The 1990s and early 2000s witnessed a remarkable technological transformation in financial markets, ultimately leading to significant advancements in transparency and efficiency on a global scale. This era saw a shift towards electronic trading, with terms like “Quants” and “Algo trading” becoming increasingly prevalent. Today, it’s estimated that over 90% of global currency trading is executed by algorithms in some form or another. Large financial institutions began hiring quantitative analysts, commonly with backgrounds in mathematics, computer science, or even physics. The purpose of these ..read more

Facebook has just reminded me of what I was doing on this day a year ago – I was giving a presentation at a seminar in Copenhagen organized by Danske Bank for some of the bank’s professional clients, as you can see in the picture below. A lot has changed in the world since then, and looking back, things felt a lot more worrying at that time than they do now, especially because we had just experienced some banking turmoil in the USA. What were my forecasts from exactly a year ago? What you can see in the background behind my arm are two scenarios for the development of the American money suppl ..read more

In my recent post “2024: The Productivity Boom is Coming” I delved into the fascinating trajectory of our current economic landscape, one that defies the gloomy expectations of a 1970s-style stagnation and instead hints at a revival reminiscent of the booming 1990s. This reflection stems from a detailed observation of recent trends and a hopeful outlook towards 2024. A Surprising Twist in Productivity Growth As I’ve monitored the economic indicators closely, the last three quarters of 2023 have presented an unexpected turn. The United States has witnessed an almost 4% annualized growth in prod ..read more

It is clear that with the opportunities created by artificial intelligence, the volume of content – articles, images, films, audio, etc. – on the internet generated by AI is exploding. This gives rise to a paradox, namely that, for example, ChatGPT or Midjourney require content – text and images – to be trained on, and if more and more of the content in the world is created by AI, we end up with self-referencing AI, where we train future versions of ChatGPT on texts already written by previous versions of ChatGPT. There is a parallel to this in economic theory, known as the Grossman-Stiglitz p ..read more

We hear it all the time – are we heading for a recession (a hard landing) or a soft landing in the US economy? The question, of course, is what a soft landing is. A way to answer this question is to determine whether the Federal Reserve conducts monetary policy in such a way that it does not create monetary imbalances that spill over into the real economy and create accelerating inflation or a general glut (a recession). And the market monetarist answer to this challenge is that the Fed should conduct monetary policy in a predictable and transparent way to ensure a steady growth rate in nomina ..read more

When I was a younger economist, I harboured more apprehensions about the world approaching its demise – or at least the global economy. Yet, paradoxically, as I’ve aged, my perspective has shifted to increasingly acknowledge the gradual improvement of our world over time. This blog post is a testament to that sentiment, underlining the need to harbour not just optimism but profound optimism about future growth. Indeed, like many, I am acutely aware of the current global challenges – the draconian regulatory overreach, widespread lockdowns, school closures, and massive inflationary monetary pol ..read more

In an unprecedented move that echoes through the financial world, China has tightened its grip on economic discourse, effectively outlawing negative narratives surrounding its economy. This development came to light in reports circulated by Bloomberg among others on Friday. According to a memo from the Chinese Ministry of State Security: “To maintain economic security, we must unswervingly adhere to the socialist economic system… Currently, the economic field has increasingly become an important battleground for competition among major powers, and the international environment is becoming mor ..read more

In the ever-evolving dance of monetary policy, the Federal Reserve’s latest meeting has struck a new chord, setting in motion a fascinating interplay of market forces and policy expectations. As an economist deeply engaged in the intricate mechanics of monetary and market dynamics, I find this unfolding scenario a compelling narrative, rich in lessons and insights. The Fed’s Recent Stance: A Prelude to Change On December 13, 2023, the Federal Reserve, amidst signs of slowing economic activity and persistent inflation concerns, maintained its federal funds rate. The decision, layered with the F ..read more

Estimating and Evaluating a Fed Policy Rule with ChatGPT* In a collaborative effort with the AI model ChatGPT, I’ve embarked on an analytical exploration of the Federal Reserve’s monetary policy decisions over the years. Leveraging a model inspired by Greg Mankiw’s approach, we’ve incorporated key economic indicators, including the 10-year government bond yields, to provide a more nuanced understanding of the Fed’s policy rule. Integrating Bond Yields into Our Model The inclusion of 10-year government bond yields in our OLS regression model, alongside unemployment and core CPI inflation, offer ..read more

A couple of weeks ago I was invited to do a talk on the topic “Where is inflation going?” at a webinar organised by the Institute of International Monetary Research (IIMR) at University of Buckingham. Hosted by IIMR Director Damian Pudner in collaboration with the Vinson Centre for the Public Understanding of Economics and Entrepreneurship at the University of Buckingham. As always it was a great pleasure for me cooperating with the IIMR and presenting my views on monetary matters. My view on where inflation is coming from is summarised in the picture below. And my answer to where inflation ..read more