No Mystery about Property Rights

International Property Rights Index

Data Visualization of the Week

All of Inflation’s Little Parts

WDI 2008 launch

Press Briefing on World Development Indicators

New to the 2008 edition - new data on purchasing power of currencies;

Developing economies now produce 41 percent of the world's output, up from 36 percent in 2000, according to the World Development Indicators 2008, released today. The combined output of the world's economies reached $59 trillion in 2006. Using new measurements that take into account the differences in price levels between countries, China now ranks as the second largest economy in the world, and 5 of the 12 largest economies are developing economies. Strong growth over the period has increased the shares of all developing regions except Latin America and the Caribbean, while the share of high-income economies fell by 5 percent.

This year's World Development Indicators (WDI) introduces new estimates of purchasing power parity (PPP). PPPs are used to convert local currencies to a common currency - in this case the US dollar. By taking account of price differences between countries on a broad range of products and services, PPPs allow more accurate comparisons of market size, the structure of economies, and what money can buy. The new PPPs replace previous benchmark estimates, many of them from 1993 and some dating back to the 1980s. These new estimates are based on the recently released results of the International Comparison Program (ICP) - a cooperative program involving 146 economies.

"We live in a world of highly interdependent markets for goods, services, finance, labor, and ideas," said Alan Gelb, Acting World Bank Chief Economist and Senior Vice President for Development Economics. "When we measure economies on a comparable global scale, the growing clout of developing countries comes into sharp relief."

World Development Indicators 2008 (WDI) provides a detailed picture of the world through data. It includes, for example, information on health expenditures, on transport and other infrastructure services, on the quality of public sector management, on Internet access, on access to improved water sources, and on carbon dioxide emissions.

This 12th edition of the WDI also presents the major findings of the 2005 ICP round and explores some of their implications. For example, because price levels are lower in many developing countries, the new data show real expenditures on education and health care are much higher than previously estimated. For the same reason, official development assistance (ODA) goes farther when spent in the poorest countries because local goods and services are cheaper. But the data also show that spending alone does not assure good outcomes. In parts of southern Africa affected by HIV/AIDS, life expectancies are more than 20 years shorter than in other countries with similar health spending.

Recommended- the introductory essay on governance indicators

Explainer of the Day

How the Fed took the money out of monetary policy

Money creation and the Federal Reserve

Creating Money (or Jobs) Out of Thin Air

First and foremost, the Federal Reserve does NOT print new dollar bills. So how is it able to create new money? There are two main forms of money—cash in circulation and checking deposits held in banks. Separate from the money supply are “reserve accounts” that commercial banks are required to have at the Federal Reserve. These reserve accounts hold cash for the commercial banks in case depositors cash-out some of their deposits.

The Federal Reserve can expand the money supply by expanding the amount of deposits held in the U.S. commercial banking system. One way to do so is to purchase U.S. government bonds issued by the U.S. Treasury department. When the Federal Reserve purchases government bonds from commercial banks, it takes bonds out of circulation and electronically credits reserve accounts. U.S. commercial banks armed with more cash reserves will issue new loans which are then deposited back into the banking system. This method effectively increases the dollar amount of checking deposits in the economy, and hence, expands the money supply.

Gaps in Securities Market Regulation

A summary of a recent IMF Conference on Securities Statistics

Conference participants agreed on the need for a compilation guide for securities statistics, because no international standard for compiling these statistics exists. The intention is to have a concise reference document that will address the key methodological issues identified at the conference. The guide, which will include some templates and a list of reference metadata, will focus initially on statistics on debt securities issued but will eventually be expanded to cover other securities and securities holdings. The manual will also include an assessment of costs and benefits of security-by-security databases.

Related;
IMF Study Points to Gaps in Securities Market Regulation
IMF Helping Fill Global Securities Data Gap

The Value of Bernanke's house

Bernanke lives in Washington's Capitol Hill area in a four- bedroom, 2,600-square-foot house he bought new in May 2004 for $839,000. Almost four years later, it may not be worth any more, according to real estate records and local agents....

Real estate records show Bernanke's next-door neighbor's house sold in July 2007 for $880,000, 4.9 percent more than Bernanke's purchase three years earlier. A home four doors down and comparable in size and condition to Bernanke's has been on the market for five weeks at $899,000, after a failed attempt to sell for $988,000 in 2006....

The average sales price in the Washington area dropped to $217,780 in December, a decline of 13 percent from a record of $251,070 in May 2006, S&P/Case-Shiller data show. Washington's home prices had gained an average of 15.9 percent a year in the 10-year period ending in 2005, according to Case-Shiller figures.

-Bernanke's Own Home on Capitol Hill Shows Housing Boom and Bust

Related;
Housing Markets: A Vacant Look

The Financial News You Missed

How is Singapore's economy doing

IMF's annual health check on the Singapore economy is out;

IMF's view: Large net fiscal reserves resulting from past prudence provide scope over the medium term to meet social needs associated with rising income inequality and aging without compromising fiscal sustainability. A further deepening of structural reforms will be key to sustaining robust growth. While the financial system is sound, risks from increasing integration with international financial markets should be closely monitored and managed to maintain the stability and growth of the financial sector. With inflation expectations well anchored, there is no compelling reason to change the current monetary policy stance of targeting a modest and gradual appreciation of the nominal effective exchange rate at this moment. Nevertheless, if large capital inflows persist, the MAS should refrain from sterilization. This would discourage such inflows, easing the need for foreign exchange intervention. The large current account surplus at present can be mainly explained by structural and cyclical factors, but its ratio to GDP is expected to decline gradually over time as private investment continues to recover and the rapid aging of the population lowers national savings. The real effective exchange rate is likely to appreciate gradually as part of this process.

Government's view: The authorities broadly agreed with the staff’s assessment and policy recommendations. Notwithstanding their concerns about stagnant wages of low-skilled workers, they reiterated their view that work is the best form of welfare but did not rule out the possibility of further strengthening the social safety net. Proactive structural reform aimed at sustaining growth would continue, including promoting high value added sectors, encouraging research and development, and strengthening human capital. Safeguarding financial sector growth and stability is crucial to Singapore’s heightened role as a global financial sector. The authorities saw no need to adjust liquidity management (sterilization). They emphasized that money market operations are aimed at maintaining adequate liquidity in the banking system and that interest rates are not their monetary policy instrument. Within the exchange rate centered framework, interest rates could adjust on market expectations of the future path of the Singapore dollar without any shift in the MAS’ liquidity management.

Related;
Monetary Policy Operations in Singapore

Singapore's Exchange Rate Policy

Equilibrium Exchange Rates and Exchange Rate Forecasting
Professor Ronald MacDonald

The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap
Professor Ronald McKinnon

"Free Trade Agreements - An Economic Policy tool for Singapore in a Globalized World" by Teo Ming Kian, Executive Chairman of the Economic Development Board,

Pray for a bigger Trade Deficit

Another of Don's letters;

Sir, Pat Buchanan's hostility to free trade (Letters, March 5) reflects his misunderstanding of fundamental concepts. He complains that "since Nafta . . . we have run $5,000bn in trade deficits". For Mr Buchanan, this fact is clear evidence of the dangers of freer trade. But let us reword his complaint: "Since Nafta, we have run $5,000bn in investment surpluses." Putting it like this - which is simply another way of reporting the fact that Mr Buchanan finds so troubling - reveals that, since Nafta, $5,000bn worth of capital has flowed into the US.

This capital helped to create and modernise many US companies, to fund research and development, to train workers, and to ease the burden imposed on Americans by Uncle Sam's profligacy. Does Mr Buchanan really lament this capital inflow?

It is worth pointing out, too, that this inflow of capital is precisely the opposite of what Ross "Giant Sucking Sound" Perot predicted would happen if Nafta were passed.

Donald J. Boudreaux,

Big recession, small recession, or near recession?

Tajikistan lied to IMF?

A recent press release from IMF;

Based on new information provided by the authorities to IMF staff in December 2007 and January 2008, the Executive Board concurs that these disbursements were made on the basis of inaccurate information provided by the Tajik authorities relating to the performance criteria on the net international reserves of the Republic of Tajikistan, the net domestic assets of the National Bank of Tajikistan (NBT), and against the NBT issuing directed credits. The Board agreed that the Republic of Tajikistan shall be expected to repay the Fund the three noncomplying disbursements (related to the fourth, fifth, and sixth review) that were not discharged under Multilateral Debt Relief Initiative (MDRI) relief, which amount to a total of SDR29.4 million (about US$47.4 million), together with any interest accrued, in six equal monthly installments starting with the first installment no later than September 5, 2008, and concluding with the sixth and final installment no later than February 5, 2009. The Board expressed its regret on the nature and extent of misreporting, and emphasized the seriousness it attaches to the fact that MDRI resources extended to Tajikistan cannot be made subject to repayment.

In taking its decision, the Executive Board carefully weighed the Republic of Tajikistan's very difficult economic circumstances , in particular its balance of payments position as well as the severe humanitarian crisis prevailing in the country, against serious instances of misreporting by the Tajik authorities. Accordingly, the Executive Board decided to make use of its discretion to extend the repayment period beyond the normal 30-day repayment expectation period called for under the misreporting framework.

Moreover, the Executive Board reviewed matters related to misreporting under Article VIII, Section 5, of the IMF's Articles of Agreement by the Republic of Tajikistan. It found that the Republic of Tajikistan had breached its obligations under Article VIII, Section 5, of the IMF's Articles of Agreement, which obliges member countries to furnish such information as the Fund deems necessary for its activities.

Whats the "true" unemployment rate?

Unemployed, and Skewing the Picture

The president and Senator John McCain also recently noted that unemployment remained low. Senators Judd Gregg of New Hampshire and Johnny Isakson of Georgia, both Republicans, have said the economy continues to be at “full employment.” Two Democratic governors, Christine Gregoire of Washington and Joe Manchin III of West Virginia, have bragged that their states recently recorded their lowest unemployment rates in history.

Statistically, all this is true enough. But it’s also deeply misleading.

Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”

Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.

Even prime-age women, who flooded into the work force in the 1970s and 1980s, aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today, up from 25 percent in early 2000.

There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.

If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.

The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.

Whither Goes Housing- Podcast

A podcast from NABE on the Housing Market

David Berson, Senior Vice President, Chief Economist and Strategist, The PMI Group, Inc.
Dowell Myers, Professor and Director, Population Dynamics Research Group, University of Southern California
Moderator: Kathryn Kobe, Director, Price Wage & Productivity Analysis, Economic Consulting Services LLC

The housing sector is an important end-use market for manufacturing and the decline of housing activity has directly affected a number of industries, especially those involved in supplying construction materials but also those supplying consumer products (appliances, furniture, carpeting, etc.) typically associated with a home purchase. Falling home prices characterize this business cycle and are now affecting manufacturing industries indirectly as consumers retrench, moderating the demand for durable and non-durable goods and then feeding back to orders and production.

Your Macroeconomics Briefing for the Day

That '70s Show by ALLAN H. MELTZER

Is the Federal Reserve an independent monetary authority or a handmaiden beholden to political and market players? Has it reverted to its mistaken behavior in the 1970s? Recent actions and public commitments, including Fed Chairman Ben Bernanke's testimony to Congress yesterday -- where he warned of a steeper decline and suggested that more rate cuts lie ahead -- leave little doubt on both counts.

An independent central bank is supposed to maintain the value of the currency and prevent inflation. In the 1970s and again now, Federal Reserve officials repeatedly promised themselves and each other that they would lower inflation. But as soon as the unemployment rate ticked up a bit, the promises were forgotten.

People soon recognized that avoiding possible recession overwhelmed any concern about inflation. Many concluded that inflation would increase over time and that the Fed would do little more than talk. Prices and wages fell very little in recessions. The result was inflation and stagnant growth: stagflation.

It's beginning to happen again. Unlike the response of wages and prices in the low inflation 1990s, expectations of rising inflation now delay or stop price and wage adjustment, inhibiting growth.

"Does Stabilizing Inflation Contribute to Stabilizing Economic Activity?"

The Importance of Economic Education and Financial Literacy- Mishkin

The Federal Reserve's mission of conducting monetary policy and maintaining a stable financial system depends upon the participation and support of an educated public. Accomplishing this mission involves trade-offs and tough decisions. As the Fed pursues the monetary policy objectives that have been set out for us by Congress--to pursue price stability, maximum employment, and moderate long-term interest rates--it is essential that the public understand our objectives and our actions. Educating the public about the reasoning behind our decisions helps build confidence in our economic system--another critical factor in keeping our economy running smoothly

Not (Yet) a 'Minsky Moment'

Will East Asia suffer the US slowdown?

Roubini: FHLB Lending ‘Reckless’

Fed Critiques: Too Timid or Too Aggressive?

Ofheo vs. Case-Shiller: A Primer

Your friendly neighbourhood inflation

More bad news on inflation, and yet Bernanke signals faster money growth

More on the Inflation Debate

Bernanke's tightrope act

Podcasts
Bernstein Blames `Too Much Math' for Subprime Crisis

Peter Morici Says U.S. Economy In a `Lot of Trouble'

Chertkow Sees Dollar Falling Below $1.55 Versus Euro

The end of a miracle in UK?

Axel Leijonhufvud, the Swedish-born economist, once made an insightful observation about inflation targeting. It worked better in practice than it did in theory, he said. I feel the same about the UK economy. Given what we have long known - about the country's relatively low productivity growth rate and the erosion of its scientific and engineering excellence - the British economy should clearly not have performed quite as well as it did for the past 15 years. Economic theory would suggest that this was not possible.

In the next few years, I expect the UK economic miracle to be exposed for what it was: an overlong joyride on the back of an overlong asset price bubble. The UK economy is about to undergo a downturn at least as large as that of the US - maybe even worse, because of an even more inflated housing market and because the financial sector constitutes a larger share of gross domestic product.

According to my calculations, UK residential property prices are about 30 per cent above their trend in real terms. If the trend has not changed in the past few years, that would suggest that inflation-adjusted prices could fall by up to 40 per cent from peak to trough.

Of course, it is possible that the trend has changed, that cool Britannia has attracted so many foreign buyers that the trend line may have shifted higher forever. But foreign buyers can leave just as quickly as they arrive and their presence is related to the health of the financial sector. My guess is that the half-century-old trend line is still approximately right.

Moreover, the trend is consistent with several other indicators, such as the ratio of house prices to rents achieved, which in the UK has recently been about two-thirds above its long-term average. Whatever explanations one might come up with in defence of higher house prices, they cannot conceivably explain why house prices should be out of line with rents forever.

A house price crash would take time to unfold. Assuming a constant inflation rate of 2 per cent a year, nominal house prices would have to go down by about an unprecedented 25 per cent if the decline stretched over six years. Remember: the first stages of a housing downturn consist of denial followed by anger. A fall in actual prices is a relatively late-stage phenomenon of a housing crash.

-Britain can no longer depend on being cool

Decline in Home Prices

Levy Says U.S. Inflation to Decline as Spending Slows

Save a Survey

To Whom It May Concern:

The President’s proposed Fiscal Year 2009 budget eliminates funding for the American Time Use Survey (ATUS). This data source, which became fully operational in 2003, is an annual survey that provides the only available information on how Americans use their time. In the view of many social scientists, it is the most important new data initiative begun by the U.S government in at least 35 years. The size of the ATUS sample was already reduced by 35 percent beginning in 2004. That was truly unfortunate, but elimination of the survey would be a far more serious loss.

The ATUS provides essential information on how Americans spend their time, including time spent caring for children, cleaning the house, working for pay, and caring for sick adults. Put simply, the ATUS is needed to expand our horizons beyond merely charting where dollars go, to charting where time goes too. Statistics on spending, jobs, incomes, and so on are undeniably important. But anyone who wants to understand the changing lives of American families, to monitor the well-being of the American population, to measure national output, productivity and other outcomes that are essential to sound economic policy-making, or to make informed social policy decisions also needs information on how our population spends its time.

Although the ATUS is a relatively new survey, it has already proven to be an invaluable component of the statistical infrastructure, giving us a unique window on ourselves and our society. Moreover, the power of the ATUS has grown as more years of data have accumulated. Every other advanced nation in the world collects time use data. If the ATUS is eliminated, American businesses, families, policymakers and researchers will lose out on critical information that can improve the quality of our lives.

We urge you to add $6.0 million to the Fiscal Year 2009 BLS budget to collect ATUS data from the full sample originally planned for the survey or, at the least, to allocate the $4.3 million needed to preserve the program in its current form.

Katharine G. Abraham, Suzanne Bianchi,Daniel S. Hamermesh, Alan B. Krueger

via Real Time Economics

Free Reads

Money, Banking and Financial Markets
Stephen G Cecchetti

Chapter 5 Understanding Risk
Chapter 15 Central Banks in the World Today
Chapter 16 The Structure of Central Banks: The Federal Reserve and the European Central Bank

Updates and Supplements

Related;
Behind the Scenes on September 11: How the Federal Reserve Made Sure that Cash Machines and Credit Cards Kept Working

The Inflation Update: January 2008

Another Primer on the Financial Crisis

Brad Setser's advice to Gordon Brown's advisors

1) The UK could insist that sovereign funds looking to set up shop in London meet a high standards for disclosure. If the forecasts from banks like Merill Lynch are to be believed, sovereign funds may soon be adding $1 trillion a year to their assets. At that pace, to paraphrase a Ken Rogoff quip, sovereign funds quickly will become the global financial system. Even if those forecasts don't pan out, some black boxes look set to get big fast. A lot of them seem to have large operations in the UK. Without a bit more (retroactive) disclosure of the broad contours of their portfolios (of the kind in the IMF COFER data), it will be hard to assess their contribution to any future "underpricing of risk."

2) Upgrade the UK's balance of payments statistics to match the US statistics. Specifically, the UK could provide a breakdown of the geographic origin of inflows to the UK and the official/ private split. As more and more global flows move through London, the absence of more detailed data increasingly impedes real time and historical analysis of global capital flows.

The UK's data is here. Best I can tell, even in their comprehensive annual publication, the UK only provides a geographic breakdown for the current account, not for the financial account.

-If the UK wants to increase financial transparency ...