Finance Basic To Advance Level Knowledge

  My latest Macro Musings podcast is a special holiday edition on the economics of Christmas.Two special guests joined me all the way from Germany to discuss this topic. My first guest was Anna Goeddeke, a professor of economics at ESB Business School in Reutlingen, Germany. My second guest was Laura Birg, a postdoctoral researcher at the Center for European, Governance, and Economic Development Research, University of Göttingen  Together they coauthored an article in Economic Inquiry titled “ Christmas Economics—a Sleigh Ride ” that surveys and summarizes the economics literature on Christmas. It is a great read for this time of the year and was the basis of our conversation. We touched on a number of interesting topics like the seasonal business cycle, the deadweight loss of Christmas, and charitable giving during the holidays. The seasonal business cycle discussion was particularly fascinating for me. There is a literature that starts with Barksy and Miron (1989)...

One more quick note on the Trump shock and interest rates. For some time I have been following the global  safe asset shortage problem  and how it has created a downward march of safe assets interest rates. This can be seen in the figure below: The latest development in this story is that the safe asset interest rates have all started heading up, as seen in the above figure. Even Japan's which is supposed to be targeted at 0 percent but has climbed to 0.8 percent. Now these yields have a long ways to go before reaching normal levels and they started rising before Trump's election. But since the election the ascension of these interest rates has accelerated in many cases. This is a bit puzzling. It is one thing to think the Trump shock has changed the growth and inflation outlook in the United States so that treasury yields are now going up, but why the other advanced economies? As you may recall, the safe asset shortage story says there has been a price floor (ceil...

I have a new piece in The Hill where I argue markets are increasingly seeing the Trump shock as an inflection point for the U.S. economy: It seems the U.S. economy is finally poised for robust economic growth, something that has been missing for the past eight years. Such strong economic growth is expected to cause the demand for credit to increase and the supply of savings to decline   Together, these forces are naturally pushing interest rates higher. The Fed’s interest rate hike today is simply piggybacking on this new reality.  Here are some charts that document this upbeat economic outlook as seen from the treasury market. The first one shows the treasury market's implicit inflation forecast (or "breakeven inflation") and real interest rate at the 10-year horizon. These come from TIPs and have their flaws, but they provide a good first approximation to knowing what the bond market is thinking. In this case, both the real interest rate and expected inflation r...

My latest   Macro Musings podcast is special one where we look at the macroeconomics of Star Wars and Star Trek. We do so with the help of two guests who are experts on the economics of these two scifi franchises. [ Update : sound quality starts out poor, but gets better a few minutes into the show.] Our first guest is Zachary Feinstein. Zach is an assistant professor at Washington University in St. Louis and  the author of a study titled " It's a Trap: Emperor Palpatine's Poison Pill " where he provides a fascinating look at the financial consequences of the destruction of the second death star. This article received a lot of media coverage last year when Star Wars: the Force Awakens came out. For example, below is a screen shot from a Bloomberg interview  discussing the financial burden of building the two death stars. Now with the release of Star Wars: Rogue One  upon us it was only fitting to have him join the show and share with us his knowledge of t...

My latest Macro Musings podcast is with Peter Conti-Brown . Peter is a financial historian and legal scholar at the University of Pennsylvania. He is also the author of a new book The Power and Independence of the Federal Reserve and joined me on the show to discuss it. Our conversation begins with what Peter calls the three foundings of the Fed: 1913, 1935, and 1951. These were the pivotal dates where major changes were made in the legal structure of the Fed. These changes, however, only changed the legal infrastructure to the Fed. Important personalities continued to transform the institution. Peter points specifically to three Fed chairs for making the Fed what it is today: William McChesney Martin, Paul Volker, and Allan Greenspan. We also cover the important role the staff plays at the Fed. In particular, the discuss the inordinate influence the head of the international finance division and the general counsel play in shaping international and domestic policy. That t...

One of the big questions going into 2017 is how resilient the global economy will be to a further strengthening of the dollar. The Trump shock and the Fed's desire to raise interest rates almost guarantee a strengthening of the dollar next year. Unfortunately, this is not the best time for a surging dollar since the global economy is ripe with dollar-denominated debt and anemic growth.  The dollar's initial surge took place between mid-2014 and late 2015 when it grew over 20 percent. This sharp rise was tied to the Fed talking up interest rate hikes while the ECB signaled lower future interest rates. The figure above shows this by reporting the spread between the U.S. and Eurozone 6-month interest rate, 6 months ahead along with the trade-weighted dollar. The figure shows that after plateauing for much of 2016--with some bumps along the way--the dollar has recently started strengthening again as the spread has started to widen. My concern is that this will continue int...