Friday, April 25, 2014

Natural Resources and the Terms of Trade

I stumbled on this while looking for something else – the Singer-Prebisch thesis. What Singer and Prebisch found (separately and concurrently) is that the terms of trade between primary commodities and manufactures was declining over time. If true, this empirical observation has profound implications for economic development.

Let me explain that in English.

The terms of trade, put simply, is the amount of imports you can “buy” with one unit of exports. In other words, it measures the purchasing power of exports.

If your terms of trade are declining over time, you have to keep producing more and more just to be able to afford the same quantity and value of imports. But commodity production is subject to inelastic supply – it’s extremely difficult to continually ramp up production.

Thursday, April 17, 2014

Spare The Float, Ruin The Economy

I respect TDM a great deal for many of things he’s done. His macro policy recommendations need a lot of work though (excerpt):

Peg ringgit to create environment of certainty in market -- Dr M

KUALA LUMPUR: The ringgit should be pegged at RM2.80 to the US dollar in order to create an environment of certainty in the market, said former Prime Minister Tun Dr Mahathir Mohamad.

Dr Mahathir said the peg would also help businesses manage the rising costs of doing business.

"If the exchange rate is fixed at one rate, it will help businesses plan their budgets for the year, knowing exactly that there the value of the ringgit will not change," he said….

March 2014 Consumer Prices

March is the first month that we can see the impact on inflation from all those subsidy cuts and rate hikes in the last six months. It’s also the first month where we’re completely clear from the seasonal effect of CNY. The prognosis – nuthin’ much going on (log annual and monthly changes; 2000=100):


While the headline rate is still elevated on a y-o-y basis, price increases have fallen back to “normal” levels. Core inflation is a little higher than the average for the last 5 years, but food and energy prices barely budged.

Tuesday, April 15, 2014

Prices Versus Rationing

Give credit where its due. Good policy is good policy, never mind the politics or election promises (excerpt):

Penang to go ahead with water tariff hike despite criticism

The Penang government is standing by its decision to increase water tariffs despite coming under fire over the move.

Chief Minister Lim Guan Eng (pic) said the state is willing to bite the bullet and raise water tariffs in view of climate change and the worsening drought.

He assured that Penang would still enjoy the lowest water tariffs in the country.

"We are facing a climate crisis and water consumption in Penang is the highest in the nation at 311 litres per capita per day. The national average is only 212 litres.

"Such high water consumption is not sustainable and if left unchecked, Penang will have no choice but to resort to water rationing in the future.

"We have to be a responsible government. We will bite the bullet and do this (raise the tariffs). We are willing to face the criticism," he told reporters today.

Monday, April 14, 2014

February 2014 Industrial Production

Last week’s IPI numbers gave me a headache – it’s part of another rebasing exercise, this time to 2010, which required a bit of work to splice – but things are looking up (log annual and monthly changes; seasonally adjusted; 2000=100):



Wednesday, April 9, 2014

February 2014 Monetary Conditions

I was really concerned when I first heard the news last week. After having a peek at the data, I’m don’t feel much better (log annual and monthly changes):


M2 growth is pretty weak at a tad over 6%, even after taking into account CNY effects. Overall, money supply growth has been below 8% for the last eight months. That’s uncomfortably low – lower than I’d like it to be. It implies either slower growth, or disinflationary pressure.

Monday, April 7, 2014

The Broadening Scope Of Economic Jobs

It used to be that being an economist, you’d end up working for the government, in academia, or in the financial sector. Nowadays, the market for an economist is much, much wider.

Take for example the following:

  1. Google and Youtube are looking for quants, to help analyse “large, complex datasets”;
  2. Amazon is looking for economists to, “apply the frontier of economic thinking to market design, pricing, forecasting, online advertising and other areas.”
  3. Twitter is looking for help to, “analyze data and answer complex questions related to users, advertisers, and revenue.”
  4. Qualcomm, who’s processors are at the heart of many smartphones today, are looking for someone to join their intellectual property team, to help advise on IP policy issues.

It’s a much wider job market than it used to be, and there’s never been a better time to be armed with an economics degree.

However, there are a couple of common threads running through all these “uncommon” jobs – a statistics/econometrics background is absolutely required, and a Masters degree is the minimum entry level qualification (PhD preferred).

Time to start hitting those books again, guys and gals.

Tuesday, April 1, 2014

Structural Break In Monetary And Financial Data

BNM is making my life, and the lives of every economist in town, a bit more complicated (excerpt, emphasis added):

Adoption of International Financial Reporting Standards for monetary and banking data in the Monthly Statistical Bulletin (Latest Updates: 28 February 2014)

Bank Negara Malaysia is pleased to inform that starting with the December 2013 issue of the Monthly Statistical Bulletin (MSB), the set of Monetary and Banking data pertaining to the balance sheets of financial institutions (excluding tables related to loans/financing) has been revised from 2007 onwards….

...Nevertheless, users should recognise that there is a break in the historical trend between December 2012 and January 2013, especially when studying components at a more granular level.

For Monetary Aggregates (Tables 1.3, 1.3.1 and 1.3.2), data items where possible, have been aligned to meet the existing conceptual definitions. Starting January 2014, the compilation uses data collected based on the new taxonomy, which will result in a break in the historical series. In order to facilitate trend analysis, a one year back series data consistent with January 2014 has been published in the MSB.

The data revisions are all to the good, especially since it will help with cross-country comparisons.

but some of these changes will give me big headaches, especially the change in reporting from a gross to a net basis for bank balance sheets. It looks minor at a 2%-3%, but you’re fastidious about the data you use, stuff like this can drive you up the wall. There’s a half percent difference in monetary aggregates (between RM4-9b) between the old series and the new one as well. No wonder the reported growth rates looked a bit funny this month.

Oh well, there’s no stopping progress…

Monday, March 31, 2014

5 Years On

I wasn’t paying attention last month and completely forgotten about it, but this blog hit its 5th anniversary on the 3rd of February, 2014.

Seems like I just started out yesterday, but its been a heck of a journey – personally, professionally and intellectually. Reading some of my old posts now, I can see many of my mistakes, but I also see just how much I’ve grown and matured through this process. It’s been an immensely rewarding and enriching experience.

Moreso since, based on my stat counters, the blog also hit 1 million page views some time in January, and over 600,000 visitors. Those are numbers beyond believable, which I never even looked for 5 years ago when this site was started as no more than a personal project to stay connected with my ex-colleagues.

Somehow it grew, and through it I’ve connected with a larger world, a larger Malaysia, than I’d ever thought to see. It’s brought me both friends and enemies, agreements and arguments, and I cherish all alike.

So from the bottom of my heart, to all my readers and commentators, and to my wife who has always encouraged my sometimes crazy mania for blogging, thank you. This site would be nothing without you…and neither would I.

Regulation And Ratings

There’s a fascinating new working paper at the NBER that examines how the confluence of ratings and regulation conspired to help create the 2008-2009 global financial crisis (abstract):

Rating Agencies
Harold Cole, Thomas F. Cooley

For decades credit rating agencies were viewed as trusted arbiters of creditworthiness and their ratings as important tools for managing risk. The common narrative is that the value of ratings was compromised by the evolution of the industry to a form where issuers pay for ratings. In this paper we show how credit ratings have value in equilibrium and how reputation insures that, in equilibrium, ratings will reflect sound assessments of credit worthiness. There will always be an information distortion because of the fact that purchasers of ratings need not reveal them. We argue that regulatory reliance on ratings and the increasing importance of risk-weighted capital in prudential regulation have more likely contributed to distorted ratings than the matter of who pays for them. In this respect, much of the regulatory obsession with the conflict created by issuers paying for ratings is a distraction.

Skipping over the math, what Cole & Cooley observe is that credit ratings and rating agencies continue to function pretty well, even under the potential conflict of interest arising from the “issuers pay” model, at least for “vanilla” credit securities.

Thursday, March 27, 2014

Perceptions of Inflation

Pemandu serves up some thoughts on the CPI from the Ministry of Domestic Trade, Co-operatives and Consumerism (now isn’t that a mouthful?) (excerpt):

Food Price Increases Not as Dramatic as Public Perceives It

Many Malaysians have expressed concern over the increase in price of items in the food basket in Malaysia, seeing it as a knock on effect of the reduction of fuel subsidies. However, the reality is that these are part of a global trend where the prices of goods and services are on the rise.

Tuesday, March 25, 2014

February 2014 Consumer Price Index

Question: Has there been an increase in inflationary pressure in the last few months?

Question: Has weakness in the Ringgit contributed to domestic inflation in Malaysia?

I think the answers might surprise a few people, for so far the answer to the first is no (at least, not yet), and the answer to the second is both yes and no.

Let me explain.