Recent Posts

Friday, July 29, 2016

Overdrafts, Bank Lines, And Negative Money

This article touches on some of the issues with bank lending in its less well known forms: overdrafts, and credit lines. I just wanted to respond to some questions as well as some articles by Nick Rowe.

Wednesday, July 27, 2016

No Need For NGDP Futures, We Have Market-Based Monetary Policy Already

The "nominal GDP futures targeting regime" proposal has once again popped up in internet discussion. I have previously avoided the topic, as nominal GDP futures ("NGDP futures") targeting is an inherently silly idea. The only usefulness of the topic is that it allows us to examine the chain of errors that leads to the recommendation. The justification for nominal GDP futures is that the markets help set monetary policy -- which is exactly the situation right now. Which means that the reason for creating these futures in the first place is flawed; the fact that they cannot be implemented is just icing on the cake. This article discusses the issue of the interaction of markets with central bank policy, and does not attempt to delve into the explanation why nominal GDP futures markets would be useless for policymakers.

Sunday, July 24, 2016

Seriously, Money Is Not A Zero Coupon Perpetual

Money needs to be abolished -- from economic theory. Too much importance is attached to it, and it skews people's abilities to analyse it properly. For example, people make fundamental errors, such as thinking of it as a "zero coupon perpetual bond." (UPDATE: I respond to Nick Rowe's response...)

Friday, July 22, 2016

NGDP Futures Convertibility -- Unworkable?

Scott Sumner has been championing "nominal GDP futures" ("NGDP futures") as a means of creating "market-based monetary policy." This has provoked all kinds of debate, such as whether the Efficient Markets Hypothesis holds. In my view, this is a distraction from the main point -- the market would not function. Sumner has proposed a few models; this article discusses what he said is his current preference -- futures convertibility.

Wednesday, July 20, 2016

Bond Active Management -- Makes As Much Sense As It Ever Did

Cullen Roche (Pragmatic Capitalism; Orcam Asset Management) wrote an interesting article on the secular bond bull market, and the somewhat dismal forward-looking nature of bond returns. I find it hard to disagree with the bulk of the article, but I disagree with his sentiment about bond fund active management. In my view, the case for active bond fund management has not really been changed by the drop in yields. (Note that this assessment is deliberately ambiguous; I am not saying that the case for active management was good when yields were higher; I leave that assessment to the reader.)

Tuesday, July 19, 2016

Inflation Forecasting Humour

Gerard MacDonell has an amusing yet disturbing article at Beinn Bhiorach -- "Yeah, but if you control for the Jupiter effect." (Disclaimer: Gerard hired me in my first job in finance.) He discusses which prices indices economists should use to make the inflation rate higher than it is, in order to meet the bias that inflation is high, and going higher.

Monday, July 18, 2016

Interview at RateSpy

I was interviewed for an article at RateSpy.com: "The Market’s Message: Go Short, or Variable." The interview questions were about everyone's favourite fixed income subject -- rate expectations and the term premium. (Luckily, there were no questions about affine term structure models...) For those of you interested in Canadian interest rates, in addition to collecting Canadian mortgage rates, the site has news about mortgages and interest rates. (I have not been in the market for a mortgage for a long time, so I am not too familiar with the web site.)