par Pancho Villa
publié dans :
Paul de Grauwe
...en defendant la "penalty-rate" n'oublie-t-il pas eventuellement l'augmentation de la probabilite du risque de
"carry-trading"...?
...tandis que Monsieur Breton...(tt le monde est d'accord la dessus)...nous devoile "indirectement" le fait qu'il n'aurait pas voulu devenir vendeur d'avions...?
par Pancho Villa
publié dans :
Paul de Grauwe
par Pancho Villa
publié dans :
Paul de Grauwe
'Economics is the social science that studies the production, distribution, and consumption of valuable goods and services. The word 'economics' is from the Greek words οἶκος [oikos], meaning house, and [nomos], meaning νόμος custom or law, hence "rules of the house(hold)." ' |
par Pancho Villa
publié dans :
Paul de Grauwe
Cycles of optimism and pessimism
PAUL DE GRAUWE
Uncertainties about the future development of the US economy run deep. They exist because there are two opposing views of what has happened to it since the early 1990s, which originate in two very different theories of the business cycle.
The first runs as follows. The information technology revolution led to big changes that boosted US productivity growth. Consumers saw this happening and correctly inferred that their permanent income had increased. This led to a boom in consumption. It was rational for US consumers to do so because the increase in the growth rate of productivity increased their "permanent income", allowing them to borrow in the expectation that the higher future income would make the debt (including the foreign one) easy to service.
In this view, the recent slowdown in the US is a temporary phenomenon. The consumption boom had the effect of raising inflation and the Federal Reserve correctly reacted by raising the interest rate. Once inflation is brought back on track, the economy can return to its long-term growth rate, which has permanently been increased by the IT revolution. A soft landing will result.
This optimistic view is steeped in the "real business cycle" theory, which is nowadays the dominant academic one. According to this theory, productivity shocks drive the business cycle. A positive productivity shock allows people to borrow on their future expanded income. A boom ensues. A negative productivity shock lowers permanent income, inducing consumers to borrow less.
This theory can also be used to explain the low growth in the eurozone countries since the middle of the 1990s. The source of this slow growth was a decline in productivity growth, which resulted from structural rigidities that hinder Europe from riding on the waves of the IT revolution. That decline in productivity growth lowered consumers' permanent income and reduced their willingness to consume. As a result, economic growth in the eurozone was lethargic.
From this perspective, the recent upsurge in economic activity in the eurozone should be seen as a temporary phenomenon. As long as structural reforms are not undertaken, productivity growth will remain low and the eurozone will have to return to its lethargic rate of economic growth.
Thus the dominant economic theory of the business cycle predicts that both the recent downturn in US growth and the surge in eurozone growth are temporary. Good news tor the US; bad news for the eurozone.
There is an alternative view, though, with very different implications for the future. This view starts from the idea that people find it difficult to understand how the economy functions. For example, when the IT revolution sets in, it is not clear in consumers' minds what this will mean for their future pay cheques. This ignorance makes people susceptible to herding behaviour, both as consumers and investors. They follow the lead of opinion-makers who pretend to know the truth. In such an environment a wave of excessive optimism can easily develop. This optimism has a self-fulfilling character: because of their optimism, consumers consume more and investors invest more, thereby validating the prevailing optimism. An important feature is that the additional investment increases productivity, thereby adding an extra self-validating feature. The economy appears to move to a new and permanent "optimistic equilibrium".
Nothing is permanent, though. The excessive optimism is unsustainable and leads to a correction. Doubts about the rosy picture set in. This easily degenerates into pessimism about future economic developments. A reverse movement is set in motion with the same self-fulfilling features. Pessimism induces consumers and investors to spend less, thereby
validating the existing pessimism. Productivity growth declines. The economy appears to settle into a "pessimistic equilibrium''.
The important feature of this alternative theory of the business cycle is that productivity growth is only partly a variable caused by outside developments. It is, of course, influenced by technological and structural factors. There is, however, also an internally generated component to productivity growth, which is driven by the willingness to invest; this in turn is driven by the state of optimism or pessimism.
What does this theory imply for the future? If the business cycle is driven by waves of optimism and pessimism, it is much less clear that the slowdown of the US economy is a short-term phenomenon to be corrected soon, or that .the eurozone recovery will quickly peter out and turn back into lethargy. It is not inconceivable that the US economy gets stuck for a while in a "pessimistic equilibrium" while the opposite occurs in the eurozone. The latter may enjoy staying in an "optimistic equilibrium" for a while.
Far-fetched? Remember the 1980s and early 1990s when pessimism and low productivity growth prevailed in the US economy. It was followed by a period of euphoria and high growth. It seems more far-fetched to believe that the US will continue to enjoy such a pleasant period indefinitely.
par Pancho Villa
publié dans :
Paul de Grauwe
Central banking model for neither gods nor monkeys
by Paul de Grauwe
The quest for a scientific foundation for central banking has been going on for a long time. This quest led in the 1960s and 1970s to large-scale econometric models with hundreds of equations describing the economy in much detail. Central banks used them to predict how interest rate movements would affect the economy and to discover the best way to react to shocks like the oil price increases of the 1970s.
It quickly turned out that these large models led to unreliable predictions. ... The diagnosis of this failure was given by Robert Lucas, Nobel Prize winner in economics. The old models considered individual agents (consumers and producers) as passive... Prof Lucas stressed that these agents are human beings endowed with intelligence and a desire to look for the best possible outcome. In such an environment, he argued, the [agents] should be modelled as active ... trying to anticipate what the central bank would do.
This criticism led to the rational expectations revolution in economics. New models were built in which a new assumption was introduced. Individual agents now were assumed to understand the complexity of the world in which they live and to continuously compute the implications of central bank actions for their present and future welfare.
The earlier extreme assumption of complete stupidity of individual agents was replaced by another extreme assumption of supreme understanding of the intricacies of the economy. In the old models, agents were assumed to have the brains of monkeys. In the new “rational expectations models”, agents were given god-like features allowing them to see through the complexities of the world. Milton Friedman reminded us a long time ago that even if the underlying assumptions of a model seem implausible, its power depends on how well it performs in making predictions. ... They failed, so much so that they had to be brought back to the repair shops almost immediately. There, ad-hoc features that had little to do with rational agents were added until the model ran better.
In spite of this empirical failure, many central banks today use versions of this model. The model is inhabited by super-rational agents for whom the complexity of the world has few secrets. They continuously optimise their present and future consumption plans and are capable of calculating with great precision what the effects will be of interest rate changes implemented by the central bank. This is a fairytale world.
It is quite paradoxical that macroeconomics has arrived at such an extreme view now that we start to learn from psychology and brain sciences that the economic paradigm of perfectly informed optimisers may not be the correct way to model individual decision-making. We learn from these other sciences that individuals experience great problems when they try to understand the world in which they live. They find it difficult to collect and to process the complex information with which they are confronted.
Since they cannot see the whole picture, they use simple rules (“rules of thumb”) and partial information to guide their decisions. They are not fools though. They regularly subject these simple rules to profitability tests and only keep those rules that keep their profits at reasonable levels. ... There is a need to move away from extreme assumptions when modelling human behaviour. Human beings are neither the dumb automatons of the old models nor the supreme creatures of knowledge and understanding of the new models.
There is good news though. Increasingly, academic researchers are trying to model the economy assuming that agents with imperfect knowledge are learning and revising their knowledge about the workings of the economy. This approach is still in its infancy but is full of promise for a scientific foundation of central banking. In the meantime, until these new insights mature, central banking will continue to be more art than science.
Petit clin d'oeil a Paul (...dont j'adore ses analyses)...qui avait suggere qch dans le passe...
'...Writing in the FT, Paul de Grauwe, professor of economics at the University of Leuven, outlines how Germany’s policy of strong wage moderation has damaged the competitiveness of the other eurozone countries, forcing them to retaliate by imposing policies of wage moderation in their own countries. He argues that the only solution is to either get governments to stop imposing national wage policies (Paul, cela sera impossible!!!, personne ne veut rendre la tranche de gateau qu'il a recu) or further liberalise labour markets (Paul, cela est la seule solution!!! ou bien disons le comme ca: c'est la seule possibilite qui possede la plus grande marge d'action...). This highlights the flaw in the design of the eurozone which has centralised monetary policy whilst leaving the “important tools of economic policy in the hands of national governments…if this flaw cannot be remedied, the eurozone will not be sustainable.”...'
Hasta, Pancho Villa
by Paul de Grauwe
The quest for a scientific foundation for central banking has been going on for a long time. This quest led in the 1960s and 1970s to large-scale econometric models with hundreds of equations describing the economy in much detail. Central banks used them to predict how interest rate movements would affect the economy and to discover the best way to react to shocks like the oil price increases of the 1970s.
It quickly turned out that these large models led to unreliable predictions. ... The diagnosis of this failure was given by Robert Lucas, Nobel Prize winner in economics. The old models considered individual agents (consumers and producers) as passive... Prof Lucas stressed that these agents are human beings endowed with intelligence and a desire to look for the best possible outcome. In such an environment, he argued, the [agents] should be modelled as active ... trying to anticipate what the central bank would do.
This criticism led to the rational expectations revolution in economics. New models were built in which a new assumption was introduced. Individual agents now were assumed to understand the complexity of the world in which they live and to continuously compute the implications of central bank actions for their present and future welfare.
The earlier extreme assumption of complete stupidity of individual agents was replaced by another extreme assumption of supreme understanding of the intricacies of the economy. In the old models, agents were assumed to have the brains of monkeys. In the new “rational expectations models”, agents were given god-like features allowing them to see through the complexities of the world. Milton Friedman reminded us a long time ago that even if the underlying assumptions of a model seem implausible, its power depends on how well it performs in making predictions. ... They failed, so much so that they had to be brought back to the repair shops almost immediately. There, ad-hoc features that had little to do with rational agents were added until the model ran better.
In spite of this empirical failure, many central banks today use versions of this model. The model is inhabited by super-rational agents for whom the complexity of the world has few secrets. They continuously optimise their present and future consumption plans and are capable of calculating with great precision what the effects will be of interest rate changes implemented by the central bank. This is a fairytale world.
It is quite paradoxical that macroeconomics has arrived at such an extreme view now that we start to learn from psychology and brain sciences that the economic paradigm of perfectly informed optimisers may not be the correct way to model individual decision-making. We learn from these other sciences that individuals experience great problems when they try to understand the world in which they live. They find it difficult to collect and to process the complex information with which they are confronted.
Since they cannot see the whole picture, they use simple rules (“rules of thumb”) and partial information to guide their decisions. They are not fools though. They regularly subject these simple rules to profitability tests and only keep those rules that keep their profits at reasonable levels. ... There is a need to move away from extreme assumptions when modelling human behaviour. Human beings are neither the dumb automatons of the old models nor the supreme creatures of knowledge and understanding of the new models.
There is good news though. Increasingly, academic researchers are trying to model the economy assuming that agents with imperfect knowledge are learning and revising their knowledge about the workings of the economy. This approach is still in its infancy but is full of promise for a scientific foundation of central banking. In the meantime, until these new insights mature, central banking will continue to be more art than science.
Petit clin d'oeil a Paul (...dont j'adore ses analyses)...qui avait suggere qch dans le passe...
'...Writing in the FT, Paul de Grauwe, professor of economics at the University of Leuven, outlines how Germany’s policy of strong wage moderation has damaged the competitiveness of the other eurozone countries, forcing them to retaliate by imposing policies of wage moderation in their own countries. He argues that the only solution is to either get governments to stop imposing national wage policies (Paul, cela sera impossible!!!, personne ne veut rendre la tranche de gateau qu'il a recu) or further liberalise labour markets (Paul, cela est la seule solution!!! ou bien disons le comme ca: c'est la seule possibilite qui possede la plus grande marge d'action...). This highlights the flaw in the design of the eurozone which has centralised monetary policy whilst leaving the “important tools of economic policy in the hands of national governments…if this flaw cannot be remedied, the eurozone will not be sustainable.”...'
Hasta, Pancho Villa
par Pancho Villa
publié dans :
Paul de Grauwe
The Belgian chocolate theory of the dollar
By Paul de Grauwe
"A year ago, most analysts agreed: the dollar could only go down against the euro and the other main currencies. The huge US current account deficits had become unsustainable and called for a big decline of the dollar. A year later these analysts proved to be wrong. The dollar went up by close to 15 per cent against the euro. What went wrong? Let me answer the question by telling a story about Belgian chocolates.
A few weeks ago an interesting experiment was undertaken at the Brussels food fair... A shop was put up selling boxes of Belgian chocolates. The first day the price was set at €9 for each box. Sales went well. The next day the price was raised to €15 per box. ... Demand doubled. On the third day the price was lowered to €2 for each box. Demand for chocolates collapsed. What went wrong ...?
It is very difficult, if not impossible, for the consumer to find out the quality of chocolates by just looking at their appearance in the shop. When confronted with such uncertainty..., consumers use simple rules of thumb that they understand. ... Most consumers have some experience that allows them to associate high price with high quality. ... not always ... but on average ... Thus when looking at the €15 box the consumers infer ... high ... quality and they buy the chocolates. Consumers who see the boxes priced at €2 infer ... the quality ... is not to be trusted, and they do not buy them. ...
Most people dealing in the foreign exchange market have no clue about the fundamental value of the dollar (the “quality” of the dollar). Specialists and professors do not know either, at least within a broad range of dollar-euro rates between say, $1.0 and $1.3. ... Faced with such uncertainty, traders in dollars and euros ... will therefore use a rule of thumb, an easy guide that they understand. ... Thus when the dollar goes up ..., the increasing dollar is a signal ... there must be some hidden economic strength driving the dollar. And they buy dollars... Conversely, when the dollar moves down for whatever reason, people interpret the decline ... as reflecting a fundamental weakness..., and they sell dollars. As a result..., the dollar moves up and down within upper and lower bounds ... determined by our lack of knowledge ...
There is a difference, though, between Belgian chocolates and the dollar. The Belgian chocolate lover ... can immediately check the quality by tasting the chocolates. The buyer of dollars cannot. But he is in need of a justification of his buy as a good one. And here the analyst comes in handy.
The analyst, who does not know more about the fundamental value of the dollar than the unsuspecting buyer, invents stories. Thus when the dollar goes up, the analyst goes on a search for variables that move in the right direction and that can be linked to the rising dollar, carefully eliminating ... all the other fundamental variables that move in the wrong direction. And so we are told that the strength of the dollar last year was due to interest rate differentials favouring the dollar. The further widening of the current account deficit, which in a previous analysis got centre stage, is carefully dropped from the new analysis.
The honest story of why the dollar increased last year is that we simply do not know. But we do not like to admit that we do not know. ... [A]nalysts ... fulfill a psychological need to understand. Exchange rate economics ... satisfies this need by telling a new story each time the dollar goes up or down. What does that tell us about the coming year? You may now be concluding that the sceptical tone ... does not leave me much scope to say something useful. Yet I do think that the cumulated force of increasing US current account deficits and debts will be overwhelming, bringing down the dollar. But do not ask me when this will happen."
Cela me rappelle une anecdote d'un restaurant en Allemagne qui, paradoxe de l'histoire, plus il augmentait ses prix, plus de gens etaient prets a vouloir (a tout prix, Ha, Ha!) y aller... (mais cela a surement ete le cas aussi dans d'autres pays avec d'autres marchandises)
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Je definierais dans ce cas cette reaction du public, des consommateurs, du marche, en tant qu' augmentation de la demande a travers la vente non-pas de la qualite d'un repas, d'un plat, d'une denree alimentaire, mais a travers la vente avant tout de la qualite d'une "exclusivite" (qui est aussi un service, donc: P = Prix de revient (Bouffe) + Service; Service qui est ici un repas dans une societe "pseudo-exclusive") s'etant essentiellement basee sur le "filtrage" ou bien "raffinage" de la societe brute afin d'en extraire 'artificiellement?' une certaine souche bien pre-definie, qui convient le mieux...au restaurant. Donc...
D'apres un vieux dicton et une vieille loi de la nature:
"Qui se ressemble, s'assemble..."
"Qui se ressemble, s'assemble..."
Ergo, conclusion de cette petite histoire:
Cadre;Societe = primordial, Bouffe = marginale
Cadre;Societe = primordial, Bouffe = marginale
par Pancho Villa
publié dans :
Paul de Grauwe
