Wednesday, November 19, 2008

Interesting Picks

While the latest US data smell of deflation, energy analyst Gregor Macdonald argues that the two steep curves, yield and oil futures, hint that there is inflation and growth on the way.

While the dollar continues to advance against major currencies, BOA argues (and has argued for some time now) that USD illiquidity accounts for the greenback's strength. This means that as credit strains ease and VIX falls, so will the dollar...I am not sure I but the view, but I appreciate the courage to argue for a weaker dollar.

NYT reports on an online market for selling IOUs.

FT Alphaville sums up the latest Fed actions -scrapping of supplementary financing program, encouraging excess reserves- as well as what lies ahead (more quantitative easing) and what to do if all else fails.

Applying his own research on the effect of large uncertainty shocks on the US economy, Nicholas Bloom argues that 2009 will the nightmare on main street.

Speaking of recession, Bloom's methodology of linking uncertainty to the real economy is rather unique. The most common way of predicting recessions is by way of a limited dependent variable (probit) model. Fellow bloggers James Hamilton and Orhan Karaca use such models, to predict probability of recession in the US and Turkish economies respectively. If you want to know how it is actually done, I just stumbled upon a pedagogical paper.

And also speaking of volatility, here's an article that shows that more globalized countries have less stock market volatility in good times but suffer from excessive volatility during crises (has nice graphs).

Earlier, I had linked to an article showing the similarity between stocks and bonds. Now, I have a piece that argues, because of the structural changes in the market, bonds are getting less liquid and starting to look a lot like bonds.

Menzie Chinn continues with Brad Setser's ut-oh on the latest US trade release.

In case you wanted to know the nitty gritty of the Fed's swap line with other central banks.

More on using Graham's ratio, brought to sunshine from dust by Bob Shiller, to see where US stock might be headed in the long run.

Summary of World Bank research on financial crises.

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