Why Is Inflation Low?

After the huge monetary stimulus by the Federal Reserve and other central banks, many economists were predicting high inflation. Based on historical experiences, I was also expecting higher inflation. This hasn't happened. Why? Click here to read a post by Gerald O'Driscoll Jr of the Cato Institute. He argues that (a) the velocity of money (i.e., how many times a single £1 is spent in a year) is at historically low levels, which acts as a brake on runaway inflation; (b) CPI does not capture all goods and services in an economy and is therefore an inadequate measure of inflation, and it cannot pick up monetary-stimulated inflation; (c) there has been inflation of or a 'bubble' in long-lived assets such as houses, bonds, and maybe even equity, which are not picked up by CPI data; (d) inflation is popping its head up in countries which peg to or track the dollar e.g., China, Hong Kong, and Brazil. In conclusion, O'Driscoll warns that the West can expect higher consumer inflation sometime soon.

The Economics of Global Warming

The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century. However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph . This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two). My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity. The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots. This only stifles debate and the progress of science itself.

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press .

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of

Finance: Past, Present and Future

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