Friday, July 11, 2014

BNM Watch: OPR Raised To 3.25%, Market Yawns

It was so blatantly telegraphed after the last MPC meeting, the disappointing thing would be if they didn’t go through with it (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00 percent and 3.50 percent respectively....

Monday, July 7, 2014

May 2014 External Trade: Defying Gravity

When is the trade engine going to lose steam? I honestly don’t know (log annual and monthly changes; seasonally adjusted):


Wednesday, July 2, 2014

Even Billionaires Are Complaining About Inequality

Li Ka Shing is losing sleep (excerpt):

Sleepless in Hong Kong

...I am 85 years old going on 86. I feel blessed to have seen more in life than I could remember, and happy to remember more than I have seen; so why am I sleepless in Hong Kong?

I fear that widening inequality in wealth and opportunities, if left unaddressed could fast become ‘the new normal’. Inequality is perhaps inevitable as some are simply better able than others to capture the opportunities that globalisation and the knowledge economy affords.

I fear that intensifying resource scarcity will pose challenges of immense proportions to our future.

We need to act now to turn challenges into opportunities. Technology is no panacea, but we need technological and innovative interventions to increase our options.

Tuesday, June 24, 2014

May 2014 Consumer Prices

Inflation? What inflation? (log annual and monthly changes; 2000=100):


The annual rate of increase across all three of my inflation measures appears to have peaked – the monthly rate of increase for May is virtually zero i.e. there’s been precious little price changes between April and May.

Monday, June 16, 2014

The Meaning Of Innovation

Malaysia is pretty poor at doing R&D. Spending relative to GDP is by any standards low; so are the number of researchers relative to the population. Patent applications, in absolute terms, in relative terms, and in the ratio of local to foreign applications, are in a word: pathetic. The government has all kinds of programs to get R&D and innovation going, the latest of which is MaGIC. Much of these ideas revolve around the invention and commercialisation of new products.

While this is certainly one way to get innovation off the ground, it’s not the only – or even the best – way of increasing productivity, incomes, and local value added. Getting to and sustaining high levels of development involves much more than that. I think we really need to put as much emphasis on process innovation and managerial innovation as well.

Thursday, June 12, 2014

April 2014 Industrial Production: Steady As She Goes

The numbers aren't as spiffy as the out-of-this-world export growth numbers, but they’re pretty respectable (log annual and monthly changes; seasonally adjusted):


Industrial output rose by 4.0%, coming off last month’s 4.3% in log terms, with a pickup in mining helping to offset a pullback in manufacturing and electricity production.

Tuesday, June 10, 2014

Right Conclusion; Wrong Analysis

A commentator sent me this link (excerpt):

How our Winner Take-All Market Deepen Income Inequality while Decaying Our Education System?

Are we better off than we were 10 years ago? I am sure the majority of us will answer with a resounding ‘NO’. Why is this so? There are many reasons that contributed to this, among them are the following.

  • Increased in income inequality
  • Rising costs of living
  • Income not catching up with inflation
  • Longer working hours and less recreation
  • More indebted than before
  • Less opportunity for self-improvement due to time constraint
  • Society is getting more competitive
  • Crime on the rise
Wonder what caused the above? Listed above are the consequences or the price of economic development that are caused by forces that shaped our social economic fabric. We are living in a world where resources such as land, labor and natural resources are in limited supply or scarce. To maximize the usage we not only have to limit wastages but also need to efficiently allocate these scarce resources to the most important part of the economy.

April 2014 External Trade: Up, Up and Away

I’m not going to tire of saying this – the first few months of last year were so awful that all the numbers coming in this year look great by comparison (log annual and monthly changes; seasonally adjusted):


To be fair, part of the reason is that we are indeed seeing real growth, it’s just that it’s not as strong as the yearly growth numbers seem to imply.

Thursday, June 5, 2014

Tax Compliance: Giving Voice, By Giving Choice

Here’s a tip for Inland Revenue – even giving the illusion of choice will reduce tax avoidance and under-declaration of income (excerpt):

Can giving taxpayers a voice increase tax compliance?
Cait Lamberton, Jan-Emmanuel De Neve, Michael I. Norton

Non-compliance with tax costs governments billions, in part because people really don't like paying taxes. This column reports two experiments designed to see if it's possible to make people hate taxes a little less and raise tax compliance. The results indicate that if people are given the opportunity to express a preference (though not actually make the final decisions) on how their taxes are spent, they are much less likely to cheat….

Monday, June 2, 2014

Reinhart and Rogoff Were Wrong

I’ve always been somewhat leery of the notion that high public debt results in slower economic growth. Piketty’s “Capital in the Twenty-First Century” for example (which I’m in the process of reading), examines the historical record of the UK and France and generally finds this not to be true.

Here’s a more generalised result, using the very same data from the seminal Reinhart and Rogoff study that sparked off austerity-mania in the Western world (excerpt; emphasis added):

Determinants of the growth and sovereign debt correlation
Matthijs Lof, Tuomas Malinen

Since the outbreak of the financial crisis, the relationship between debt and growth has been an issue of heated debate among both academics and policymakers. Reinhart and Rogoff (2010a) showed a negative correlation between sovereign debt and economic growth, and argued that countries could be confronted with a considerable decline in their growth potential after the debt-to-GDP ratio exceeds 90%.

While the research by Reinhart and Rogoff had a substantial influence in policy circles, their results are controversial….

Friday, May 30, 2014

World Cup Prediction: Brazil (natch)

These guys have waaaay too much time on their hands (excerpt):

World Cup 2014 Special
Brazil set to succeed on the pitch …but it’s an uphill battle for the economy

While there is not much to cheer about regarding the Brazilian economy, we believe the Brazilian population will at least be able to cheer about its national team’s result at the upcoming football World Cup.

In this document, we present our forecasts not only for the Brazilian economy but also for the outcome of the World Cup. We have estimated an econometric model for the World Cup result based on data from the five previous World Cup tournaments and used the model parameters to simulate the upcoming World Cup and the results are clear to us.

In our view, home advantage, a large population and a strong football tradition will ensure that Brazil wins the World Cup. We believe Argentina will be in the running but will lose to Brazil in the final. Germany will take third place.

However, chance is a major factor in football, so nothing is given – not even for Brazil. To describe these factors we have used so-called Monte Carlo simulations to estimate the probability of different teams winning the World Cup. Brazil is strong favourite, with our simulation indicating a 45% chance that Brazil will win the tournament. We calculate the runners up are much less likely to win, with Argentina having an 8.1% chance, Germany 7.6% and France 6.7%.

[H/T Lars Christensen]

Growth And Taxation

Growth and taxation – it seems like a contradiction in terms. Taxation tends to create economic distortions, affecting decisions on consumption, investment and savings. This happens because taxes change the incentives facing economic agents – a consumption tax reduces the propensity to consume, an income tax reduces the incentive to work and invest. Subsidies work in the exact opposite way.

But there are forms of taxation that can promote growth – or at the very least, be less distortionary. That’s a point that’s almost totally absent from the debate surrounding the implementation of GST in Malaysia:

  1. As a value-added tax, it’s far less distortionary than the SST system that’s currently in place; and
  2. Because just like in any other country where a VAT has been implemented, exports will be zero-rated. As a result, GST will also actually give a (minor) fillip to growth relative to the SST system