Here’s my latest selection of articles from the around web (with no paywalls). Some are columns, others are papers, but I provide a brief summary for each. If I missed anything good, please let me know.
TECH AND THE ECONOMY (5)
How a Cyber Attack Could Cause the Next Financial Crisis Harvard Business Reviews provides some scenarios and should be read with this Big Data and Machine Learning Won’t Save Us from Another Financial Crisis
Fintech credit markets around the world: size, drivers and policy issues Useful summary from the BIS on the state-of-play of fintech credit. China is the biggest player, though Europe is seeing the biggest growth. The level of income in a country and regulatory stringency determines the size of the market.
Regulating cryptocurrencies: assessing market reactions BIS has come up with a database of crypto currency news. They’ve used it to determine what news affects crypto prices. They find bans on crypto or their treatment under securities law has the most negative news while the establishment of legal frameworks and ICOs have the most positive impact. Together these suggest that crypto is within reach of national regulation.
Chicago Prof Chad Syverson argues that productivity is not mismeasured In this Fed interview, Chad argues that productivity slowdown is global and not correlated to IT-spend, micro estimates are small compared to imagined missing productivity and value-add of IT sector is too small. He goes on to argue that AI applied to cars and call centres could significantly boost productivity.
We Looked At Hundreds Of Endorsements. Here’s Who Republicans Are Listening To. Looks like a Trump endorsement helps and single-issue endorsers (like guns, abortion etc) are not as helpful
Food Fight Demand for fish is increasing, but the supply is not increasing fast enough, so the chances of conflict between the big powers over maritime rights could increase
Skill of the Immigrants and Vote of the Natives: Immigration and Nationalism in European Elections 2007-2016 Finds that low-skilled immigrants and those from non-EU countries tended to shift voters to more nationalist parties, while higher-skilled immigrants tended to shift voters away from nationalist parties.
STRUCTURAL ISSUES (4)
The rise of zombie firms: causes and consequences Since the 1980s, across advanced economies there is an increasing number of zombie firms, which is partly due to lower interest rates. The main consequence is lower productivity, investment and employment than non-zombie firms.
Why Affordable Housing Isn’t More Affordable While the Federal government in the US may give “subsidies” like the Low Income Housing Tax Credit program to build affordable housing, local governments add back costs to make them less affordable. The additional costs come in the form of zonal approvals, delays as local residents complain and requirements such as having to build parking structures.
Underemployment in the US and Europe Interesting angle in focusing on whether workers want to work more or less hours. Though the articles argues that there is still slack, the latest data shows that the those wanting to work fewer hours (the overemployed) is about to overtake those that want to work more hours (the underemployed).
Tax bargaining Study looks at how national firms in France pay higher taxes than multi-nationals operating in France. The authors find that the size of the firm and threat to relocate accounts for much of the lower tax rate for multi-nationals.
EUROPEAN CHALLENGES (4)
Who bears interest rate risk? ECB paper finds that Euro-area banks do not suffer as much from interest rate hikes as traditional studies have found. The bigger effects are across country banking sectors, so countries with variable rate mortgages benefit at the expense of those with fixed rate mortgages (like Belgium, Germany, France, Netherlands, see chart) . This equally means that cutting rates may not have helped banks, through stealth recapitalisation, as many had thought.
Managing the sovereign-bank nexus ECB describes in general how the banking sector and the sovereign interact. They focus on three channels: banks hold government debt, banks are protected by governments and both are affected by growth. The paper doesn’t specific countries like Italy, but does lay some policy proposals such as removing zero risk-weights for banks holding domestic bonds, introducing loss-absorbing capital and a banking union.
Did Brexit break the banknote? I didn’t know that holdings of sterling notes and coins have recently started to fall for the first time since the early 1990s. It seems to be related to Brexit, when cash holdings shot up in the run-up to the vote and have since fallen.
Big Macs in big countries: an update on euro area adjustment Despite stellar growth in Germany, Big Macs cost more in Italy than Germany.
FINANCE AND MODELLING (5)
Term premia: models and some stylised facts A good review and update of term premia estimates for the US and Euro-area interest rate curves. The size of term premia varies quite significantly for each market depending on the estimation process, but the trends are similar (down). The BIS find that less uncertainty around policy rate expectations, official holding of government debt and regulation have contributed to lower term premia.
Corporate Debt and Leveraged Loans: Financial Snags Ahead? Argues that US credit and lev loan markets are storing trouble for the market
Financial stress in lender countries and capital outflows from emerging market economies BIS finds that international banks decrease their lending to EM markets when their home market is under stress.
Commodity Currencies and Monetary Policy (paper). The academics find that commodity prices affect monetary policy which in turn affect FX. In terms of modelling they find that models for commodity currencies that include rate differentials would not gain any additional power by including commodity prices.
Gauging the globe: the Bank’s approach to nowcasting world GDP The Bank of England describes its nowcasting model for global growth
FALL-OUT FROM 2008 (4)
What Have We Learned Since Bagehot? A good review of recent commentary by Bernanke, Geithner and Hank Paulson on the crisis. The writer also reviews Gary Gorton’s new book “Fighting Financial Crises: Learning from the Past”, which he gives a thumbs up. The book apparently gives a great historical overview of banking and tools to deal with crisis. On the latter, the main one is giving policymakers the authority to take action on the banking sector (such as forcing TARP-type loans).
The housing bubble, the credit crunch, and the Great Recession: A reply to Paul Krugman Bernanke argues that financial panic rather than the impact on demand from the housing bust was the main problem in 2008.
Three Sudden Stops and a Surge Excellent review of how capital flows and balance of payments changed around the 2008 crisis. Makes some bold claims like “demand for U.S. financial assets didn’t soar in the crisis. “
A detailed look at Industrial Production during this expansion Great piece that shows that the services side of the US economy recovered healthily after 2008, but manufacturing except for energy did not. In fact, a lot of manufacturing may have been shifted offshore.
TRADE AND CHINA (4)
China releases white paper on facts and its position on trade friction with U.S. Apparently a very big paper explaining the difference between the Chinese and US economies and the lengths China has gone to build mutual trust between the two nations.
These 14 states could see ‘extremely significant damage’ from Trump’s trade wars From Hawaii to Oregon
Chart of the Week: Inequality in China The IMF finds inequality in China is amongst the highest in the world and its getting worse.
Spreads between U.S. & Brazil Soybean Export Prices Widen to a Record Brazil soybean market is benefiting from Trump’s trade war with China