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Ben Bernanke

Central banks’ poor forecasting records and why the Fed may hike rates before late 2014

Central banking has evolved substantially in recent decades. Part of this evolution has involved a move towards greater transparency around a central bank’s forecasts and operations. The reason for this shift is because it is believed by many economists that by having a central bank communicate its objectives and forecasts, economic agents like consumers and businesses will make better informed…

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The US is headed for recession – if 63 years of economic data are any guide to the future

Think the US is out of the woods now that congress has come to an agreement on the debt ceiling? Not according to this chart from Rich Yamarone, an economist at Bloomberg. It’s called the “2 percent rule”. When US GDP falls below 2%, it usually means the world’s largest economy is headed for a recession.

Last week, we received confirmation that US GDP was just 1.6% in Q2 2011. Combined with ye…

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Bernanke calls for a 4% inflation target

Well sort of.  It hasn’t got a lot of attention in the bond markets, but this week both Jon Hilsenrath in the WSJ, and subsequently Paul Krugman in the NYT have revisited Ben Bernanke’s paper Japanese Monetary Policy: A Case in Self-Induced Paralysis.  Bernanke wrote this in 1999 as an academic at Princeton University.  In it he calls on the Bank of Japan to set a “fairly high” inflation target…

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Letter from New York

Stefan and I have just got back from a trip to visit our counterparties in New York. The mood is almost universally gloomy with – predictably – housing and gas prices the dominant themes. The TV news channels run an almost constant stream of features on the cost of motoring (a gallon went through the $4 mark for the first time at the weekend, up from $3.10 a year ago, a 30% rise), with intervie…

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US housing downturn worst since Great Depression – and getting worse

Investors are almost becoming blasé to dire US housing market data releases, but the reality is that things are getting worse and worse.

The monthly S&P/Case-Shiller figures that came out on Tuesday showed that the US housing market downturn is now more severe than the one that led to the US recession in 1991. As the chart shows, the S&P/Case-Shiller Index Composite-10 Index fell by 9.8% in th…

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Monetarism revisited

Goodhart’s law states that once you start targeting a certain statistic in the course of economic policy, the relationship between that statistic and the economy breaks down. Charles Goodhart was a Bank of England advisor, and the law gained publicity during the 1980s attempts by the Conservative government to target the monetary aggregates (broad money (M4 – money in bank accounts and circulat…

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