Basilic Financial’s Post

Inflation is a vector and we all experience it at varying levels. The best way to measure inflation isn't CPI, a manipulated government statistic, but rather to look at the velocity of money printing. Over the last 10 years, the amount of U.S. dollars has increased by an average of 6.8% per year

Let me introduce you to Hank. It is a project in macroeconomics that, according to one Nobel laureate, has “an electric charge”. It is increasingly infiltrating the likes of the Federal Reserve Board, the European Central Bank and the Bank of England. And it is one of the few acronyms for which economists deserve forgiveness. “Heterogeneous Agent New Keynesian” doesn’t exactly roll off the tongue. The aim is to combine a theory of how the macroeconomy moves with the details of inequality. #economicmodels #inequality #economists

📊 Great that Quintet Private Bank’s views on equities and bonds, and how the economic environment, inflation and central banks are impacting the key markets around the world, have been quoted by FT Adviser. #economy #inflation #centralbanks #markets #investing

How do communications about economic policies affect economic outcomes? CentralBankRoBERTa may have the answer. In this article, the authors explore this state-of-the-art economic agent classifier that distinguishes five basic macroeconomic agents and a binary sentiment classifier that identifies the emotional content of sentences in macroeconomic communications. The model was trained on over 12,000 manually labeled sentences from communications of the U.S. Federal Reserve System, the European Central Bank and global members of the Bank of International Settlements. Find out what the central bank is saying about small business, the housing sector, or government finances with CentralBankRoBERTa.

On the positive side, there is anticipation of falling inflation and central banks cutting interest rates, which led to a strong rally in US equities in 2023. However, there are concerns that the monetary tightening in previous years could have adverse effects on the economy in 2024. The article also mentions the potential decline of China's role as a driver of global economic growth, which could have significant implications. Overall, economists are cautious about the outlook for 2024, with modest growth expectations. The US equity market is seen as having priced in a lot of good news, particularly in the technology sector.

Good read About inflationism and anti-inflationism and how both stem from ideologies rather than procedures, laws or even the state of the economy. #economics #monetarypolicy #centralbanks #fed #inflation #goldstandard #markets #supply #demand #money #recession #cycle #history

Keynesian's (the majority of formally trained economists and financial types) mocking Modern Monetary Theorists (the latest evolution of economic theory that can't explain anything in real life) is a bit rich. Like a jester mocking a clown for being goofy. "MMT correctly observes that government—through a balance of taxation, deficit spending, inflation, and monetary policy—attempts to centrally control an economy and does, in fact, direct real resources toward its ends. These are common policy tools of the state and central banks. MMT would just like to leverage these tools to a greater extent and direct them toward different ends." https://lnkd.in/gUfyaMA2

📢 New Working Paper: Multi-dimensional monetary policy shocks based on heteroscedasticity   With central banks increasingly relying on unconventional tools like forward guidance and large-scale asset purchases, how can we assess their impact on financial markets and exchange rates? Marc Burri and Daniel Kaufmann tackle this challenge in their new IRENE Working Paper.    They propose a two-step approach to estimating multi-dimensional monetary policy shocks and their causal effects based on daily financial market data and monetary policy events. They exploit the changes in the variance of financial market variables on days with monetary policy announcements and impose additional assumptions on the response of interest rates along the term structure to disentangle multiple dimensions. In addition, they derive an optimal predictor of the unobserved multi-dimensional monetary policy shocks. They find that both conventional and unconventional monetary policy actions quickly appreciate the exchange rate.   💡 Want to dive deeper? Explore the entire paper in our working paper series: https://lnkd.in/epsw-sZJ   Faculty of Economics and Business, University of Neuchâtel Daniel Kaufmann Bruno Lanz Mehdi Farsi Jean-Marie Grether   #MonetaryPolicy #ExchangeRate

HORIZONTALISTS AND VERTICALISTS The macroeconomics of credit money The ‘verticalist’ view states that the money supply function is exogenous, is independent from money demand, and can, at least to a reasonable extent, be controlled by the central bank. The verticalist paradigm may apply in a world of commodity or pure fiat money. But, as Moore argued in 1988, it does not provide a correct description of a credit economy. Rather, in such a world, a ‘horizontalist’ view must be adopted. The supply of credit money is endogenous, is demand-determined, and only its price can be controlled by the central bank, not its quantity. This was Moore's message in 1988 and it was a brave one. It postulated nothing less than the failure of a key assumption taken for granted by almost every monetary macroeconomist in the twentieth century: that the central bank can control the monetary base and thereby exert control over the stock of money supplied to the economy. Moore was aware of the consequences of removing this central assumption and instead adopting the horizontal view. He did not shy away from explicitly spelling this out: "The ‘Horizontalist’ notion … implies, for example, that the entire literature on monetary control and on monetary policy, IS-LM analysis, the Keynesian and the money multiplier, liquidity preference, interest rate determination, the influence of public sector deficits on the level of domestic interest rates, growth theory, and even the theory of inflation must be comprehensively reconsidered and rewritten." Moore 1988

Interest piece by Sam Fleming, Martin Arnold and Claire Jones on neutral rates. It is true, of course, that you can't pinpoint the neutral rate with any precision; but as a framework that ties together a number of political and macroeconomic actors, it can help us shape a view on where interest rates might end up. With changing economic policy priorities (more focus on strategic political priorities and less on competition/efficiency), more government intervention, and with the increased risk of economic and financial defragmentation, I think inflation volatility and the level of neutral rates are likely to be substantially higher than in the decade following the Global Financial Crisis. #geopolitics #geoeconomics