Causes of the G7 fixed investment doldrums

Kristina Morkunaite, Felix Huefner 27 November 2014

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Investment has been disappointing in recent years

Growth in mature economies has consistently disappointed in the years following the Global Crisis, and forecasts are regularly being revised downwards – just recently again by the IMF. An important part of the sluggish recovery in mature economies has been weak fixed investment. Total investment relative to GDP in the G7 economies stood at 19.3% in 2013 – a decline of 2.6 percentage points relative to 2007.

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Topics:  Global crisis Global economy

Tags:  global crisis, investment, secular stagnation, monetary policy, interest rates

How to climb a mountain with both hands tied

Jean Pisani-Ferry 07 November 2014

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Against the background of lacklustre global demand, economic growth in Europe has weakened again. In the Eurozone, a third recession in less than seven years is a distinct possibility. Yet economic policy looks powerless. On the monetary side, although the ECB may still embark on a genuine programme of quantitative easing, such action is unlikely to deliver a major boost because the benchmark 10-year government bonds already yield just 1%.

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Topics:  Environment EU policies Macroeconomic policy Microeconomic regulation

Tags:  Europe, eurozone, recession, stimulus, monetary policy, quantitative easing, fiscal policy, structural reforms, labour market reforms, liquidity trap, investment, Cash for clunkers, scrapping subsidies, environment, regulation, emissions standards

Demography and economics: Look past the past

Charles A.E. Goodhart, Philipp Erfurth 04 November 2014

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Introduction

Our history is our database. When seeking to peer dimly into the future, our normal response is to examine what happened in (similar) past episodes and then to extrapolate those outcomes into the future. This assumption, that the future will mimic the past, is hard-wired into almost all our forecasting exercises, from the most simple to the econometrically and technically most complex.

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Topics:  Global economy Labour markets

Tags:  forecasting, demographics, Ageing, fertility, globalisation, savings, consumption, life cycle, old age, healthcare, Retirement, investment, interest rates, labour productivity, technology, technology transfer

Monetary policy and long-term trends

Charles A.E. Goodhart, Philipp Erfurth 03 November 2014

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Introduction

There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy

The British origins of the US endowment model

David Chambers, Elroy Dimson 20 October 2014

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In recent years much attention has been given to the so-called ‘Yale model’, an approach to investing practised by the Yale University Investments Office in managing its $24 billion endowment. The core of this model is an emphasis on diversification and on active management of equity-orientated, illiquid assets (Yale 2014). Yale has generated returns of 13.9% per annum over the last 20 years – well in excess of the 9.2% average return on US college and university endowments. Other leading US university endowments have followed this model (Lerner et al. 2008).

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Topics:  Financial markets

Tags:  investment, endowments, university endowments, college endowments, Universities, Keynes, asset management, diversification, Great Depression, Great Recession, buy-and-hold, equity investing, portfolio management, Yale, Cambridge

How insurers differ from banks: Implications for systemic regulation

Christian Thimann 17 October 2014

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Regulation of the insurance industry is entering a new era. The global regulatory community under the auspices of the Financial Stability Board (FSB) is contemplating regulatory standards for insurance groups that it deems to be of systemic importance. Nine insurance groups received this FSB classification in 2013, and the design of systemic regulation for these groups is now in progress.

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Topics:  Financial markets

Tags:  insurance, reinsurance, banking, financial intermediation, regulation, systemic risk, maturity transformation, BASEL III, investment, capital, capital requirements, bail-in, loss absorption

New-breed global investors and emerging-market financial stability

Gaston Gelos, Hiroko Oura 23 August 2014

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The investor base matters since different investors behave differently. During the emerging-market sell-off episodes in 2013 and early 2014:

  • Retail-oriented mutual funds withdrew aggressively, but investors from different regions also tended to behave differently;
  • Institutional investors such as pension funds and insurance companies with long-term strategies broadly maintained their emerging-market investments.

Figure 1 shows the facts.

Figure 1. Bond flows to emerging-market economies 

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Topics:  Financial markets International finance

Tags:  Pension Funds, financial stability, capital flows, investment, emerging markets, financial deepening, herding, original sin, mutual funds, institutional investors

The unrecognised benefits of grade inflation

Raphael Boleslavsky, Christopher Cotton 16 August 2014

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Since the early 1980s, the mean grade point average at American colleges and universities has risen at a rate of between 0.1 and 0.15 points per decade. Most of this increase can be attributed to an increase in the share of As assigned (which now comprise nearly half of all grades), with significant drops in the assignment of lower grades (Rojstaczer 2011 and Rojstaczer and Healy 2012).

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Topics:  Education Labour markets

Tags:  education, human capital, investment, grade inflation

Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin 10 September 2014

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Teaser from original column posted on 15 August 2014

Six years after the Crisis and the recovery is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? This column introduces an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser, and a dozen others. It is too early to tell whether secular stagnation is really secular, but if it is, current policy tools will be obsolete. Policymakers should start thinking about potential solutions.

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  interest rates, US, Europe, Japan, investment, macroeconomics, Great Recession, zero lower bound, savings, secular stagnation, SecStag debate

Piketty’s laws with investment replacement and depreciation

Ton van Schaik 06 July 2014

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Thomas Piketty has recently drawn worldwide attention with the proposition that the disparity between wage earners and capital owners is increasing, and that governments should intervene to bring this process to a standstill.

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Topics:  Frontiers of economic research Macroeconomic policy

Tags:  investment, capital depreciation

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