What does it all mean?
The past year and a half, I’ve been engrossed in academic papers released by prominent (and some non-prominent) professors and Federal Reserve economists. With all this reading, it’s gets me wondering about a few things.
1) Who else, other than other academics, reads this crap?
Yea I don’t think anyone. The main reason being it’s difficult to understand without a rigorous economic education. Who will understand econometric models or the method of choosing dynamic stochastic general equilibrium models versus Walrasian models? Not many.
2) Why don’t writers care more about the “reachability” of their writing?
I say, status-quo, and to maintain a level of elitism. If many people understood, then so goes their curtain of mystery.
3) Why are these papers so heavily bogged down by methodology of research?
Time after time, I read the abstract, intro and start getting into the nitty gritty of the paper, but I’m left with wanting more explanation, purpose and the question of “so what?” What is the purpose of all this finely tuned research if it’s not being applied or used in some fashion? If someone is researching the effectiveness of monetary policy, shouldn’t this research be actually _used_ in the Fed? rather than published?
Here are my thoughts. The research is very cerebral – economists can emulate mathematicians. Often the reasoning, methodology, purpose, etc is obfuscated within esoteric language. Therefore it’s not going to be easily understood within a greater arena, and then not utilized for the benefit of the field of economics.
I hope to break this cycle – produce research that is reasonably applicable _and_ understandable. I hope to be an intelligible voice for the field so as to make the education of developments in economics (i.e. monetary policy) clear to those who are interested but perhaps not have the background in the field.
Irrational Behavior – applicative to monetary policy?
I’ve been cultivating an interest in monetary policy, and yes, it can be a bit bland. Why not spice it up with behavioral economics?
A year or so ago I came across Inflation Targeting by Bernanke et al. What I found interesting was the look at the overall market/public response to the German Bundesbank’s press releases after policy meetings. If the Bank was not on target with inflation, Bernanke et al found that people respond better if the Bank had given a pinpointed estimate and was subsequently off target, rather than an inflationary range target. The belief is if the Bank can’t hit its intended range, then it does not know what it’s doing. But if it does not hit a specific number, then people are more forgiving.
It’s as if the Bank was playing darts with a large dart board versus a dime. What, you can’t hit that target? What a lousy arm.
The interesting thing is, the Bank could give an inflation target range of 2 – 3%, or a pinpoint 2.5%, and people would still be more forgiving of missing the pinpoint if numbers turned out to be 4%, even though the middle point of the range is equal to the pinpoint.
Hop across the pond back to the US, and people/markets have lost faith in the Federal Reserve as seen by the ongoing debates in DC and Wall Street. How can we restore trust in our powerful reserve system? Perhaps it’s similar to the Bundesbank’s understanding of how information is presented to the public.
I came across an interesting article yesterday from AdAge that documented a conversation with Dan Ariely, author of the popular behavioral economics book Predictably Irrational. I’d like to see some combination of behavioral economics & marketing introduced to the FRB’s public releases. One of Dr. Ariely’s comments regarding the loss of trust for a company & revenge:
Revenge is a useful thing because revenge allows for trust. If your computer crashes, you might get upset but you wouldn’t feel the same need for revenge as when a human being betrays your trust. The anger that can be caused by bad customer service is really kind of incredible. That’s the first thing that companies just need to understand. Things can quickly deteriorate to a level to which there’s no return. You can really calm people very easily if you do it at the right moment.
Replace “customer service” to “economic leadership” and “companies” with “the federal reserve” and I think there might be something there.
Bare with me, a series of questions: If the public/markets react poorly to the Fed’s leadership in trying to get us out of a recession, how is that going to be taken out on the economy itself? If people distrust the Fed’s efforts, people must have a poor outlook, which must be seen still in restricting spending, use of credit, banks’ not lending, etc. How does people’s mistrust affect the economy? Does it interrupt monetary policy’s effectiveness? Is there anything recursive going on to affect the progression of monetary policy? Can we instill trust like that from the people of Germany (might I remind you the strength of the German’s economy…)? How will faith affect the progression & effectiveness of monetary policy?
Are these questions viable…
FHLB getting some notice, finally
VoxEU wrote an article regarding elevating the FHLB, refining and adjusting its purpose, and discussed a little bit about its importance. I am so happy to see it getting some light shed on it. The FHLB is a silent but powerful support system to our banks.
Mark Thoma, an econ professor of The University of Oregon, picked up on the article. He had no comment or much knowledge on the FHLB system, which proves the lack of understanding even in the academic, “in-the-loop” circles.
Here was my comment to his post, for education purposes:
I’m happy to see that this article is starting to get around. It had been surprising that there hasn’t been any publicity in regards to the FHLB’s importance to the banking system.
The way that the FHLB is set up is, in the best of terms, “all-encompassing.” In order for a bank to borrow term advances/loans from the FHLB, it has to pledge it’s mortgage portfolio. The amount you can borrow depends on the type of loan (conforming, jumbo, “subprime”, 2nd home, etc) that is pledged, and there are separate haircuts for each.
The FHLB can impose adjustments to haircuts to different loans. During the height of the crisis, this became a concern because the majority of many banks’ wholesale funding is from the FHLB. An increase in haircuts equal a decrease in borrowing capacity. Also, an increase in defaults or slips in status of loans equal decreases in borrowing capacity.
It’s troubling when borrowing is limited further because the FHLB is the cheapest wholesale funding out there compared to brokered deposits, term repo agreements and other wholesale options. Banks can borrow overnight often below the fed funds effective rate, as well as cheap longer term funding up to 20 years. Constricting this sources forces banks to use brokered deposits to fund loans or investments, which is expensive both in terms of rates paid as well as FDIC assessments.
On top of this, the FHLB requires banks to buy stock in order to be a member. How much stock a bank has also limits the amount it can borrow. If banks want to borrow more against the loans you pledged, they will have to buy a % in stock. I know some (maybe all) banks have stopped paying dividends on stock.
The FHLB also issues debt, which is very common for a bank’s investment portfolio to hold, and is viewed the same way as other GSEs.
Essentially, banks are often shareholders, borrowers and lenders to the FHLB. When regional home loan banks have issues, i.e. Seattle or Atlanta, it’s a cause for great concern to the longevity of the banks which are supported by the HLBs.
I miss my life in Boston!
There. I said it.
There’s a level of complexity in returning to the Seattle area that is a bit difficult to understand. I don’t quite understand it myself. The time I spent in Boston was very valuable and pivotal to growing into my “shoes” per se. And now, in rough terms, I feel my growth is stunted.
In Boston, I cultivated a taste for the development and pursuance of knowledge. With that came a resentment towards settling, stale thinking and the weak-willed. That said, I dislike Seattle for not being a “powerhouse.” While there certainly is large technology and healthcare industries here, compared to the government powerhouse of DC, the everything-powerhouse of NYC, the fashion/entertainment powerhouse of LA, or the academic/healthcare/biopharma/technology/banking/historic powerhouse of Boston, it’s not much to keep me interested. I resent Seattle for having grown up in a tractable atmosphere.
To return to an environment that I feel does not push me to be better, smarter, stronger, it feels I’m in this latent state of mind that only creates anxiety but kills all motivation. I feel almost beaten into being taciturn and obsequious. I’m struggling to have it not define who I am, merely just the location of where I am. I’m struggling to fend off its oppressiveness; it consumes me, takes away what I made myself to become. A step back, a step down. A step I don’t want to retake since I’ve made so much effort to get to where I fell. It’s a constant reminder of where I come from, a reminder that leads to all this resentment.
Ikea in Literary Form
FYI This is my 100th post on this site. Woo!
I’m sitting in the Seattle Public Library. I’ve been wanting to come here since it was built in 2004. It’s designed by Dutchman Rem Koolhaus (awesome name) and Seattleite Joshua Ramus, but it looks like a Swede had his hand in it. I thought I walked into Ikea, to be honest.
The building has a beautiful atrium, allowing you to look down on Seattle. But there’s some interesting aspects to this library. The ceiling literally looks like an insane asylum. Which might be pertinent if you stay here studying long enough.
(look at the top/ceiling)
And well the whole decor of this place, neon escalators, in-your-face labeling, all reminds me of Ikea.
It’s quite a stunning library. But, I think I prefer the historic Boston Public Library.
A Time to Kill
An inspiring OpEd piece by Mr. Grisham: http://www.nytimes.com/2010/09/06/opinion/06Grisham.html?src=me&ref=general
John Grisham’s The Firm might have been the first leisurely-read book I picked up (and probably one of the few I had the patience to finish…damn book ADD).
Scrub-a-dub dub.
Was it Einstein that said he got his greatest ideas and “ah-ha!” moments while shaving?
I get moments of clarity while showering. I’m by myself, free from the demands of attention from email, cell phone, people, etc. I’m only there to do one thing, and the hot water feels so relaxing. Those moments as my hair soaks up and my skin dampens, it’s just me and my thoughts. And they aren’t forced. There’s no expectation of productivity (other than to wash up) when I hop in the shower, and therefore no barriers to creativity or “ah-ha!” moments.
Maybe it’s a function of the water, too.
Not the Starbucks I knew.
What the hell:
Starbucks has a specific retail dress code that governs clothing and personal appearance (e.g. no visible tattoos, facial piercing, or wearing of fragrances). The dress code can be made available at time of interview. Do you have any concerns about abiding by the Starbucks dress code?
You know we’re in Seattle, right?
The Return
I hated Boston when I came (back). People are colder, more conforming and high strung. There are too many students trashing the city on Friday nights. Too many tourists and out-of-town Red Sox fans crowding the Green Line. Dangerously high Dunkin Donuts to Starbucks ratio. Too cold in the winter, too hot in the summer, too short of the actual delightful seasons of spring and fall. It’s a city of pubs, cheap beer, preventative high-heel-wearing brick sidewalks, and full-grown infants as drivers.
I did meet a lot of fantastic, intelligent people, kept some fabulous close friends, and worked alongside brilliant and hilarious minds. I learned that the straight roads in Boston are the product the city being filled in (e.g. Back Bay) and all winding, nonsensical roads are the old dirt paths from cows and such. That Edgar Allan Poe was born somewhere in the Bay Village. That the demonym for Cambridge is Cantabrigian and for Massachusetts is Bay Stater.
I know where to find mango habanero sorbet (effin awesome), an exceptional cup of coffee (by my standards) with fresh brioche, quirky independent films or a resurrection of oldies, the best effin beer in the whole area, nutella crepes, mouth watering burgers with fried jalapenos, crack-laced “San Francisco” style burritos, stunning tiramisu and 10-year port, a geeky dining experience, a romantic tapas restaurant, and the best hangover brunch.
I’ve been inspired to read 700+ page books (this one too). I got seduced into reading Love Letters daily. I wrote my first proof in this class along with reigniting a deep-seated passion for math. I know who is Ken Jennings (and I subscribe to his weekly email). I learned how to row on the Charles, discovered Phantom Gourmet on TV (i.e. porn for your stomach) and geek humor, and found the most beautiful study hall.
Boston is full of inspiring people. People that push me to be better, to not settle, and to relax into the nerd that I am. I cultivated a great interest in economics, but not without a dash of computer science & engineering, electrical engineering, neural systems, medicine, finance, marketing, music, biology, philosophy, political science, education, law, psychology and psychoanalysis, and architecture.
Maybe I like Boston after all. I’m leaving with an appreciation (although not a change in preference) of Dunkin’ Donuts (who can say no to cream-filled donuts?). I do like pea coats in the winter and Massachusetts beaches for the summer. I’m surrounded by the brightest minds, even if they frequent my favorite Friday spots too often. I welcome questions from tourists as I’m eager to share my short cuts and favorite spots. Although I can still do without the Red Sox fans.
So – Boston, my friends living in Boston, my favorite places in Boston, I will miss you. You’ve made a profound impact on me and I am forever changed. I appreciate the time I spent here, and I eagerly look forward to the chance at returning. I leave here with fantastic memories, sparked ambition, and self assurance.
And, thankfully, I do not leave with a Boston accent.
Rene Magritte, The Return
