Central banking analogies

Economists are fond of analogies to describe technical ideas.

Most of those analogies are confusing and/or useless. As I wrote in the introduction of Bankers are people, too:

Economists and journalists writing for lay audiences tend to use metaphors when explaining financial concepts. For example: ‘Cheap credit is like heroin. It’s addictive, and the economy can overdose from it.’ That may sound nice, but what does it even mean?

Continue reading “Central banking analogies”

Grazie mille, dottore Draghi!

ECB President Mario Draghi has answered a number of questions from the public. People could tweet #AskDraghi to join.

I’m honored that the ECB also picked one of mine πŸ™‚

The website Debating Europe has listed all the replies of Dr. Draghi.

I only wish the ECB President would have responded to this question as well πŸ˜€

Prospective returns on equities

What long-term returns can you expect to make on a portfolio of stocks? That’s a crucial question for pension funds and other investors.

There are several ways you can try to answer this question. You can look at historical returns and assume that the future will resemble the past. Continue reading “Prospective returns on equities”

The Magic of Money

This is a review of a book written over 50 years ago by a central banker.

Based on that introduction, even most finance geeks will probably think “boring!” or “irrelevant!”. Until you learn it has Nazis, hyperinflation and the Nuremberg trials in it. And those are not even the interesting parts. Continue reading “The Magic of Money”

Bitcoin is not a Ponzi scheme

Bitcoin has been called a Ponzi scheme. Especially now that unwitting speculators are buying the cryptocurrency. They are attracted by the spectacularly rising price of Bitcoin and other cryptocurrencies in 2017.

In The Problem with Calling Bitcoin a “Ponzi Scheme”, Preston Byrne argues that this is not correct. Continue reading “Bitcoin is not a Ponzi scheme”

Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)

This post explores the consequences of deeply negative interest rates set by the ECB, as proposed by professor Miles Kimball. It’s a shorter version of my previous post, plus an estimation of the economic stimulus of the proposal. Continue reading “Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)”

Carrot or stick? The Lonergan-Kimball debate

Update 1, 12/12/2017: Prof. Kimball replied on Twitter. I have added his remarks just before the discussion section.

Update 2, 12/12/2017: See my follow-up post with more details on the distributional and stimulative effects of deeply negative ECB rates.

Central banks around the developed world have been struggling to meet their inflation targets. Economists are divided on what the Fed, the ECB or the Bank of Japan should do.

Massive amounts of quantitative easing have proven to be ineffective at boosting inflation. Some economists have proposed that central banks raise inflation expectations.

At the 5th Bruegel – Graduate School of Economics, Kobe University conference1, Eric Lonergan and professor Miles Kimball advocated their preferred solutions: helicopter money and deep negative interest rates, respectively. Continue reading “Carrot or stick? The Lonergan-Kimball debate”