4. Dani Rodrik’s Weblog – Uma Lele: ‘Today’s structural transformation is a more mixed story than in the past

    Uma Lele, who writes as a guest in Dani Rodrik’s Weblog, shares interesting insights regarding the transition from mainly agricultural-based to industrialized economies, especially in developing regions. While the main theories in the field of development point to a clear step-by-step path of transition, Lele summarizes some recent findings that provide only partial support to this concept. In particular, the author presents several points which suggest that the conventional theory of sectorial growth does not apply to all developing countries. Lele provides some supporting evidence regarding the different economic performance paths of China and India. – Enrique Jorge

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