Wednesday, July 27, 2005

Team Titans attack -

George Porge Posted by Picasa

The yield curve

Thanks for the insight into a paper on the yeild curve and inflation targeting.

Stumbling and Mumbling: "The intuition here is that if everyone sees a recession coming, bond markets will anticipate lower short rates and lower future inflation, as the recession lowers inflation. That will drive long yields down more than short rates (as these do not fall in response to future inflation.) The result will be a yield curve inversion and a subsequent recession.
However, under a regime of strict inflation targeting, bond markets know what future inflation will be, so long yields won't move so much. In this regime, the yield curve will be a worse predictor of output than in a regime where monetary policy is used to stabilize output. This, shows Mr Estrella, is why the yield curve has become a less good predictor of output since 1987 - because since then, the Fed has given more weight to inflation targeting relative to output stabilization. "

Tuesday, July 26, 2005


An article about the interactions between economists and sociologists provides some additional insight into things like clustering and externalities.

Market share - The Boston Globe - - Ideas - News: "''It is remarkable that people receive crucial information from individuals whose very existence they have forgotten,' Granovetter wrote in a 1973 article, ''The Strength of Weak Ties.' New information, about jobs or anything else, rarely comes from your close friends, he argued, because they tend to know the same things, and the same people, you know. Your friends may want to help you find a job, but your acquaintances can help you, because they're the people with information about openings you haven't already heard of.
''Weak ties' are your connections to people who don't know each other and who do know other people you don't know. These are ''the channels through which ideas, influences, or information socially distant from [someone] may reach him.'
Today, studying social connections, or ''social networks,' is the hottest field in economic sociology. Focusing on a particular network--the connections between venture capital firms in Silicon Valley, say, or between directors and producers in Hollywood--lets researchers examine the social context of economic decisions."

Monday, July 25, 2005

Lex live: Crude oil

Oil money looking for a home. / Lex - Lex live: Crude oil: "Excess liquidity needs to find a home and equity valuations in the Gulf�s stock markets are already pumped up. Appetite for foreign investment is increasing. The top two bidders in the recent Turk Telecom privatisation were both from the Gulf. "

How many people should be working in America?

Excellent coverage of the relatively low participation rate in the US. While many have said that this undermines the positive colour of the low unemployment rate. Econvbrowser has first-rate coverage of some other scenarios.

Econbrowser: How many people should be working in America?: "The method that Bradbury used in order to arrive at her lowest estimate, 1.6 million, of the number of missing jobs, was to look at the change between the current participation rate for a given demographic group and its value when the recession started in March 2001, and compare this change with the corresponding 4-year change following each of the recessions in 1960, 1969, 1973, 1981, and 1990. This essentially amounts to assuming that the slope of a linear trend fit from 1960-1994 could be extrapolated to 2001-2005 to identify the magnitude that we should normally be expecting for that figure. In the case of mature men, that's maybe not such a bad assumption, and in fact Bradbury finds that for men aged 45-54, the participation rate in 2005 is actually higher than one might have predicted based on the previous 5 downturns. On the other hand, for women aged 35-44, this amounts to assuming that the increase in women's labor force participation rates between 1960 and 1994 should have continued to climb upward, and, since it has not, Bradbury finds 1.1 million 'missing' jobs in this group alone."

US investors into foreign funds

FT reports on the June data for mutual funds. This shows increased appetite for overseas investment.

FT- foreign funds: "More than $51bn flowed into international funds in the six months to June - four times the $12.4bn the domestic funds attracted, according to fund tracker Lipper. This was a sharp turnround from last year's first half, when $51bn went into US funds and $35bn into international funds."

This will tend to act against the financing coming from overseas demand for US assets.

Wednesday, July 20, 2005

Econbrowser: Fact-checking the fact-checkers

Clear coverage of Bernanke and the housing bubble issue.

Econbrowser: Fact-checking the fact-checkers: "When Chairman Ben Bernanke of the Council of Economic Advisors made a statement about the U.S. housing market last week, some analysts jumped all over him. It looks to me like Bernanke had his facts exactly right."

Sunday, July 17, 2005

SSRN-Sources of Hedge Fund Returns: Alphas, Betas, and Costs by Roger Ibbotson, Peng Chen

Great overview of the hedge fund industry.

SSRN-Sources of Hedge Fund Returns: Alphas, Betas, and Costs by Roger Ibbotson, Peng Chen: "Hedge funds have grown dramatically to roughly one trillion dollars currently. In this paper we focus on two issues. First, we analyze the potential biases in reported hedge fund returns, in particular survivorship bias and backfill bias. Second, we decompose the returns into three components: the systematic market exposure (beta), the value added by hedge funds (alpha), and the hedge fund fees (costs). We analyze the performance of a universe of about 3,500 hedge funds from the TASS database from January 1995 through March 2004. Our results indicate that both survivorship and backfill biases are potentially serious problems. The equally weighted performance of the funds that existed at the end of the sample period had a compound annual return of 16.64% net fees. Including dead funds reduced this return to 13.90%. Excluding backfill further reduced the return to 9.06%, net of fees. In this last sample, we estimate a pre-fee return of 12.8%, which we split into a fee (3.8%), an alpha (3.7%), and a beta return (5.4%). Overall, we find that the alphas are significantly positive and are approximately equal to the fees, meaning the excess returns were almost equally shared between hedge fund managers and their investors. "

Saturday, July 02, 2005

U.S. Net Foreign Liabilities

Interesting area. Can some of the adjustment in net foreign assets happen as a result of change in exchange rate values. This was certainly the case in 2004. This will certainly be less important in 2005. Nouriel Roubini's Global Economics Blog: U.S. Net Foreign Liabilities...larger and larger: "So, what does this imply for the change in the U.S. net foreign liabilities at the end of 2005? In 2004 we got lucky that a large $600 billion plus current account deficit led to a much smaller change in net foreign liabilities because, in part, of $190 billion (or $272 billion) capital gain in currency values"