Tuesday
May272014

MA growth rate slows due to "improvement in reporting"

I am busy revising the paper that explains the theory behind MA, and have recently updated the measure. As the chart shows, the growth rate has tailed off significantly in recent months. 

The reason for the drop is a massive reduction UK resident MFI sterling sight deposits that occured in January 2014. Here's a closer look at that series:

The Bank of England have the following note:

Due to improvements in reporting at one institution, the amounts outstanding decreased by £85bn. This effect has been adjusted out of the flows for January 2014.

To show the impact of this "improvement in reporting" I've created MA' which adds £85bn from January 2014. As you can see this explains the sharp fall:

MA' remains in double digit growth. A downside of relatively narrow measures of the money supply is that they are less robust when it comes to these types of ad hoc adjustments. But clearly more details need to be revealed about he precise nature of this change.

Monday
May262014

FRED launches user dashboards

Here's more:

With the overhaul of user accounts, we are proud to introduce a new feature: dashboards. As a registered user, you can now build a personal dashboard that allows you to track your favorite series and graphs. You can publicize your dashboard, so your colleagues, students or blog readers can follow the economic statistics you care about. You can create several dashboards and choose to keep them private or make them public.

Wednesday
May212014

UK Divisia update

I'm not a massive fan of Divisia monetary aggregates, but I do think they are useful to look at. Here's the latest picture for the UK:

It comes from Table A6.1 in Bankstats

Tuesday
May062014

Average weekly earnings

It seems very hard to find data on UK nominal wages. Last year Britmouse wrote a post where he attempted to calculate nominal hourly wages relative to per capita NGDP. He says,

The ONS does not have an “official statistic” for nominal hourly wages, but they do publish some data in a spreadsheet in the Labour Market stats, which is updated quarterly.

This can be found by searching for "EARN08" at the ONS. I'm assuming that the reason nothing happens when I click on this is because I'm on a Mac?

Either way, I can't see the historic time series is. So I thought I'd just take a look at the simplest measure from the monthly Labour Market Statistics. The easiest way to find it is by clicking on the unemployment figure on the ONS front page. In the reference tables there's two options of interest:

  • EARN01: Average Weekly Earnings
  • EARN08: Distribution of Gross Hourly Earnings (as above)

Here's the AWE data:

Monday
Apr282014

Roundaboutness

The term "roundaboutness" is often used in Austrian business cycle theory, and I'm not sure if it's a simple term being consistently applied, or something more complex. At the recent APEE meetings Nicholas Cachanosky presented a paper arguing that it isn't a mysterious concept (co authored with Peter Lewin), but I'm not sure I'm convinced. My basic understanding, stemming from Bohm-Bawerk is the following:

Roundaboutness = capital intensity. 

Cachanosky & Lewin define roundaboutness as the "average period of production", and use net present value formulae and the concept of EVA to measure it. This is a great way to operationalise the concept, but is it "roundaboutness" that is straight forward, or their method?

One of the reasons I find Tyler Cowen's "Risk and Business Cycles" unsatisfying is because he doesn't really allow for different types of risk. In his treatment "risk" does all the work, and there's no need to talk about roundaboutness. I can't help feel that this fails to do justice to the Austrian story. Hence I am always wary of the following characterisation:

Roundaboutness = Time = Risk.

We can think of the interest rate as a measure of our time preference (or the ratio of the value of present goods to future goods), or a market generates risk assesment. Must they be the same thing? All else equal the longer the production process the greater the risk, but we can conceive of production plans that are risky but immediate (e.g. fashion) and those that are not so risky but distant (e.g. oil wells). In other words risk and roundaboutness are conceptually distinct.

Consider a standard Hayekian triangle:

Now, whilst playing around with these diagrams can go too far, I think they're a good way to illustrate my point. Consider these two alternative ways of treating roundaboutness. Firstly, aa an increase in the production period:

Alternatively, roundaboutness could mean that there's more stages of production:

In the example above the final value of the consumer goods being generated is the same, but the value at all stages of production has increased. We could also show this where there's a change in the composition of the value from late stage to early stage:

And so on. It would be interesting to assign some possible applications to show that this is empirically relevant. 

When sketching out these triangles I have in mind Lachmann's notion of reserve assets, which has recently been utilised by Robert Miller with his treatment of "buffer stocks" (here and here). It's hard to measure buffer stocks, and it's tempting to use inventories as a starting point. Here's what's happened to inventories in the UK over the last few years:

What we (sort of) see here is a steady decline in inventories from 1997 - 2007, which point to two things. Firstly, they get run down because excessive optimism means that entrepreneurs don't feel that they need them. And secondly, the utilisation of inventories as a means to generate unsustainable production (i.e. go beyond the PPF). Then during the crisis there's a dramatic reduction in inventories, and the "recovery" involves rebuilding. We need to be careful though, since inventories are just one source of buffer stock (and indeed one that is particularly close to consumer goods or final stage production). Some examples of buffer stocks include:

  • Inventories
  • Cash balances and other liquid assets
  • Commodities (not only as aproduction input but also as a speculative hedge)
  • Labour
  • Any goods that are relatively less heterogeneuous that others and thus adept at fitting into an array of alternative production plans

Finally, consider a Hayekian triangle and what's supposed to happen when interest rates fall. For simplicity, let's go use a 3-stage version.

If lower interest rates induce entrepreneurs to move towards more roundabout methods we would expect resources to move from stage iii back to stage i. But stage iii is substantially larger than the early stages. Let's say we shift around 30% of the value in stage iii to stage ii, and likewise from stage ii to stage i. Here's (roughly) what we might see (original is dashed):

Is it not conceivable that the reduction in stage ii (as a result of activities being shifted to stage i) is offset by the shifted production from stage iii? In other words lower interest rates will cause unambiguous reductions in late stage production, increases in early stage production, but may also swell mid stage production? The stylised facts would be an increase in stage ii.