Monday, July 25, 2016

The Power of Narrative

I remember getting into a forum argument on this issue more than a decade back (excerpt):

Opinion: Think nothing is made in America? Output has doubled in three decades

The U.S. manufacturing sector doesn’t get any respect.

Ask a random sample of people on the street and you’re likely to hear that America doesn’t make anything anymore, that China, Mexico and Vietnam took all of our factories, and that the only jobs left in America are flipping burgers and cleaning hotel rooms.

“Throughout history, at the center of any thriving country has been a thriving manufacturing sector,” says presidential candidate Donald Trump. “But under decades of failed leadership, the United States has gone from being the globe’s manufacturing powerhouse — the envy of the world — through a rapid deindustrialization.”

As with all myths, there’s some element of truth in what everyone says.

Tuesday, July 19, 2016

5 Thoughts on the OPR Cut

At the risk of getting a phone call from across the road, here’s what I think of last week’s 25bp OPR cut:

1. Surprise!

One of the reasons the move came as a surprise to the markets and everyone else was that it was not telegraphed beforehand. Nobody got a hint of any change in policy, right up to the announcement. On the one hand, this breaks with recent practice around the world, where guidance is given so that markets adjust in a relatively orderly fashion. On the other hand, if you believe in the neutrality of money and rational expectations, surprise changes in monetary policy are the only changes that work. More on this in a bit (see point 5).

Thursday, July 14, 2016

BNM Watch: Surprise, Surprise!

In a move that caught nearly everyone looking the other way, the MPC cu the OPR by 25bp yesterday (as if you could have missed this bit of news) (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively….

…Looking ahead, there are increasing signs of moderating growth momentum in the major economies. Global growth prospects have also become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom….

…For Malaysia, domestic demand continues to be the main driver of growth. Private consumption will be supported by growth in income and employment, and measures implemented by the Government. While investment in the oil and gas sector is moderating, overall investment is expected to be supported by the on-going implementation of infrastructure projects and capital spending in the manufacturing and services sectors. Exports are projected to remain weak following more subdued demand from Malaysia’s key trading partners. Overall, while the domestic economy remains on track to expand in 2016 and 2017, the uncertainties in the global environment could weigh on Malaysia’s growth prospects….

Wednesday, July 13, 2016

Borrowing GDP

First of all, Selamat Hari Raya, Maaf Zahir dan Batin to all. I’m back from my annual Ramadhan break, and fully determined to blog more regularly from now on.

An interesting data release yesterday has the economics profession completely bemused – Ireland has just restated their 2015 GDP growth to 26.3% (!) from an initial estimate of 7.8% (excerpt):

Ireland’s Economists Left Speechless by 26% Growth Figure

In three days, Jim Power is due in London to brief the British-Irish Trade Association on the state of the Irish economy. Now, he has no idea what he is going to say.

The economy grew 26 percent in 2015, officials from the Central Statistics Office told a stunned room full of economists and reporters in Dublin on Tuesday. Previously, they had estimated growth of 7.8 percent.