1
Business Day
Video: The Numbers Behind the Job Numbers
A look at how Janet Yellen, President Obama’s pick to lead the Federal Reserve, may interpret the latest jobs report, and what those numbers say about how how the economy is really doing.PPP and Japanese Inflation Expectations (Extremely Wonkish)
I’m doing a bit of work on Abenomics,
which will surface in a week or so. One thing I discovered along the way
is that nobody much likes any of the existing measures of inflation
expectations, as this New York Fed post
by Mandel and Barnes explains. In particular, the Japanese market in
inflation-protected securities is considered too thin to rely on.
Mandel and Barnes, building off work by Goldman Sachs, suggest an ingenious workaround: they use inflation expectations inferred from US TIPS, then adjust by the forward exchange rate. The idea is that relative purchasing power parity more or less holds in the long run, so you can assume that Japanese inflation equals US inflation plus change in the exchange rate. And since the forward premium is basically equal to the interest-rate differential, this in turn means inferring Japanese inflation expectations as equal to the US TIPS spread minus the difference between US and Japanese rates.
It’s a clever idea, but I think incomplete. There is strong evidence that real exchange rates are mean-reverting (pdf), and you should take that into account too. Estimating the rate of mean-reversion is tricky, but we can more or less sidestep this by looking at long-term expectations: after a decade, we can expect the bulk of any deviation from the norm to be eliminated.
You may ask, what is the long-run equilibrium real exchange rate? Interesting question, but not one we need to answer if we’re just trying to assess the impact of Abenomics, where what matters is the change in inflation expectations on Abe’s watch.
So here’s what I did: I took the implied 10-year breakeven inflation rate from US TIPS, minus the 10-year interest rate differential, plus the real appreciation Japan would experience if the real exchange rate against the dollar 10 years from now were to return to its level in January 2010. You can adjust this as you like with whatever your estimate of the difference between the 1-2010 rate and the equilibrium rate is; it will just shift the line up or down. Here’s the result:
I have my doubts about the apparent decline in recent months. It’s
being driven not by events in Japan but by the taper scare, which drove
up US rates. There is a question about why that rise in US rates didn’t
produce a lot more yen depreciation, but something seems off here.
The main point, however, is that this measure does suggest a substantial rise in expected inflation since Abenomics began, which is good news."
Mandel and Barnes, building off work by Goldman Sachs, suggest an ingenious workaround: they use inflation expectations inferred from US TIPS, then adjust by the forward exchange rate. The idea is that relative purchasing power parity more or less holds in the long run, so you can assume that Japanese inflation equals US inflation plus change in the exchange rate. And since the forward premium is basically equal to the interest-rate differential, this in turn means inferring Japanese inflation expectations as equal to the US TIPS spread minus the difference between US and Japanese rates.
It’s a clever idea, but I think incomplete. There is strong evidence that real exchange rates are mean-reverting (pdf), and you should take that into account too. Estimating the rate of mean-reversion is tricky, but we can more or less sidestep this by looking at long-term expectations: after a decade, we can expect the bulk of any deviation from the norm to be eliminated.
You may ask, what is the long-run equilibrium real exchange rate? Interesting question, but not one we need to answer if we’re just trying to assess the impact of Abenomics, where what matters is the change in inflation expectations on Abe’s watch.
So here’s what I did: I took the implied 10-year breakeven inflation rate from US TIPS, minus the 10-year interest rate differential, plus the real appreciation Japan would experience if the real exchange rate against the dollar 10 years from now were to return to its level in January 2010. You can adjust this as you like with whatever your estimate of the difference between the 1-2010 rate and the equilibrium rate is; it will just shift the line up or down. Here’s the result:
The main point, however, is that this measure does suggest a substantial rise in expected inflation since Abenomics began, which is good news."
2
Opinion
Exploring Solar, Efficiency, Gas and More with Amory Lovins and Joel Makower
A spirited discussion with Amory Lovins of energy innovations that will matter in the next few decades.
3
Books
Figuring Out Who Really Had the Last Word in the Bush White House
In “Days of Fire,” Peter Baker explains the nature of the partnership between George W. Bush and Dick Cheney during their eight years at the White House.
4
World
Bomber Tied to Al Qaeda Kills Dozens in Syrian City
A suicide bomber driving a truck packed with explosives killed more than 30 people and wounded dozens on a busy road on the outskirts of Hama.
5
U.S.
Vision of Prairie Paradise Troubles Some Montana Ranchers
Some ranchers who fear the region will lose its identity object to conservationists’ plan to create a vast grassland reserve where 10,000 bison roam and fences are few.
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U.S.
Would-Be Virginia Governors Spar, Continuing Bitter Tone
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7
Health
Video: Doctors Without Fear
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8
N.Y. / Region
Hip-Hop Figure Gets Life Sentence for Drug Ring
James Rosemond, linked by rumors to the feud that left the rappers Tupac Shakur and the Notorious B.I.G. dead, was convicted last year of running a multimillion-dollar cocaine empire.
9
Sports
A World Away, the Seventh Game; Close at Hand, Condemned Nazis
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10
World
Loss of Power in Georgia Can Bring Trial, or Worse
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11
Opinion
Stop the Killing of Birds
David Karopkin, the founder of GooseWatch NYC, calls for the next mayor to improve our urban wildlife management policies.
12
Technology
Competition Rises for AT&T, as Does 3rd-Quarter Profit
Even as smaller carriers like T-Mobile tried to muscle in, AT&T said third-quarter profit was up, to $3.8 billion from $3.6 billion a year ago.
13
Technology
T-Mobile US Tries to Lure Tablet Customers With Some Free Data
T-Mobile US, one of the largest American mobile carriers, said it would give customers a small amount of free cellular data to use on their tablets each month.
14
Sports
New Zealand to Take Its Show on the Road
The world's best rugby team, coming off its third victory of the year over Australia, will test its standing as the All Blacks head to Japan and then a three-game tour of Europe.
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Sports
Rice Approaches New Role With Diplomacy
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16
World
China's Mountains of Construction Rubble
While the problem is often concealed, with hundreds of millions of tons of waste being quietly dumped on the outskirts of China’s major cities each year, the rate of growth has made it increasingly inescapable.
17
Automobiles
A Fitful Start-Up That Became a Symbol of Privilege
Aston Martin has a long history, and its cars have earned a reputation for being sexy, raffish and yet buttoned-up — like a panther in a three-piece suit.
18
Style
At the GLSEN Respect Awards, Hollywood’s Elite Is Shaken by a Story
It takes a lot to move the film and TV executives gathered for the awards, but a 16-year-old did just that.
19
20
World
Gang Rape in India, Routine and Invisible
The details of a gang rape case in Mumbai reinforce the notion that rape remains a largely invisible crime in India.
1
2
Booming
Advice About Assisted Living for Aging Relatives, Part 2
Debra Drelich, a specialist in geriatric care, answers questions on knowing when it’s time for assisted living and how to avoid pitfalls in selection.
3
Business Day
NFL Network’s 10-Year Gains: 13 Games and 72 Million Homes
The all-football channel has gone from an uncertain start to 13 regular-season games, 17 studio shows and more than 70 on-air personalities.
4
Health
Controversy Over Statins for Older Patients
Some experts question the use of statins by older patients who have no evidence of heart disease.
5
World
Left to Languish, Costly Fire Trucks Present a Reminder of Thai Dysfunction
As millions of dollars in never-used fire equipment decays in a parking lot, justice against two former officials convicted of malfeasance and bid-rigging remains elusive and questions of bribery remain.
6
Fashion & Style
Eye-Catching Pieces Highlight Hong Kong Watch Fair
Over the last 10 years Asia has become the top market for Swiss watches, with exports in 2012 worth $12.84 billion. Though growth has slowed this year, the region remains a key market.
7
U.S.
Justices Return to a Death Penalty Issue
After the Supreme Court banned the execution of the “mentally retarded” in 2002, there has been no consensus among the states on a definition.
8
Your Money
The Cashier’s Check That Wasn’t
A Boston charity has trouble collecting a refund for late charges from a company that rents credit card devices.
9
Sports
For the Canadiens, Whatever’s in a Name Is on the Back
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10
N.Y. / Region
U.S. Asserts Terror Suspect Has Implicated Himself
A federal prosecutor told a judge that Nazih Abdul-Hamed al-Ruqai made incriminating statements after he was placed under arrest and was advised of his rights.
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U.S.
Bid to Move Atlanta Statue Opens Window to Past
A monument to the populist firebrand and white supremacist Thomas E. Watson outside the State Capitol in Georgia will be moved as part of a renovation project.
12
Opinion
Those Bright Blue Bikes, to Love and to Hate
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13
Opinion
Video: Future of Farming
Mark Bittman speaks to Wes Jackson from The Land Institute, who predicted that a prairie-like system capable of providing food for humans would be viable within 100 years.
14
N.Y. / Region
After Baby Hope Confession, Assessing the Value of Taped Interrogations
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15
Arts
Lou Reed, Rock ’n’ Roll Pioneer, Dies at 71
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17
U.S.
Few Problems With Cannabis for California
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18
Opinion
Slaves of the Internet, Unite!
They really do admire your work, just not enough to pay one cent for it.
19
Business Day
In Fed and Out, Many Now Think Inflation Helps
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.The Economics of Rip Van Winkle
Binyamin Applebaum’s piece
on the growing acknowledgment that moderate inflation can help,
especially under current circumstances. But I can’t help thinking, only
now they notice? I mean, this was all worked out and carefully explained
fifteen years ago.
Oh, and the hard thing now is how you get inflation when we’re already at the zero lower bound. You really want this tied to expansionary fiscal policy, not austerity.
Still, any intellectual forward motion is welcome."
Oh, and the hard thing now is how you get inflation when we’re already at the zero lower bound. You really want this tied to expansionary fiscal policy, not austerity.
Still, any intellectual forward motion is welcome."
20
Opinion
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