Are reserve managers gaming the Eurosystem?

European Central Bank (ECB) non-monetary policy meetings are understandably less interesting than their monetary policy counterparts—there’s seldom much to whet the appetite amongst the various technical Decisions on swap lines, audit results, and feasibility reports. And there’s no press conference. 

Glancing through the output from these non-monetary meetings is like rubbing sandpaper into one’s eyes. 

Not so in today’s summary of non-monetary Decisions taken in August and September, which indeed offers something a little different. 

Continue reading “Are reserve managers gaming the Eurosystem?”

BCRA balance sheet update

It’s now roughly 4 months since we last lamented here the continuing monetary madness in Argentina and the failure of the authorities to address the sustainability of monetary policy as part of the debt restructuring negotiation. The restructuring is over, but the monetary mayhem continues.

In May we constructed a forecast of BCRA balance sheet liabilities through end-2020. At that time BCRA liabilities were expected to reach ARS5 trillion in the first week of October, with YoY growth in liabilities reaching 100% shortly thereafter. 

Where are we today compared to the forecast then? 

Continue reading “BCRA balance sheet update”

The ECB: Inflation and the euro

The ECB’s policy meeting last week received scrutiny for the apparent lack of activism given the weak August core inflation print (0.4%YoY, the lowest on record) and recent euro strength. Indeed, the FT’s editorial board lamented “the ECB’s lukewarm euro intervention.”

There were two key issues to confront in last week’s meeting, therefore. The first was what to do about the euro. The second how to interpret the August inflation print. Let’s go through each in turn.

Continue reading “The ECB: Inflation and the euro”

Greece: Macro management and COVID-19

Greece has been a clear winner in the painful game of watching the COVID-19 health emergency unfold.

Learning quickly from Italy, Greece locked down early and effectively to contain the virus. When the ECB unveiled the Pandemic Emergency Purchase Program (PEPP) on March 18, restrictions on the purchase of Greek assets by the ECB were lifted for the first time, making the small universe of GGBs available for Bank of Greece (BOG) purchases at last. And now the European Union’s (EU’s) EU Budget and Recovery fund (Next Generation EU, NGEU) looks set to make Greece one of the biggest winners in terms of access to grants and loans over the recovery period ahead. Continue reading “Greece: Macro management and COVID-19”

Lebanon and on and on

As Lebanon painfully approaches hyperinflation territory, what policy adjustment is needed there to attain “sustainability”? Last November, using a framework devised for assessing Argentina’s consolidated government sustainability, I undertook a “smell-check” on the situation there. And the results were sobering to say the least, making Lebanon “Argentina on steroids.” Continue reading “Lebanon and on and on”

Breaking taboos in the euroarea

The EU Budget and NGEU agreements this week matters for at least four reasons. 

First, for the first time the EU can borrow to support spending, raising the universe of “collective” liabilities instead of running a balanced budget. Second, transfers between members states have become an explicit policy (rather than hidden) tool. Third, loans at concessional rates (closer to France and Germany) have also been institutionalized. Fourth, while people might complain the aggregate number is not substantial (say 1.3% of GDP for 4 years) for individual countries the balance of payments support over the next few years could be many multiples of this.  Continue reading “Breaking taboos in the euroarea”

On the unreasonable ineffectiveness of macroeconomics in political science

Is economics a science? 

While the scientific method might suggest itself to the hardest of soft sciences—through empirical testing, rejection or acceptance of hypotheses, the winnowing and sifting of ideas—macroeconomics falls woefully short of such enlightenment hopes.

Among the many reasons for this, here are three:

First, most obviously, there are no “givens” or the equivalent to unchanging physical or slow-moving biological backdrop; technological progress and changing financial structure means the impact of a policy action tomorrow will vary from it’s equivalent yesterday; expectations matter, the Lucas Critique and Goodhart’s Law are real, if sometimes overstated. Continue reading “On the unreasonable ineffectiveness of macroeconomics in political science”

COVID-19, saving-investment balances, and the dollar

[Below is a note written early March, updated in the third week of that month, in thrall of the emerging COVID-19 Crisis, while trying to understand the global implications, expanding on my other thoughts at that time. Some errors, of course. But was a fun exercise.]

The challenge

The impact of the Coronavirus is as if “emerging market crisis” happening simultaneously across the private sector of every major economy. Continue reading “COVID-19, saving-investment balances, and the dollar”

Argentina’s Ponzi Program Revisited (presentations)

For posterity, having received numerous requests about Argentina, here are two presentations from before last summer I gave arguing that Argentina was a Ponzi scheme and that default was expected regardless of the election outcome. This was realised with the PASO, but was a fundamental macro call (and not political.)

May 2019.

June 2019.

UK fiscal rules revisited

With Chancellor Sunak offering new direction for the macroeconomy next week, some friends and I rose to the challenge in the March Budget that “it’s important that we update our fiscal framework to remain at the leading edge of international best practice.”


The paper is in two parts. The first recalls the traditional debt sustainability “rules” were evolved in the 1980s and 1990s in a period when theory relied on the assumption that i > g. This was reasonable then, but is unrealistic today for reasons noted recently.

Instead, we suggest the overall fiscal stance should lean on the OBR’s assessment of debt sustainability, relying on a projection of the overall interest rate paid on government debt relative to nominal growth. 

If the interest on government debt, taken from financial markets for future coupons, is below the projected nominal growth rate, then fiscal “consolidation” can be moderated. But if the average interest rate drifts higher, the primary balance would have to adjust.

Armed with this “independent” analysis, the overall fiscal envelope would therefore be determined and within which the government would function. 

The second part of the paper examines historical cases where the UK faced seemingly insurmountable debt burdens. It suggest that we have been here before, and there is no need to panic.

In other words, the fiscal rule needs to be modified to the needs to private saving, and not pre-empt some unlikely debt crisis that exists only in the minds of politicans.