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Saturday, January 14, 2006

Output Gap No Longer Useful?

Dallas Federal Reserve President Richard Fisher thinks that the output gap 'yardstick' isn't as useful as it once was. I'm inclined to agree. Mental note: I must give this some more thought and write something longer.

The concepts of output gaps for economists or capacity constraints ... are rendered nonexistent," Fisher told a conference on U.S.-Mexico cross-border shopping sponsored by the Dallas Fed in conjunction with the Chicago Fed and the International Council of Shopping Centers.

"The concepts that we have for so long used to determine the course of monetary policy are being challenged" by globalization......

Thursday, January 12, 2006

Mexico Inflation Hits a Historic Low

Yet another stunning victory for inflation targeting, or is something else going on here.

Mexico this week produced yet another sign of consolidating macroeconomic stability after it announced 2005 inflation was the lowest on record.Prices increased a slightly higher-than-expected 0.61 per cent in December but ended the year at only 3.3 per cent; lower than at any time since the government began keeping records 36 years ago.

The figure, which analysts say is largely the result of a highly restrictive monetary policy exercised during most of last year by Mexico’s central bank, places inflation squarely within the bank’s 3 per cent annual target with a one-point margin either side.

Wednesday, January 11, 2006

China Lands Record Trade Surplus

Some people aren't going to like this:

"China’s trade surplus more than tripled to a record $102bn in 2005 on soaring exports, according to official figures that are likely to draw more criticism to Beijing’s currency policy.Exports jumped over 28 per cent to $762bn last year while imports rose nearly 18 percent to $660bn, according to year-on-year figures released on Wednesday by the General Administration of Customs".

Of course exports rising at 28% is just a touch lower than last year, and no more than what they actually need to maintain the heady pace of investment.

Here's someone who doesn't exactly warm to the news.

Also this piece by Marty Feldstein seems to be going the rounds (and here).

I find Feldstein's view here puzzling, since, regardless of whether or not you think the dollar should fall, one of the considerations would also be your appreciation of the euro, and euro denominated government paper, and since Feldstein has perhaps been one of the most outspoken critics of the euro, you can certainly accuse him of not being exactly 'consequentialist' here.

Brad says: "It is nice to have some of the arguments I have made backed by someone on the short-list to replace Alan Greenspan." Well I could also say the same about the euro. Indeed, I could go further, and say (if you look carefully at the arguments Bernanke actually puts in euro at five ) "It is nice to have some of the arguments I have made backed by someone on the short-list to replace Alan Greenspan, and by the person who has actually replaced him". Of course non of this makes any of these arguments right.

Tuesday, January 10, 2006

The Year Ahead

I still think what happens to the German and Japanese economies will be the big story of 2006. My guess is that things will start reasonably well, and maybe run through to Easter, but that the shine will wear off as the year progresses. Meantime the US seems set to slow a little as the interest rate rises start to bite, and I expect China to continue to follow the same path it has been following for ten years now. Even Trichet may have something right, global growth may offer another good performance this year, although the eurozones share of that surely won't be anything like what he would wish to see.

Bird Flu In Turkey

Well I'm back from a xmas lay-off. In recent days I have been blogging on the avian flu issue over at Afoe, (and here, and here).

Outside Turkey today there is news of an interesting study conducted in Vietnam. The study, which was published in Monday's edition of Archives of Internal Medicine, involved 45,476 randomly selected residents of a rural region where bird flu is rampant among poultry — Ha Tay province west of Hanoi. More than 80 percent lived in households that kept poultry and one-quarter lived in homes reporting sick or dead fowl.

8,149 of those interviewed reported flu-like illness with a fever and cough, and residents who had direct contact with dead or sick poultry were 73 percent more likely to have experienced those symptoms than residents without direct contact. The researchers said between 650 and 750 flu-like cases could be attributed to direct contact with sick or dead birds. While most patients said their symptoms had kept them out of work or school, the illnesses were mostly mild, lasting about three days.

As Dr. Anna Thorson of Karolinska University Hospital in Stockholm, who conducted the study wrote: "The results suggest that the symptoms most often are relatively mild and that close contact is needed for transmission to humans,".

The idea then is that exposure is much more widespread than the official data reveal, and that the majority of cases are much more benign. This is entirely plausible.

Dr. Gregory Poland, a flu specialist at the Mayo Clinic is quoted as saying: "In the really rural areas, we know that this had to be occurring" too, and the study suggests that the prevalence "is pretty high....The data lines up biologically the way we would have expected it to."