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Showing posts from March, 2014

Central Banker to the World?

The Board of Governors of the Federal Reserve System has recently released transcripts from its meetings during the 2008 crisis. In these transcripts, it is revealed that the Fed was lending dollars to foreign central banks (ECB, BoJ etc), who in turn were lending those dollars to their domestic institutions. In essence, the Fed was acting as a lender of last resort by providing dollar liquidity to these central banks. In this op-ed , Harold James argues that the Fed's actions have left the IMF marginalised  - it is no longer the international lender of last resort  ( click here for an article on the IMF's role as an ILLR).

Democracy and Growth

Is democracy good for economic growth? Click here to read a recent post by Daron Acemoglu and James Robinson which argues that democracy is beneficial for economic growth. The post brings together their work on this area and supplies links to the underlying research. My view on this is that there is possibly an inverted-U-shaped relationship between democracy and growth. In other words, a certain amount of democracy is good for growth, but too much democracy is bad for growth. Click here to see my work on this issue. How can there be too much democracy? Ultimately, this depends on the extent of the electoral franchise. If the franchise is too broad, then we could end up with the tyranny of democracy or mob rule. This raises a difficult question: who should be in the franchise? I believe that it should only be those who have a stake in the society and its survival. However, identifying who are the stakeholders is by no means straightforward. 

Banking in Crisis: The Book

I have spent the last few days going over copy-editor corrections to my forthcoming book. The title is Banking in Crisis: The Rise and Fall of British Banking Stability, 1800 to the Present . It will be published in paperback and hardback by Cambridge University Press in August. You can pre-order it at Amazon ( click here ) or ( click here ). Here's the description of the book on Amazon: Can the lessons of the past help us to prevent another banking collapse in the future? This is the first full account of the rise and fall of British banking stability over two hundred years, shedding new light on why banking systems crash and on the factors underpinning banking stability.

Don't Cry For Me Argentina

There is a saying among economists that goes as follows: "throughout history there have only been four kinds of economies in the world: advanced, developing, Japan, and Argentina". Around 1900 Argentina was among the top five countries in the world in terms of income per capita. Today, Argentina is close to the average country in the world, with income per capita at only 40% of the 12 core EU countries! What has happened? Why this sudden reversal of fortune? Argentina is unique in that it started relatively rich and has ended up being comparatively poor. What explains the Argentina paradox? This is the question addressed by Alan Taylor in a recent NBER paper . He argues that there isn't a monocasual explanation for this reversal and that economists really need to grapple with the Argentina paradox.

The Pound

The Royal Mint is introducing a new pound coin to combat counterfeiters ( story here ). The pound has a long and fascinating history and it is probably the oldest living currency in the world. You can read a short biography of the pound here . Over its 1200-year history, the pound has lost a considerable amount of its value. However, a substantial proportion of this inflation has occurred since 1970.

Getting Richer All the Time?

It seems to be a fact of our modern economies that the next generation is better off than the previous one. This wasn't the case for the most of human history, with humans trapped in the Malthusian trap . Nearly 85 years ago, J. M. Keynes wrote The Economic Possibilities for Our Grandchildren  and predicted huge changes in our economic fortunes. He was right. In this essay , Daron Acemoglu discusses the 10 most important economic trends over the past 100 years, which have contributed to our ever-growing prosperity.  However, will my six-year-old son and potential grandchildren live in a more prosperous world or have living standards plateaued? According to Kenneth Rogoff in this op-ed , there are four formidable challenges to future increases in living standards: (a) externalities such as global warming and fresh-water depletion; (b) inequality; (c) ageing populations; and (d) regulation of rapidly evolving technologies by ill-equipped governments.  Thomas Malthus   

Monetary Gold

Hanzhi Lao, one of my MSc students, found this short video by Larry White, which explains how the Gold Standard worked. White's explanation is clarity personified. )

Measuring Inflation

The Office for National Statistics calculates inflation by looking at the price of a representative basket of 699 goods and services ( click here ). Changes to the basket occur frequently due to changes in consumer tastes and technological improvements. The changes announced yesterday include the inclusion of video-streaming (Netflix) and e-books and the exclusion of DVD recorders ( story here ). My favourite change to the basket was in 2007 when brussels sprouts were removed after having been in the basket for 60 years! Source:

Death by PowerPoint

When I started my academic career, data projectors were huge and required two technicians to set them up. The entire Faculty had one data projector which had to be moved from venue to venue. I was one of the first academics to use PowerPoint. I was one of the innovators. Once high-speed internet and internet capacity expanded, PowerPoint lecture slides could go up onto the Web for students to download and digest. However, PowerPoint, has many downsides. This Slate presentation provides an amusing and insightful look at the misuse of PowerPoint in universities.

The Irish Economy

Morgan Kelly of UCD is one of the smartest economists I know. Unlike many academic economists, he has a great insight into the functioning or malfunctioning of the actual economy. Well before the Irish housing bust and financial crisis, he argued that there was going to be a huge correction ( see here ). He was right. Several days ago he spoke about the Irish economy to the UCD Economics Society. This is a brilliant talk on the past, present and future of the Irish economy.

Currency Markets at the Origin

David Chambers (Cambridge University) is speaking tomorrow at a seminar at Queen's University's Finance Seminar Series. His paper is about currency trading at the origin of modern currency markets in the 1920s and 1930s. In particular, he and his co-author look at the currency trading of John Maynard Keynes and compare his fundamentals-based strategy to alternatives. The paper is available here . Below is a video of David talking about his work on Keynes the investor.

Strictly Come Statistics

For fans of statistics and  Strictly Come Dancing , below are a couple of videos where dance is used to teach statistical concepts such as variance and correlation.


Is this the person who invented Bitcoin? Last week, Mt. Gox , a Bitcoin exchange based in Tokyo, filed for bankruptcy after being hacked. Yesterday, some governments declared that Bitcoin is not a currency and that they will attempt to tax it ( story here ). It appears that Bitcoin can't stay out of the news!  In this Slate op-ed , Richard Grossman , who came to Queen's University a few months back to speak about his latest book WRONG , takes a very interesting slant on Bitcoin, by comparing it to gold. According to Grossman, Bitcoin is as good as gold, which is bad!

Lender of Last Resort

I'm currently looking at the lender of last resort concept in my graduate class. I don't think that many would disagree with the idea of a central bank providing last resort lending to illiquid but solvent banks. However, should a central bank act as a lender of last resort to sovereign states? One can search hard, but there is no mention of this in Bagehot's Lombard Street . Nevertheless, the idea that central banks should act as a lender of last resort to sovereigns has almost become orthodox.  See, for example, this Voxeu piece . Back in 2012, in the midst of huge stresses in European financial markets and funding problems for some Euro economies, the ECB decided formally that it would act as a lender of last resort to sovereign states. The technical name given to this policy was Outright Monetary Transactions (OMT). This policy allowed the ECB to buy sovereign debt on the condition that governments tightened their proverbial fiscal belts. This policy calmed financ

Whither Ulster Bank?

I've written several times on my Blog about Ulster Bank's on-going woes. RBS announced last week in its annual results that Ulster Bank suffered a £1.5bn loss in 2013, largely due to writing off property debts. RBS now appears to want rid of its problem child - story here . Ulster Bank over-extended itself during the Irish property boom and its reckless behaviour before 2007 is coming back year after year to haunt it. Ulster Bank merged with the bank that was to become NatWest in 1917. Following RBS's acquisition of NatWest in 2000, Ulster Bank became an RBS subsidiary. If RBS want to break this near-century association with the British mainland, who will buy the Ulster Bank? A merger with a southern bank (e.g. Permanent TSB) which doesn't have a large presence in the north may be a possibility. I'm not sure that politicians would like to see a merger with the likes of Danske for competition reasons. My own preference would be for a private equity group to take


200 years ago, a group of textile workers in Nottingham, Lancashire and Yorkshire set about destroying machines introduced by a new class of manufacturers at the vanguard of the Industrial Revolution. According to these workers (the so-called Luddites ), this new technology was driving down wages and would eventually impoverish a substantial proportion of the working class. The British government introduced the Frame Breaking Act in 1812, which made machine breaking punishable by death. Lord Bryon , the famous poet, spoke against this Act in the House of Lords. A short history of the Luddites is available here .  In this article , Robert Skidelsky revisits the Luddite movement in the light of changes in Western society. First, there have been depressed wages for many workers in Western economies for several decades. Second, the IT revolution is slowly making many cognitive tasks obsolete. Do we need labour anymore? Do we need neo-Luddites? Or is there nothing to worry about? 

Negative Equity

HML released figures at the weekend which show that the number of households in the UK with negative equity (i.e., the value of mortgage is greater than value of house) is 463,415 - about 8% of mortgages (BBC coverage here ). This figure has almost halved since 2011, largely due to the increase in property prices across the UK. However, the picture looks bleak for Northern Ireland, which had the largest property market crash in the UK. 68,000 households are in negative equity - or 41% of mortgages. These figures reveal how vulnerable the economic recovery is to a further correction in the housing market.