Most of the readers of this blog are UK-based non academics. But everyone interested in macroeconomics from an Austrian perspective should be aware of some fantastic new work, seeking to bridge Hayek's insights with the literature on corporate finance. In 2011 I organised a talk by Joel Stern in London - I teach Economic Value Added (EVA) in my classes, and feature it in my forthcoming textbook. But I've not sought to introduce it into my research.
One of the very best books on capital theory is Capital in Disequilibrium, by Peter Lewin. And one of the most productive members of an emerging band of youthful Austrians is Nicholas Cachanosky. So it's really exciting to see the outcome of their collaborations. In particular:
- A Financial Framework for Understanding Macroeconomic Cycles: The Time Structure of Production is Relevant
- Roundaboutness Is Not a Mysterious Concept: A Financial Application to Capital Theory
I've updated the theoretical paper that discusses how MA - our Austrian measure of the money supply - is defined and identified. You can view it here. Here is the update chart (with series breaks shown in black dots):
Following the 12th quarterly meeting of Kaleidic Economics, we have released a new report. The main aim of the meeting was to set out a chronology of the financial crisis, and we've suggested 5 distinct phases:
- The build up (2000 Q2 - 2007 Q1)
- The upper turning point (2007 Q2 - 2008 Q1)
- The secondary recession (2008 Q2 - 2009 Q4)
- Austerity (2010 Q1 - 2011 Q4)
- The BBQ recovery (2012 Q1 - 2012 Q4)
These aren't perfect, and the report offers a commentary. We then discussed a number of key shocks that occurred within these phases of the crisis, and put them in scenario analysis terms by thinking about predetermined elements and critical uncertainties. As a means to enliven the report, I have tried to explain how this type of analysis might serve as a basis for a "Choose Your Own Adventure" type account of the crisis.
This is a brief report, because much of the discussion was focused on a utilisation of the Dynamic AD-AS model. That is now a first draft as part of this project, please email me for a copy.
Some Market Monetarists have been critical of the Bank of England for being so slow to cut interest rates through 2008. I wanted to look at the GDP figures that we had at the time, to see whether recent revisions are helping our hindsight. One of the difficulties with this is that the ONS only have GDP releases going back to 2009. I was able to track down the releases, and here's what we find:
This is for the quarterly growth rate of NGDP compared to the previous year (IHYO). The green columns are what we know as of May 2014 (based on the second estimate of Q1 2014). The blue column is the second estimate of 2008 Q2, released in August 2008. The red column is the second estimate of 2008 Q3, released in November 2008. So, the post Lehman collapse in NGDP is a lot more evident now, than it was at the time.
Ideally we would be looking at the preliminary estimate, but they don't seem to be available on the ONS website. an alternative (and I appreciate the suggestion from someone at the ONS) is to look at the GDP revisions triangles. If you're not analytically minded, like me, these can look quite intimidating. What I've done is focus on GDP q-on-q growth rates of real GDP (i.e. GDP at market prices, chained volume measure).
The striking thing is the major revisions that were published in the final estimates of 2011 Q2 (released in September 2011). These were then somewhat offeset by corrections for the 2008 figures in the final estimate of 2012 Q1 (released in June 2012), and for the 2009 figures in the final estimate of 2013 Q1 (released in June 2013).
The bottom line is that early estimates of the economy in 2008 understated the problem:
Whilst early estimates of the economy in 2009 overstated the problem:
What really jumps out though, is the scale of the revisions to 2008 Q3 real GDP.