Assigned News Items
Note: I will list here, for most of the term, the major news items that have appeared that are relevant for the course. I will usually discuss these, if only briefly, on Mondays (or the following Wednesdays when Mondays are not available). You should be sure to be familiar with them from whatever news sources you are using. Where possible, I will provide links to the items online. I will include questions about some of them on exams.
- US dollar rise is hard on US firms
-- WSJ: 1/21
| NYT: 1/25
- The dollar has risen 19% since May against a basket of currencies, and much more against the euro.
- The US government's official position is that a strong dollar is good for the US, and it usually does reflect the strength of the US economy. But the strong dollar is harmful in many ways to the US economy.
- Firms selling US-made products abroad find dollar value of their foreign prices falling, and can't raise them fast enough. And if they do, demand falls. Profits take a hit either way. In contrast, US firms that use inputs from abroad for products they sell in the US, find the inputs cheaper and they do better. US tourists abroad benefit and are more likely to travel there. Foreign tourists in the US are hurt, and reduce their visits to US, which also hurts US companies that sell to them here.
- European Central Bank begins policy of Quantitative Easing
-- WSJ: 1/23
| NYT: 1/23
| FT: 1/23
- ECB President Mario Draghi announced the start of a program of Quantitative Easing, buying €60bn-a-month of European bonds to stimulate the eurozone economy. This will include both government and private sector bonds.
- The reason is weakness of the eurozone economies, and in particular the threat of deflation -- the rate of price inflation becoming negative. The aim of the policy is to raise the rate of inflation to the ECB's target of just under 2%. The move is resisted especially by the government of Germany, which fears that this will reduce pressure on other eurozone members to reform their economies.
- The ECB is the last major central bank to embark on QE. The US Fed did it first and was followed by the UK and Japan.
- Davos meeting addresses the state of the global economy
-- WSJ: 1/21
- Events over the last year have weakened the interconnections of the global economy, hurting the process of globalization that has "helped raise hundreds of millions out of poverty," said the director of a London think tank at the annual Davos meeting of world leaders.
- "...I think that the prospects of European deflation and a sudden stop in growth in China are the two things I’d be most worried about," says an economist at Harvard's Kennedy School.
- Unexpected events of the past year included the Russian invasion of Crimea and the unrest in Ukraine, and the drop in the world price of oil.
- Oil price falls to new lows
-- WSJ: 1/13
| NYT: 1/13
- The price of oil on world markets fell below $50 per barrel for the first time in almost six years. Price had already fallen by half during 2014.
- OPEC, the Organization of Petroleum Exporting Countries, has considered and rejected the option of reducing output in order to support the price.
- Fall is good news for drivers, bad news for oil producers, including the shale-oil producers in the US.
- Politics in Greece raise anew concerns about it leaving the euro.
-- WSJ: 1/12
| FT: 1/12
- Greece will have an election on Jan 25, and the leading candidate promises to end the austerity imposed on Greece by the EU and IMF to bail it out of its financial crisis.
- Though the candidate no longer disavows the euro, many question whether Greece will be able to stay in the Eurozone without the support of other members that will be conditional on continued austerity in Greece.
- Some outside Greece are now questioning also whether keeping Greece in the Eurozone is really that essential, although the creation of the euro was intended to be permanent for all members.
- Swiss central bank stops intervening to keep its currency value down
-- WSJ: 1/16
| NYT: 1/16
| FT: 1/16
- Switzerland had maintained a ceiling on its exchange rate against the euro for over three years. On January 15, they ceased their intervention and their currency rose 39% against both the euro and the dollar.
- Switzerland had tried to keep its currency value down because the attractions of their financial markets were pulling in investors and creating demand for their currency. They had been concerned that a currency appreciation would hurt their exports. But the intervention has swelled their holdings of foreign assets, and the expectation of monetary easing by the European Central Bank promised to cause an even greater inflow that the Swiss were unwilling to accommodate.
- The move was a surprise, as usually central banks communicate and coordinate their interventions, but the Swiss did not inform other central banks or the IMF before the change.