Wednesday, April 25, 2012

Debt

24-5-28 Global debt reaches $315 trillion - CNBC International > .
24-10-15 How the US Debt Crisis Affects Us All - Cold Fusion > .
23-11-23 How much federal debt can Canada carry? | About That | CBC > .
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Deflation

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24-3-5 Xina’s Deflation Is More Dangerous Than High Inflation | WSJ > .
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Devaluation Risks - X

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24-5-8 George Magnus on Yuan Devaluation Risks - Update > .
DUHnomic Trade Wars 

12-9-5 The Impossible Trinity - Open University > .

The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. 
Today, the IS–LM model is generally accepted as being imperfect and is largely absent from teaching at advanced economic levels and from macroeconomic research, but it is still an important pedagogical introductory tool in most undergraduate macroeconomics textbooks.

The IS–LM model simplifies the relationship between interest rates and output in the short run in a closed economy (autarky). The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the money markets. 

The IS–LM model shows the importance of various demand shocks (including the effects of monetary policy and fiscal policy) on output and consequently offers an explanation of changes in national income in the short run when prices are fixed or sticky. Hence, the model can be used as a tool to suggest potential levels for appropriate stabilisation policies. It is also used as a building block for the demand side of the economy in more comprehensive models like the AD–AS model.

The AD–AS or aggregate demand–aggregate supply model (also known as the aggregate supply–aggregate demand or AS–AD model) is a widely used macroeconomic model that explains short-run and long-run economic changes through the relationship of aggregate demand (AD) and aggregate supply (AS) in a diagram. It coexists in an older and static version depicting the two variables output and price level, and in a newer dynamic version showing output and inflation (i.e. the change in the price level over time, which is usually of more direct interest).


The AD–AS model was invented around 1950 and became one of the primary simplified representations of macroeconomic issues toward the end of the 1970s when inflation became an important political issue. From around 2000 the modified version of a dynamic AD–AS model, incorporating contemporary monetary policy strategies focusing on inflation targeting and using the interest rate as a primary policy instrument, was developed, gradually superseding the traditional static model version in university-level economics textbooks.

The dynamic AD–AS model can be viewed as a simplified version of the more advanced and complex dynamic stochastic general equilibrium (DSGE) models which are state-of-the-art models used by central banks and other organizations to analyze economic fluctuations. Unlike DSGE models, the dynamic AD–AS model does not provide a microeconomic foundation in the form of optimizing firms and households, but the macroeconomic relationships ultimately posited by the optimizing models are similar to those emerging from the modern-version AD–AS model. At the same time, the latter is much simpler and consequently more easily accessible for students, making it a widespread tool for teaching purposes.

The Mundell–Fleming model, also known as the IS-LM-BoP model (or IS-LM-BP model), is an economic model first set forth (independently) by Robert Mundell and Marcus Fleming. The model is an extension of the IS–LM model. Whereas the traditional IS-LM model deals with economy under autarky (or a closed economy), the Mundell–Fleming model describes a small open economy.

The Mundell–Fleming model portrays the short-run relationship between an economy's nominal exchange rate, interest rate, and output (in contrast to the closed-economy IS-LM model, which focuses only on the relationship between the interest rate and output). The Mundell–Fleming model has been used to argue that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. An economy can only maintain two of the three at the same time. This principle is frequently called the "impossible trinity," "unholy trinity," "irreconcilable trinity," "inconsistent trinity," "policy trilemma," or the "Mundell–Fleming trilemma."

The impossible trinity (also known as the impossible trilemma, the monetary trilemma or the Unholy Trinity) is a concept in international economics and international political economy which states that it is impossible to have all three of the following at the same time:
The options are:
Option (a): A stable exchange rate and free capital flows (but not an independent monetary policy because setting a domestic interest rate that is different from the world interest rate would undermine a stable exchange rate due to appreciation or depreciation pressure on the domestic currency).
Option (b): An independent monetary policy and free capital flows (but not a stable exchange rate).
Option (c): A stable exchange rate and independent monetary policy (but no free capital flows, which would require the use of capital controls).

The aggregate demand–inflation adjustment model builds on the concepts of the IS–LM model and the AD–AS models, essentially in terms of changing interest rates in response to fluctuations in inflation rather than as changes in the money supply in response to changes in the price level.

The AD–IA model is a Keynesian method used to explain economic fluctuations. This model is used to show undergraduate students how shifts in demand or shocks to prices can affect real GDP around potential. The model assumes that when inflation rises the interest rate rises (monetary policy rule). It also assumes that when real GDP exceeds potential, there is upward pressure on the inflation rate and vice versa.

The model features a downward-sloping demand curve (AD) and a horizontal inflation adjustment line (IA). The point where the two lines cross is equal to potential GDP. A shift in either curve will explain the impact on real GDP and inflation in the short run.

American economist, Herbert Stein propounded Stein's Law, which he expressed in 1986 as "If something cannot go on forever, it will stop." Stein observed this logic in analyzing economic trends (such as rising US federal debt in proportion to GDP, or increasing international balance of payments deficits) in his analysis: if such a process is limited by external factors, there is no urgency for government intervention to stop it, much less to make it stop immediately, but it will stop of its own accord. A paraphrase, not attributed to Stein, is "Trends that can't continue won't."

AD-IA model w      
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Tuesday, April 24, 2012

Economic Recessions and Recoveries

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Greatest Economic Recovery In Human History? - EcAS > .

Economic Recessions and Recoveries ..
Recession, Depression ..

In 1709, the UK suffered after The Great Frost. Over one hundred years ago, the aftermath of WW1 led to the Roaring 20s. Particularly in the United States. As the nation’s total wealth doubled, the consumer society became mainstream and mass production really kicked off. Yet that didn’t end well. Wall Street’s main stock market index crashed nearly 90% from September 1929 to June 1932. Unemployment skyrocketed and ultimately led to the Great Depression. The period following WW2 is often called the Golden Age of Capitalism. As global output reached its pre-war level by 1947. Strongly on the back of the US, but even Germany and Japan reached theirs by the mid 50s. In fact, across the world both developed and developing countries experienced growth rates of more than 5% on average well into the 60s. Rates which many would absolutely love to have today. Crucially, it wasn’t just total output or GDP that improved. Expansion included a wide range of metrics, from employment, to debt, to the level of household consumption. And whilst there will always be exceptions, in both countries and metrics, the general picture was one of a strong post war recovery. Then came the 70s Energy Crisis, 1997 Asian Financial Crisis, 2001 Dot Com Bubble, 2008 Great Financial Crisis, and, beginning in 2020, impacts of the COVID-19 pandemic.

0:00 Intro to economic recoveries
1:41 The economic impact of 2020
2:31 How have economic forecasts changed
3:37 Why was there such a difference between economic expectations and reality
4:50 The key elements of a recession
7:35 What are the future economic recovery projections
8:43 Altsimplified reflects
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ETF - Exchange-Traded Fund

An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at day's end. An ETF holds assets such as stocks, bonds, currencies, and/or commodities such as gold bars, and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur. Most ETFs are index funds: that is, they hold the same securities in the same proportions as a certain stock market index or bond market index. The most popular ETFs in the U.S. replicate the S&P 500 Index, the total market index, the NASDAQ-100 index, the price of gold, the "growth" stocks in the Russell 1000 Index, or the index of the largest technology companies. With the exception of non-transparent actively managed ETFs, in most cases, the list of stocks that each ETF owns, as well as their weightings, is posted daily on the website of the issuer. The largest ETFs have annual fees of 0.03% of the amount invested, or even lower, although specialty ETFs can have annual fees well in excess of 1% of the amount invested. These fees are paid to the ETF issuer out of dividends received from the underlying holdings or from selling assets.

An ETF divides ownership of itself into shares that are held by shareholders. The details of the structure (such as a corporation or trust) will vary by country, and even within one country there may be multiple possible structures. The shareholders indirectly own the assets of the fund, and they will typically get annual reports. Shareholders are entitled to a share of the profits, such as interest or dividends, and they would be entitled to any residual value if the fund undergoes liquidation.

ETFs may be attractive as investments because of their low costs, tax efficiency, and tradability.

As of 2017, there were 5,024 ETFs trading globally, with 1,756 based in the U.S., with over half of the inflows going to the 20 largest ETFs. As of September 2020, assets under management by U.S. ETFs was $4.9 trillion. Assets were up to $5.5 trillion by January 2021. In the U.S., the largest ETF issuers are BlackRock iShares with a 39% market share, The Vanguard Group with a 25% market share, and State Street Global Advisors with a 16% market share.

Closed-end funds are not considered to be ETFs, even though they are funds and are traded on an exchange. ETNs are exchange-traded notes, debt instruments that are not exchange-traded funds.

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