Subject: EconVue Spotlight August 26, 2016
From: "Lyric Hughes Hale" <[email-masked]>
To: "R. Hunter Biden" <[email-masked]>
Date: Fri, 26 Aug 2016 07:32:17 -0700 (PDT)

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EconVue Spotlight

Dear R. Hunter,

All eyes are on Jackson Hole and the annual Kansas City Fed Economic 
Symposium. BOJ Governor Kuroda's appearance on a panel on Saturday could 
be just as interesting as Fed Chair Yellen's speech on Friday morning. 
Global central bankers who have made long flights and several 
connections in order to get to Jackson Hole are bound to be discussing 
the US election outlook with as much fervor as monetary theory. Some 
will wonder if Janet Yellen will attend next year.

The just-released line-up of speakers and papers at the symposium is 
here

https://www.kansascityfed.org/publications/research/escp/symposiums/escp-2016

. From my experience attending the conference, the papers are not as 
exciting for media as the Chairman's speech, but this is a place and a 
meeting where theory really matters. The most memorable symposium for me 
was in 2007, on housing, housing finance, and monetary policy, a 
prescient choice at the time. Marty Feldstein's concluding remarks are 
&nbsp;here

http://content.davidhaleweb.com/acton/ct/3037/s-01be-1608/Bct/l-sf-cl-701C0000000UEmJIAW-0024/l-sf-cl-701C0000000UEmJIAW-0024:15c/ct2_1/1?sid=TV2%3Ancipaishe

Most have expected Chair Yellen to signal an increase in the fed funds 
rate. Another probable theme is that since monetary policy has given 
everything it has, now is the time for an increase in fiscal spending, 
on infrastructure and other needs, while the cost of borrowing is so 
low. A more revolutionary view is that we should abandon the 2% 
inflation target that seems irrelevant or unattainable in a world of 
negative interest rates.

Included below are a number of current papers published by central banks 
(some of them working papers) that might give an inkling of policy 
changes to come.

STORIES IN OUR SPOTLIGHT

SETTING THE STAGE FOR JACKSON HOLE 1. The Dirty Little Secret of Central 
Banking&nbsp;

https://www.washingtonpost.com/opinions/global-opinions/the-dirty-little-secret-of-central-banking/2016/08/23/b24bd8a0-6941-11e6-8225-fbb8a6fc65bc_story.html?postshare=6061472090199272&tid=ss_fb-bottom&utm_term=.1542d2f2dc8e

Sebastian Mallaby 8/23/16 Washington Post As central bankers gather this 
weekend at Jackson Hole, they will be laying to rest the 2% inflation 
target and will urge fiscal stimulus. Sebastian Mallaby: It would 
underscore how the internationally celebrated 2 percent target is no 
divinely ordained rule; it is shockingly arbitrary. The magical 2 
percent marker could just as well be 3 percent or 4 percent, and the 
dirty little secret of central banking is that the gains from stable 
prices are difficult to demonstrate. Despite the brilliance of its 
practitioners, monetary policy is not a settled science. It is an 
improvised experiment. 2. In the lead up to Jackson Hole

https://twitter.com/SoberLook/status/767461090628341760

Twitter @SoberLook 8/21/16 The Fed is close to reaching its inflation 
and employment goals and the dollar strengthens in advance of rate hike 
discussion. But currencies can also strengthen as interest rates 
fall-witness Japan. 3. Stephen Jen:&nbsp;

http://www.ft.com/cms/s/0/206a5078-65f0-11e6-8310-ecf0bddad227.html#axzz4IMhZnAeV

Fed watching&nbsp;has been&nbsp;the single&nbsp;biggest 
waste&nbsp;of&nbsp;my time&nbsp;in the&nbsp;past two years

http://www.ft.com/cms/s/0/206a5078-65f0-11e6-8310-ecf0bddad227.html#axzz4IMhZnAeV

Roger Blitz, Sam Fleming 8/19/16 FT ...but things could get interesting 
now. Fed watchers rejoice. 4. Why the Fed should Shrink its Massive Bond 
Portfolio

http://www.marketwatch.com/story/why-the-fed-should-shrink-its-massive-bond-portfolio-2016-08-18

Andrea Riquier 8/19/16 MarketWatch The Fed should engage in a form of 
"negative quantitative easing" and allow some of the debt it currently 
holds on its $4.5 trillion balance sheet

https://www.federalreserve.gov/monetarypolicy/quarterly-balance-sheet-developments-report.htm

to run off when it matures, Eisenbeis and Berson believe. This relates 
to news from Japan (see #9 below) that the BOJ is holding back on ETF 
purchases. Will negative quantitative easing become the new path for 
central banks, and if so and what does that mean for markets? Will it 
protect against a sudden unwinding of central bank assets? DEEP DIVE: 
Bayesian Probability I imagine that Christopher Sims

https://en.wikipedia.org/wiki/Christopher_A._Sims

, the luncheon speaker on Friday, will be touching on these issues: 5. 
&nbsp;

http://www.federalreserve.gov/econresdata/feds/2016/files/2016067pap.pdf

Financial Stability and Optimal Interest Rates&nbsp;

http://www.federalreserve.gov/econresdata/feds/2016/files/2016067pap.pdf

Andrea Ajello, Thomas Laubach, David Lopez-Salido, and Taisuke Nakata 
August 2016 Fed Reserve Board Bayesian vs Robust policymaking choices. … 
the Bayesian policymaker responds to the negative demand shock by 
reducing the policy rate by less under uncertainty. In our calibration, 
the optimal policy rate becomes positive. Uncertainty regarding the 
severity of the crisis affects the robust policymaker facing a large 
negative demand shock in the same way as in normal times. 6. Recession 
Forecasting Using Bayesian Classification

https://www.kansascityfed.org/publications/research/rwp/articles/2016/recession-forecasting-bayesian-classification

Troy Davig Aaron Smalter Hall August 2016 Fed Reserve Bank Kansas City 
We demonstrate the use of a Naive Bayes model as a recession forecasting 
tool… In contrast to Markov-switching models, Naive Bayes treats 
National Bureau of Economic Research business cycle turning points as 
data rather than hidden states to be inferred by the model. ..We show 
Naive Bayes consistently outperforms logistic regression and the Survey 
of Professional Fore-casters for real-time recession forecasting up to 
12 months in advance. TRADE 7. Trade Liberalization and Mortality&nbsp;

http://faculty.som.yale.edu/peterschott/files/research/papers/mortality_108.pdf

http://faculty.som.yale.edu/peterschott/files/research/papers/mortality_108.pdf

Justin R. Pierce, Peter K. Schott May 2016 Yale The Trump campaign would 
love to get their hands on this paper. It documents and quantifies the 
decline in health, not just economic status, of communities that lost 
manufacturing jobs to China. 8. Global Uncertainty and U.S. Exports

https://www.kansascityfed.org/~/media/files/publicat/econrev/econrevarchive/2016/2q16sly.pdf

Nicholas Sly Q2 2016 Fed Reserve Bank Kansas City Businesses can deal 
with low or weak growth, what inhibits them is uncertainty. Exports of 
goods and services account for a substantial share of total U.S. 
economic activity, with a total value upward of 13 percent of GDP since 
the year 2000…Sluggish export activity has been a drag on US growth 
recently…The propensity for uncertainty to diminish orders of U.S. goods 
suggest that export activity would likely pick up if foreign growth 
expectations were to stabilize, even if the expectations for growth 
remain relatively weak. JAPAN 9. BOJ moving cautiously with ETF buying 
to preserve firepower

http://asia.nikkei.com/Politics-Economy/Economy/Bank-moving-cautiously-with-ETF-buying-to-preserve-firepower?n_cid=NARAN012

Makoto Nakanishi 8/25/16 Nikkei Asian Review This is good news. And 
might just bring us closer to helicopter money. 10. Will the Tokyo 
Olympics Be A Boost to the Japanese Economy? 

https://www.boj.or.jp/en/research/brp/ron_2016/ron160121b.htm/

Mitsuhiro Osada, Mayumi Ojima, Yoshiyuki Kurachi, Ko Miura, Takuji 
Kawamoto 1/21/16 Bank of Japan Research The Bank of Japan says yes, 
predicting about $250B in benefits. ECONVUE RESEARCH AND INSIGHTS Banks, 
FSA Push Back Against Negative Rates

http://econvue.com/reports/richard-katz/toe-alert-banks-fsa-push-back-against-negative-rates

Richard Katz

https://econvue.com/experts/richard-katz

08/22/16 As long as Kuroda remains Governor, through March 31, the BOJ 
is likely to stick to his insistence that his policy is successfully 
moving Japan toward 2% inflation. This will further cement growing views 
that the BOJ policy is not data-driven but ideology-driven. So while 
Bernanke tells us to watch the data, not FOMC members, EconVue expert 
Rick Katz is saying that the BOJ is driven by ideology and dismisses the 
data. His new report on the effects of Japanese monetary policy is a 
must read, usually only available to subscribers, so please click 
through. How P2P Lending Works&nbsp;

https://econvue.com/pulse/how-p2p-lending-works-fintech-articles-week-082116%C2%A0

Collin Canright

https://econvue.com/experts/collin-canright

08/22/16 FinTech investment in blockchain firms continues to increase 
even as the sector as a whole contracts slightly. The Decline of Putin's 
Russia: My comments 

https://econvue.com/pulse/decline-putins-russia-my-comment

Nikolai Tagarov

https://econvue.com/experts/nikolai-tagarov

08/23/16 We are reminded of Putin's predicament and the fact that his 
domestic support is not unassailable. This piece resulted in a lively 
exchange on our Facebook

https://www.facebook.com/econvue/

page. ECONVUE CALENDAR AND EVENTS September 26, 2016 One-Day "Director 
Boot Camp" Program in Chicago with Nicholas Benes

https://econvue.com/pulse/926-–-one-day-"director-boot-camp"-program-chicago

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With all best wishes,

Lyric Hughes Hale

Editor-in-Chief

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