Saturday, October 4, 2008

Reads of the day

The right crisis to compare the current turmoil to

The week ended with yet another recession indicator, this time from US payrolls. Unemployment is at 6.1%, but this might be due to the unrevised birth death figures. Finally, here's good way to track unemployment from consumer confidence data.

Felix Salmon has been discussing for the past couple of days how banks hedge counterparty risk. He posted an explanation from a former industry professional, which I found extremely informative.

How credit default swaps create systemic risk. Easy-to-follow argument but I thought this was a common argument, so I am not sure he's the first one to have made it.

One of the scapegoats of the financial turmoil has been economic theory. Critiques all the way from the media to the Black Swan guy and George Soros have laid the blame on the insufficiency of economic theory. While some of the arguments have some merit, others simply do not know enough economic theory, validating the 1984 quotation ignorance is bliss (or too little knowledge is dangerous). Critiques of the concept of equilibrium fit particularly to this category. Here's well-written piece that clarifies what economists mean by equilibrium.

Ayhan Kose has written extensively on decoupling; here's his latest take with two co-authors.

All you need to know about how oil prices affect inflation (at least for US, the Euro Area, UK and Canada)

A Q&A session on the bailout, from one of the thoughtful journalists covering the issue

US Tbill yields are falling due to the classic safe haven affect, but 5-year TIPS have been on the rise since early 2008. Greg Mankiw presents it as a puzzle, but the simplest explanation is rising inflation expectations.

I was planning to summarize this paper, but James Hamilton beat me to it: Interesting research on how to update economic forecasts with real-time economic data, with an application to Euro Area GDP.

Last but not the least, some weekend humor: Don't forget to take your Libor before you go to bed!

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