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March 31, 2006
Going somewhere this weekend?
Check out the map of cities the NY Times has profiled in their "36 hours" series
Posted by William Polley at 02:09 PM | Comments (0) | TrackBack
March 30, 2006
I suppose we could just use local sidereal time
Michael Downing writes about the convoluted history of Daylight Savings Time in the Wall Street Journal:
In a study of Nixon's failed experiment, the Department of Transportation concluded that wintertime daylight saving might have the potential to save 100,000 barrels of oil a day. In 1986, citing this potential as a guarantee, Congress extended daylight saving from six to seven months, and promised reductions in traffic fatalities and crime as well. These claims reminded North Carolina Rep. Charles Rose of a Native American's definition of daylight saving -- "the white man cutting an inch off the bottom of his blanket and sewing it to the top to make it longer."
Economically speaking, the reason that Daylight Savings Time has the effect that it does in changing our schedules relative to the sun is due to real rigidity (the desire to keep our schedules aligned with each other) and adjustment (menu) costs. See David Romer's Advanced Macroeconomics (p. 296 in the 3rd edition). He credits Milton Friedman as the source of the analogy.
Posted by William Polley at 10:35 PM | Comments (0) | TrackBack
March 29, 2006
Game theory (of a different kind)
Edward Castronova writes in Wired,
What if everything in life were free? You'd think we'd be happier. But game designers know better: We'd be bored.
...That's why today's newer massive synthetic worlds make life hard. It's why we have to scheme, fight, and occasionally beg for food, shelter, transportation, and great big flaming swords. Games show us that scarcity can be fun.
Read the whole thing, and if you want more, check out his interview on Radioeconomics.com.
Posted by William Polley at 11:18 AM | Comments (5) | TrackBack
From the archives
I wrote in September concerning the fed funds rate...
Now, 5% by summer is a real possibility, and if someone gave me even money on an over/under bet, I'd have to give serious consideration to "over".
That quote could have just as well been from yesterday (as long as you consider summer starting after the June meeting).
Posted by William Polley at 12:15 AM | Comments (1) | TrackBack
March 28, 2006
Apple screen shots
Happy 30th birthday, Apple! (April 1, actually.) In celebration of the milestone, Wired has a special report.
This will bring back memories. How many of those interfaces did you use? (I've used all of them except Lisa.)
I'm looking forward to seeing "Every Apple Ever Made," a collection of 240 images that Wired will post on Thursday.
Posted by William Polley at 05:19 PM | Comments (0) | TrackBack
Consumer confidence up
Via Reuters:
After a two-day meeting, the Federal Open Market Committee, the Fed's policy arm, also left the door open for more rate increases in a bid to keep a vigorous economy from overheating, as growth in Europe and Japan appears to be picking up.
Earlier the Conference Board, a private research firm, said its measure of consumer sentiment jumped to 107.2 from an upwardly revised 102.7 in February, beating Wall Street forecasts of only a modest gain.
ABC News adds this:
The Conference Board said that its consumer index shot up 4.5 points to 107.2, the highest level since May 2002, when the reading was 110.3. Analysts had expected a reading of 102.
The latest measure was up from a revised 102.7 in February, which was down 4.1 points from January and broke a three-month rebound from last year's Gulf hurricanes.
Not bad. Generally I don't get too worked up by consumer confidence numbers one way or the other, but the way this one surprised Wall Street and the fact that it is almost a 4 year high is worth noting in passing.
Posted by William Polley at 04:38 PM | Comments (0) | TrackBack
That didn't take long
Senators Schumer and Graham are backing off. (NY Times)
"We came back from China with a real feeling that the Chinese realized that pegging their currency is not only bad for America, but bad for China as well." Mr. Schumer, Democrat of New York, said. "We hope there will be real movement in the coming months."
...
"The small progress we have seen needs to continue," Mr. Graham said today, referring to a 3 percent appreciation of the yuan in the last eight months. "I'm willing to abandon the need for tariffs if the Chinese embark on real reform. We're not there yet."
They plan to delay the vote until the last scheduled day of the session. (Pocket veto, anyone?) It probably won't come to that anyway. None of the coverage of this has said anything about a similar bill in the House. The closest thing I could find on the House side is HR 3004 introduced in June of last year. I'm not sure that either body wants to hammer out the details in conference at the last minute. Sound and fury, etc., etc. Still,...
...they said they reserved the right to bring the measure up sooner if the Chinese slow down the appreciation of its currency.
We'll see. Senator Schumer seems to be doing everything he can to back down without coming out and saying it was a mistake. This must be tiring to the Chinese, but they can't totally ignore it either.
Let's see how the state visit in April turns out.
UPDATE: Menzie Chinn discusses the possible effects of revaluation in this excellent post.
Posted by William Polley at 04:03 PM | Comments (0) | TrackBack
Another quarter point
If you're surprised, you haven't been paying attention. Link to press release:
The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
The 2nd paragraph is unchanged from January. The first has some differences. The opening sentence about GDP makes sense, but the "special factors" phrase is a little vague. It sounds as if the FOMC is trying to signal that we could be experiencing a "soft landing." Aside from a couple of minor word changes and the addition of "other commodities" in the sentences about inflation, that portion of the statement is little changed.
Nothing in the press release surprises me (or changes my outlook), but I look forward to the next round of "Fedspeak" to see which way some committee members will be heading as they go forward. Another increase in May appears very likely. After that it's hard to say. "Some further policy firming" allows some flexibility. Just remember, a pause doesn't mean that it's over. As we near the top, there is something to be said for putting twelve weeks between rate increases rather than six. (Sort of like letting up the pressure on the brake pedal of a car as you come to a stop.) But for the moment, the timing of the inevitable pause is still unknown. Stay tuned for the next round of speeches by FOMC members.
Posted by William Polley at 01:54 PM | Comments (0) | TrackBack
March 27, 2006
FOMC tomorrow
FIrst a couple of links to get you warmed up... Louis Uchitelle writes for the Times, summarizing the lay of the land. Greg Ip for the WSJ is on top of things as usual. Reuters has bullet points suitable for your macro class.
From Greg Ip's article:
But as to what happens after [Tuesday's meeting], it's still largely guesswork. The market puts high odds on another boost to 5%, but Mr. Bernanke said nothing to shade those odds. Indeed, in his five major appearances as chairman, he has either steered away from current commentary, or presented such a balanced view that markets have barely moved.
As chairman, concluded Bank of America economist Peter Kretzmer, "Bernanke may be no easier to decipher than his predecessor." The words may be clearer, but clarity does not equal candor.
Yet Mr. Bernanke's refusal to guide the markets may be temporary. Whatever his personal preference on interest rates, Mr. Bernanke has a powerful reason to keep them to himself for a little longer. To signal how the FOMC should vote without yet leading a meeting could strike the 18 other members as presumptuous and strain relations with them early in his term. (Two of them -- Vice Chairman Roger Ferguson and Philadelphia Fed President Anthony Santomero -- are resigning soon, and as is customary for FOMC members, will not attend their last meeting; an alternate will serve in Mr. Santomero's place. Their successors have yet to be named.)
Very true. Sorry to disappoint you, but I don't see any big revelations coming tomorrow. What you see will probably be consistent with the notion of at least one more rate increase... or not. I'd say another increase at the May meeting is quite likely unless we learn next month that 1st quarter GDP tanked (which I don't think is very likely). Past that, as Dave Altig says, the race is "wide open."
But as for tomorrow, even Greg Ip is willing to hedge his bets a little...
Brian Sack used to work at the Fed and co-wrote, with Mr. Bernanke and another staffer, a study that established the benefits of the Fed's guidance. Now at the private forecasting firm Macroeconomic Advisers, Mr. Sack says: "The markets have a thirst for direction, and it can't always be satisfied. But at times when Bernanke has a different view than what seems priced into the market, he will not shy away from conveying that view, and on those occasions, he will certainly move markets."
Who knows? It could happen Tuesday.
That's probably a good way to leave things until tomorrow.
Posted by William Polley at 11:04 AM | Comments (0) | TrackBack
The Times gets it right
Maybe the chance to talk face-to-face with Chinese on their home turf is what it took to make Mr. Graham and Mr. Schumer realize that just as trade is a two-way street, so too are sanctions. If lawmakers actually went ahead with the Schumer-Graham bill, which would impose 27.5 percent tariffs — a staggering amount — on Chinese goods, they would be accomplishing little to cut American unemployment, while hurting poor Americans who rely on inexpensive goods and poor Chinese whose livelihoods depend on making those products.
The Schumer-Graham bill is based on a fundamental misunderstanding of the root cause of America's economic problems. No question, the United States trade deficit and the loss of American manufacturing jobs are very serious. But most of the imbalance with China is caused by Americans' insatiable appetite for Chinese imports for which there are few domestic substitutes. While it's unfortunate that the textile industry has all but faded away in this country, the fact is that few American factories make things like low-priced apparel any longer.
...
Thus far the Bush administration has resisted calls to accuse China of currency manipulation, but Treasury Secretary John Snow last month hinted that could change. That too, would be a mistake. The administration has done a fair job so far in its tap dance around America's relationship with the world's fastest-growing economy. Now is not the time to slide back into election-year shortsightedness.
I still think that the way is being prepared for the Senate to back off without losing too much face. The spinning has only just begun.
Posted by William Polley at 10:37 AM | Comments (0) | TrackBack
March 26, 2006
Lots and lots o' links
I'm doing some research this weekend. My computer is grinding away at the numerical analysis which gives me a chance to multi-task and check out what I've been missing.
First of all, the Senators' trip to China continues to get media play. Nothing new to talk about. You know what I think.
Rounding up all the rest of the weekend's news, Big Picture and macroblog do the honors. Do yourself a favor and check them out. Their impressive collections of links could keep you busy all day. Macroblog's post is almost all links with a few connecting words! Very nice.
FOMC this week. I will be in class when the press release will come out on Tuesday, so I'll comment later in the afternoon. The minutes from Bernanke's first meeting will be of some significance, but we'll have to wait a few weeks for that.
And with that, my computer program finished crunching its numbers, so it's back to work.
Posted by William Polley at 11:04 PM | Comments (0) | TrackBack
Who's voice is that?
Ok, so anyone can tell that George Clooney is the voice behind those Budweiser commercials. But I must admit that the voice behind the AOL commercials that have been airing lately had me stumped. It's such a familiar voice. It has to be someone I've heard before.
If you don't want to know, don't click the link to this CNN article.
The answer is below the fold.
Julia Roberts.
Who knew?
Posted by William Polley at 02:30 AM | Comments (1) | TrackBack
March 24, 2006
Nothing if not predictable
Senators Schumer and Graham are in China. Things are progressing as you might expect.
BEIJING (Reuters) - U.S. senators threatening China with sanctions unless it revalues its yuan said on Wednesday that letting the currency float would solve problems in both countries.
...
"We have been made aware of the problems here in China, we're well aware of the problems in America, and we do believe that letting the currency float will help solve the problems -- one country needing more consumption and one country needing more investment and production," [Sen. Charles] Schumer told reporters.
...
"What we're trying to look for is a process that is not responding to political pressures, but one that is responding to economic reality, because I do believe ... that it's in the best interest of the Chinese people to allow a market-based currency," said [Sen. Lindsey] Graham.
The senators were not looking for a timetable or specific goal, Schumer said, but wanted to be convinced that China is moving in its own way toward letting the currency float.
He said he was not convinced that was happening.
If not a timetable or a specific goal, then what?
The Senate Finance Committee is also working on a bill aimed at addressing trade irritants with China as an alternative to the Schumer/Graham initiative, but there were no details of the legislation.
The details will come later when it is time for the Senate to save face. I would expect that to happen around the time of the Chinese president's trip to Washington. Everyone will want to be able to declare victory.
Let me go on record once again that I do think the yuan is undervalued and that an appreciation is inevitable. The only questions are how and when. Slow and steady seems to be the approach. Seeing as how they will get one chance to get it right, that seems sensible. Our rattling of the tariff sword in this particular instance at this particular time is less sensible to me. It is election year politics, pure and simple.
UPDATE: The Wall Street Journal has the latest on the Sentators' trip.
"We are more optimistic that this can be worked out than we were in the past. But whether it will be, we're not certain yet," Mr. Schumer told reporters after three days of meetings with senior Chinese officials, including the central-bank chief and the commerce minister.
If you look at the story from a couple of days ago, you have to ask what it was that made them more optimistic. Timetable? Specific goals? Other? Or is this, well, you know...
Mr. Graham said he was struck by the magnitude of China's problems -- for example, unemployment -- and how those issues weigh against sharp changes in currency policy. "I am more sensitive now than I was before to how hard it will be to move toward a floating currency," Mr. Graham said. But, he added, "I am more committed than ever to make sure that occurs," to ensure "harmony" in U.S.-China relations.
There's your sound bite. I, too, would like the increased flexibility to occur at a pace that is sensible given China's domestic policy concerns. That's what I've been saying all along.
The Senators can now return home and work on the speeches in which they tone down the tariff talk and claim victory. But if you think that the Senators' trip will change very much, you are more optimistic than I.
But I'll bet it was a great photo op.
UPDATE 2: Sestina has a comment to this post with a link to a Stephen Roach article on this issue. Roach gets it right and gets a quote that I didn't see in the MSM.
Posted by William Polley at 12:25 AM | Comments (2) | TrackBack
March 22, 2006
The Numbers Guy looks at the NCAA tournament
The Wall Street Journal's Carl Bialik examines the promotions that offer huge prizes to someone who can fill out a perfect NCAA bracket.
A look at the odds of winning shows why companies are willing to risk such valuable loot. Filling out a perfect bracket means predicting the outcome of 63 games. If each game were a true toss-up, that would mean your chance of perfection is a mere one in two to the 63rd power, or one in nine million trillion (yes, million trillion -- there are no tidy terms for numbers this large). Put another way, you are about 60 billion times more likely to win the multistate Powerball lottery.
The rest of the article goes on to describe some of the strategies for improving your odds (1 vs 16 games really aren't toss-ups). If you like college basketball and probability, you'll like this article.
My take on the situation is that there is usually one game (sometimes more than one) that almost nobody would have picked. The Iowa/Northwestern State contest would fit the bill. Or, how about Bradley over Pitt? George Mason over NC? Wichita State over Tennessee? Take your pick. Now suppose that 100 million people correctly picked the first round games involving Bradley, Pitt, George Mason, NC, Wichita State, and Tennessee. They regard the 4 games above as toss ups and choose them randomly. The expected number of contestants who would still be in the running for a perfect bracket would be 6.25 million. And there are still 53 games to pick!
So in other words, start with 100 million people who have already picked a couple of upsets, give them the courage to give a 50/50 chance to a clear underdog in 4 other games and you'll still cull the herd by about 94% in just 10 games out of 63.
My secret to filling out the bracket is to always have a couple of 10 seeds win in the first round, put one high seed in the Sweet 16, put Duke in the Final Four, and never ever go against Gonzaga in the first round no matter what their seed. That should improve your odds to one in several billion.
By Friday afternoon my bracket was in shambles, by the way (Duke and Gonzaga notwithstanding).
UPDATE: Katie Newmark (A Constrained Vision) also cites the article.
Posted by William Polley at 10:00 PM | Comments (2) | TrackBack
March 21, 2006
There's probably stuff like this all over the place
Via CNN:
NEW YORK (CNN) -- New York workers have discovered a trove of Cold War-era supplies within the masonry of the Brooklyn Bridge, a cache meant to aid in survival efforts in the event of nuclear attack.
...
Some containers were marked with two dates notorious in the annals of the Cold War: 1957, when the Soviet Union launched the first satellite into space, and 1962, the year of the Cuban missile crisis when the two superpowers may have come closest to war.
Salin said one of the containers was marked, "To be opened after attack by the enemy."
...
"It's hard to believe that the space was meant to be a fallout shelter, because it is not underground and light and air does get inside it," she said. "Could it have been a bunker for the mayor? We don't know."
I'd have to imagine that the mayor would have a better bunker than the Brooklyn Bridge. Maybe it was some government employee's private stash. One can only wonder how many such treasures await discovery in little closets and bunkers that time forgot.
Posted by William Polley at 02:49 PM | Comments (0) | TrackBack
March 16, 2006
Quietly creeping upwards
The yuan continues to move, though not fast enough for some (Reuters)
SHANGHAI (Reuters) - China's yuan hit its highest level to the dollar on Thursday since its July revaluation, as dealers said market players took advantage of signs of increased tolerance from the central bank for a stronger currency.
The rise came ahead of a key visit to Beijing next week by two U.S. senators who have said they were inclined to proceed with a vote on a bill threatening China with sanctions.
The yuan traded at its post-revaluation high of 8.0348 in early trade, up a marginal 0.04 percent from its close of 8.0377 on Wednesday when the currency scored its biggest one-day gain of 0.12 percent since its revaluation.
The currency has now appreciated a further 0.94 percent since Beijing revalued it by 2.1 percent on July 21 and freed it from a dollar peg to float within managed bands.
...
But dealers said there was no immediate impact from news of the mainland visit by Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican.
Both senators said they will head to Beijing next week to hear firsthand what China was doing about its currency before making a final decision on a bill threatening the country with a 27.5 percent tariff on its exports to the United States.
I see a photo op coming. In Chinese culture, saving face is very important--as it is in American politics. Wouldn't a bi-partisan trip to China make it easier for the Senate to back down on the tariff issue?
"The market has gotten accustomed to such political talk and is more likely to wait for a concrete outcome from Washington," said a dealer from another foreign bank.
Smart.
Posted by William Polley at 01:44 AM | Comments (0) | TrackBack
March 13, 2006
See if you can follow this...
I'm listening to C-Span2 right now. Sen. Byron Dorgan (D-ND) is telling of how FEMA botched ice delivery after Hurricane Katrina. He is showing a photo of trucks lined up at an Air Force Base in, I believe, Alabama. The truck drivers were told to pick up ice in New York and bring it to Alabama by way of Missouri. Once there, they waited 12 days at that Air Force Base. Then, inexplicably, they were told to deliver their ice to Massachusetts. Cost: $15,000. (Note: It was not clear if he meant that this was per truck or for the whole lot. I have to believe that the opportunity cost of a truck sitting still for 12 days could easily exceed $15,000 as well--especially in a disaster area--so chalk this up as an example of people not being clear about the full cost of something.)
A local sheriff who tried to commandeer the trucks to get the ice to the victims of Katrina is now being prosecuted for his efforts.
I'm sure this will appear in the Congressional Record in case you want to read Dorgan's precise telling of the tale. It sounds unbelievable, but a lot of unbelievable things happened after Katrina. I'm prepared to take Dorgan at face value on this one.
The old Soviet central planners would be proud. Here's a crazy idea: Let the price of ice rise to induce people to transport it and sell it in the affected area. Concerned that the poor wouldn't be able to buy the ice (price gouging)? Let the government buy the ice at the going price and distribute it at the shelters. I honestly think it would be less costly than what happened here.
And they would get ice.
Posted by William Polley at 01:46 PM | Comments (1) | TrackBack
March 10, 2006
Payroll employment up 243,000
February nonfarm payroll employment increased by 243,000 in February according to the Bureau of Labor Statistics.
Link to report--note, this address is not the archived version
Labor force participation and the employment to population ratios were little changed (LFPR was up 0.1%), and the unemployment rate moved up from 4.7% to 4.8%.
Average hourly earnings were up 5 cents from $16.42 to $16.47 with the largest percentage gains going to the professional and business services sector. Manufacturing jobs and wages continue to decline. (See Mark Thoma for some more details on where the growth in jobs is or is not.)
That 243,000 jobs were created in February is good news. PGL is happy that even more entered the labor force (which explains why the unemployment rate ticked up slightly). Of course we are talking about data from two different sources--the household survey definitely being the more noisy of the two. So while I always hesitate to put too much emphasis on one month's data, the developing trend does have me cautiously optimistic. I feel better about the labor market than when I woke up this morning.
The bond market is taking it fairly well. One would expect that a positive job report would give more ammunition to those who want the Fed to take rates higher. Yields are a little higher today, but apparently it will take more than this to undo the inversion. As Barry Ritholtz reminds us, the Fed's decisions are going to be dependant on incoming data such as this. He's also watching the bond market very closely on this one. As of this moment, the 10 year yield is up 4 basis points. That's significant, but hardly an overreaction. I think the market is responding appropriately and recognizing that we are slowly, gently, edging towards a higher definition of "neutral" interest rates for monetary policy. That could be a good thing. If the target is edging higher, the risk of overshooting is lower. We could be close to a "soft landing."
The 243,000 jobs exceeded expectations a little, but not by too much so as to jolt the bond market. It is very good news.
Posted by William Polley at 12:47 PM | Comments (3) | TrackBack
March 08, 2006
Bank of Japan holds steady
The lead-up to the decision...
Last week it seemed like the Bank of Japan might be ready to join all of the other major central banks and hop on the rate hike train. This week they get some advice from the OECD, and that advice is "not so fast." From the Times Online:
The OECD cautioned Japan yesterday against any over-hasty move to end its zero interest-rate policy, telling Tokyo that the world’s second-largest economy was only slowly emerging from deflation.
The NY Times shows concern...
TOKYO, Thursday, March 9 — Is Japan about to start a sell-off in global financial markets?
Economists dismiss such fears as alarmist. But concerns have been building ahead of an expected vote Thursday by the policy board of the country's central bank, the Bank of Japan. At issue is whether the bank should end its policy of supereasy money, which has kept Japan's short-term interest rates near zero.
Because no major central bank has ever had such a loose policy, no one knows for sure how to end it smoothly.
Economists say the Bank of Japan must tread carefully to avoid sending shock waves through the country's recovering economy and through world markets.
"These are uncharted waters for a central bank," said R. Glenn Hubbard, dean of Columbia University Business School and a central banking expert. "Exiting with minimal disruptions will be a difficult exercise."
Bloomberg has the same sort of feeling I get on a spring day in Illinois as the barometer starts to fall and things get really still...
March 9 (Bloomberg) -- The yen was little changed as Bank of Japan Governor Toshihiko Fukui and members of his board meet to decide how to end five years of deflation-fighting policies.
Currency fluctuations may be exaggerated today as investors jockey for position as the BOJ makes its decision, traders said.
...
Some traders who built up dollar holdings against the yen before the meeting may have placed automatic orders to sell the U.S. currency in case their bets go the wrong way, he said.
...
``We could have hit-and-run moves by speculators trying to break those levels around 117.30-117.35,'' said Soma. ``This meeting could be a milestone in Japanese history so it's hard to push the yen lower even if rates don't rise soon.''
...
``There's that nervousness around,'' said Waddington, head of interbank currency sales. ``On a knee-jerk we could go as far as 117. Anything under there will start to see very good bids'' for dollars. ``Buy that and try and take out stops above 118.''
...while Reuters weighs the risk of doing nothing...
TOKYO (Reuters) - Japan's central bank will decide on Thursday whether to scrap its unprecedented super-loose monetary policy, paving the way for a rise in interest rates from zero that could reverberate around the world.
If the Bank of Japan stands pat, however, it could leave itself open to criticism that it had bowed to pressure from politicians worried about derailing Japan's hard-won recovery.
...and the decision comes down...
March 9 (Bloomberg) -- The yen traded lower after the Bank of Japan said it will keep interest rates near zero percent after it ended a five-year policy of fighting deflation.
...
``The yen is more likely to fall than rise,'' said Yasunori Kuroda, who helps manage fixed-income assets in Tokyo at Sompo Japan Insurance Inc., the nation's third-largest casualty insurer. ``The BOJ probably won't raise rates anytime soon, keeping the rate-differential story alive.'' He spoke before the announcement.
And so it goes for a few more weeks, at least. But the end is in sight...
TOKYO (Reuters) - The Bank of Japan scrapped a five-year-old experiment with ultra-loose monetary policy on Thursday and returned to a more conventional regime, but said it would still keep short-term interest rates around zero for now.
The decision represents a first step toward an eventual interest rate rise in a country where rates have been virtually zero for years, and reflects the central bank's confidence that a seven-year fight against deflation has been won.
So, it's sort of a move, but not really a move. On your mark, get set.... but not quite "go".
Here's the official announcement, if you are so inclined.
At the Monetary Policy Meeting held today, the Bank of Japan decided to change the operating target of money market operations from the outstanding balance of current accounts at the Bank to the uncollateralized overnight call rate, and to set the following guideline for money market operations for the intermeeting period.
The Bank of Japan will encourage the uncollateralized overnight call rate to remain at effectively zero percent.
UPDATE: Day two story.
TOKYO (Reuters) - Japan's central bank and government sparred politely on Friday over when to raise interest rates, a day after the Bank of Japan defied political pressure and scrapped its hyper-loose monetary policy.
Bank of Japan Governor Toshihiko Fukui repeated that the central bank would for now anchor interest rates around zero, where they have been for most of the past seven years.
...
"Eventually, there is a need to gradually raise rates in Japan to a level in line with the economy and prices," Fukui told a parliamentary committee.
"We cannot keep rates at zero forever. But as we are only finally emerging from deflation ... we will continue to offer an accommodative monetary environment for a while," he added.
"I cannot say for how long."
Posted by William Polley at 10:59 PM | Comments (0) | TrackBack
Demography matters
Edward Hugh was kind enough to send me an e-mail announcing a new group blog, http://demographymatters.blogspot.com/.
For those who don't know, Hugh also blogs at A Fistful of Euros (a large group blog) and he has a personal blog, Bonobo Land. I've read them, and you should too. My blogroll reflects my reading with a lag, so excuse me while I update.
Posted by William Polley at 10:43 PM | Comments (0) | TrackBack
WSJ Econoblog: Roberts and Boushey square off on inequality
I doubt it will shake too many people from their prior beliefs, but you should definitely surf on over. It's in the free section--get it while you can. There may be no such thing as a free lunch, but if you can spare a few minutes, I think the marginal benefit will exceed the marginal cost of your time.
Wall St. Journal Econoblog link
While I tend to side with Roberts on this one, I must say that the discussion gave me some ideas that I intend to kick around a bit. Something to think about over spring break.
Posted by William Polley at 09:56 PM | Comments (4) | TrackBack
March 07, 2006
How long will the inversion last?
The yield curve is quite flat at the moment. From 2 to 30 years out, it is actually inverted by 4 basis points as I write. That may not sound like much, but if you're in the business of borrowing short and lending long, it's not a pleasant sight. Inverted yield curves are said to portend recession. Could it also portend a soft landing?
If you're inclined to think that the economy is on the right track and the expansion is not yet over, you're probably thinking that the inverted yield curve will be short-lived. If you are optimistic about such things, the odds are that you look for the long rates to move up rather than the short rates move down, at least in the next few weeks and months.
Lately, the 10 year has shown some signs of moving above its mid-2004 level. When you look at the behavior of the rate over the last couple years, the rise has been slow and steady after a rather precipitous fall in 2004. Clearly the Fed has been trying to stay ahead of the curve. Whether they got too far ahead and where they will go from here is the subject of some discussion. But St. Louis Fed President William Poole is optimistic about the potential for growth and wants to keep the Fed ahead of the curve. (CNN Money)
"Should we get data in the coming months that are consistently strong, particularly if there are substantial upside surprises, then that says we're going to have to step a little harder on the brake," St. Louis Federal Reserve President William Poole told Reuters.
He said the opposite will hold if the data were on the soft side. But he didn't sound very convinced this is in the cards and doubts a cooling housing market could undermine the expansion as some private sector economists have warned.
"My sense is there is a great deal of momentum in the economy. I don't think that it is momentum of the sort that is going to run us off the rails," Poole said, explaining he doesn't think the growth pace would create widespread labor market shortages.
"But I think it is momentum of the sort that says we're going to keep rolling down the expansion here, and you're not going to stop this freight train easily."
This means higher short term rates. If the Fed is wrong, and the growth never materializes, the yield curve will invert further, policy will overshoot, and recession is possible. But, if the Fed is right, the long yields will rise in concert with the short rates until inflation stabilizes and the Fed feels comfortable taking its foot off the brake--the much anticipated "soft landing."
Of course, if the Fed waits too long and inflation takes hold, long rates could rise because of higher inflation expectations. This means even higher short term rates later, possibly another more serious inversion, and a hard, perhaps bumpy, landing.
At the moment, I would ascribe the slow uptick in the long bond yield to be a return to somewhat normal real interest rates (after years of extremely low real rates). Long rates are following the short rates upward, not as fast as some would like, but they are inching up. Prospects for economic growth, not growing inflation expectations, seems the more likely explanation. In the end, we know only marginally more than we did a few months ago when we had the same discussion, but nothing has caused me to dramatically alter my priors. Future policy moves will be data dependent. A couple more rate hikes are likely, and now the 10 year looks like it might keep up a little better. As long as the adjustment doesn't come too rapidly, a soft landing is possible. We might even be experiencing it now. (Is 1.6% GDP growth for a quarter a soft landing?) Ideally I'd like to see some spacing out of the rate hikes (every other meeting perhaps) as things wind down to really grease this economy back onto the runway. But then, with the economy as in an airplane, I'm pretty critical of the landing.
For further reading, I suggest this speech given by Poole from a few months ago. In it he gives some historical perspective on the term structure and discusses implications for policymakers in the current environment. It's from last June, but it still reads well today. It is required reading in my MA level macro course.
UPDATE: Mark Thoma links to a speech by Michael Moskow, and David Altig offers some thoughts that parallel this post.
Posted by William Polley at 04:10 PM | Comments (0) | TrackBack
March 06, 2006
Kirby Puckett, Baseball great, 1960-2006
I don't think I will ever forget the sound of the Metrodome announcer (Bob Casey, who passed away almost a year ago) calling out his name, "Kiiiiirrrrbyyyyy Puckett!" If the Twins were in need of a hit, there were few things that sounded sweeter. Perhaps the only sweeter sound was radio announcer John Gordon saying, "Touch 'em all, Kirby Puckett!" after a home run.
My Dad became a Twins fan in the days of Tony Oliva and Harmon Killebrew. I never saw them play. But we shared Kirby.
Puckett was short, stocky, and played for a small market team. Looking at him in the outfield, you wouldn't suspect him of being able to make leaping catches at the wall the way he did. But inside that 5'8" package was one of the hardest working players around. He made it look easy. Talent and hard work made him a great player. But what made him beloved by Twins fans was that he played the game like he really enjoyed it. How could you not smile when you saw him grinning from ear-to-ear? When Kirby stepped to the plate, anything was possible. He made it exciting. He made it fun to be a fan.
History will remember his game ending home run in game 6 of the 1991 World Series. Minnesota will remember seeing #34 mature over the years into an integral part of a team that would win it all--twice. I will remember all of that and so much more. So much more because Kirby Puckett and the Twins were always on AM radio and cable TV in our house (and car) on those warm summer nights and cool autumn evenings. It was as if he provided the background music for the memories of my teenage and college years. Thanks, Kirby. Touch 'em all.
Kirby Puckett's Hall of Fame Page
King (SCSU Scholars) has a eulogy here.
Posted by William Polley at 11:53 PM | Comments (1) | TrackBack
March 05, 2006
Movable Type 3.2
After some testing to make sure the transition would be seamless, I'm now running Movable Type 3.2. So far, so good. The most compelling reason for the upgrade is the ability to run multiple blogs from the same interface. Blogs for my courses will be coming soon.
Posted by William Polley at 12:52 AM | Comments (0) | TrackBack
March 02, 2006
Shrinking the stadium to increase sales
Stanford is making its football stadium smaller to try to sell more season tickets. The reason: If people think they will not be able to get a ticket for the big rivalry games, they will shell out the money for season tickets to make sure they do. (NY Times)
Consultants who advise sports teams say there is method to the Stanford plan. Reducing capacity can increase sales, said Marc Ganis, president of Sportscorp Ltd., a Chicago sports consulting firm.
"When people feel like they wouldn't be able to get a ticket to any game they want to go to, they tend to get season tickets," he said, adding that it improves attendance over all.
There are a number of economic concepts at work here. Elasticity, bundling (pricing season tickets vs. individual tickets), supply and demand under uncertainty. Explaining the economics behind this would make a nice little undergraduate research paper.
Roger Noll is quoted in the article, but not about the factors mentioned above. Rather, he is quoted on the lack of concern about the money spent.
But several faculty members said graduates who donate to athletics would not have given money to rebuild any other part of the university, and so there was no downside to spending so much on the stadium.
"These people, their connection to the university is much more through athletics than through the academic" side, said Roger G. Noll, an economics professor at the university, referring to the graduates whose donations were financing the stadium project. He said he had heard few complaints from colleagues about the project, while he had heard concerns about the school's business endeavors, including real estate and intellectual property holdings.
While under the right circumstances, the plan could work, it is not a sure thing...
At least one other school, Dartmouth College in Hanover, N.H., is weighing a similar plan to reduce stadium size. But for Dartmouth and Stanford, the example of Princeton, which reduced the size of its stadium to 27,800 from 45,000 in the 1990's, may offer a cautionary tale.
In the first seasons after the construction project in New Jersey, and after the price of a ticket was cut to $5, attendance soared, rising to more than 20,000 people a game from fewer than 10,000 a game in the old stadium, said Jerry Price, associate athletic director at the school.
By last season, attendance had fallen nearly to its old levels, he said.
"We had bad weather for a couple of games," he said.
Write your own conclusion.
Posted by William Polley at 03:24 PM | Comments (1) | TrackBack