Recent Posts

Tuesday, August 9, 2022

Slope Inversion: What's Next?


Although it is safe to expect that the yield curve tends towards flattening during a rate hike cycle, the current movement in the 2-/10-year slope is relatively dramatic (figure above). This article discusses some of the mechanics of how slopes are traded.

Wednesday, August 3, 2022

Fractional Reserve Banking And "Fraud"

Although I like the title of my banking primer “Fractional Reserve Banking and its Discontents,” the problem is that I need to deal with some really loopy theories.

The economist Robert Solow provided us with a very good quote regarding the dilemma of such discussions.

Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte. 

Thursday, July 28, 2022

"Technical Recession" (Sigh)

I just got back from vacation, and was greeted by the United States’ 2022Q2 GDP release which hit the dreaded “two quarters of contraction” status. Some people have decided that this counts as a “technical recession,” although it is unclear where the adjective “technical” comes from.

Since I am catching up with everything, I am unable to do a detailed analysis. If I do anything, I will postpone it until next week. I just want to add yet more words to the “is is a recession?” debate.

My view is straightforward: the NBER declares U.S. recessions, and I am not going to refer to a downturn in U.S. data as a “recession” unless the NBER has declared one. The thing to keep in mind that the declaration can arrive with a considerable lag, so I have no issues with texts arguing that one is currently in progress without the NBER committee declaring anything, so long as that condition is noted. i

Wednesday, July 20, 2022

On Bottom Up Inflation Analysis

I have been running into comments about “top down” versus “bottom up” inflation analysis over the years, mainly on Twitter. The usual context is a conventional economist arguing that “bottom up inflation analysis is defective” for some reason or another. I have not seen a long form analysis justifying this, rather this was drive by snark. I have seen this more often as people are taking victory laps for inflation forecasting.

Thursday, July 14, 2022

"What Is A Recession?" Primer

I published an excerpt from my book Recessions: Volume I on my Substack. Since I believe I published the content already here in draft form, I am just putting a link to the other site.

Since it is a straight excerpt of the book, obviously not aimed at the current debate, but I believe it covers the main points that are coming up in conversation.

Bank Of Canada Goes Just Plain Nuts

OK, the title might be too dramatic, but the hike of 100 basis points on Wednesday was somewhat out of the ordinary. Since I am not interested in selling any particular forecast, my interest here is the angle: what does this mean? Unfortunately, the answer to that is not entirely clear. The Bank of Canada (BoC) seems to have fallen in with the crowd that argues that rate hikes ought to be done in one massive hit, and then we wait to see what happens.

Sunday, July 3, 2022

The Perplexing Problem Of Credit In Macro

One of the major issues with the internal logic of neoclassical macro is the handling of credit risk. The problem of credit is acute for Dynamic Stochastic General Equilibrium models because they are allegedly based on “microfoundations.” However, the theoretical problems remain for any aggregated mathematical model. The advantage of heterodox economists is that they do not make a big deal about the alleged internal consistency of their mathematical models, and so they are more willing to hand wave around the issue.