1 / 13

Human Error or Animal Spirit? Hayek vs. Keynes

Human Error or Animal Spirit? Hayek vs. Keynes. October 2011. Financial Crises Become more Frequent US: Deviation from the Taylor Rule in 2001-2007 South East Asia: High growth of bank credit and asset market Japan: 10-year low interest rate Competing Theories

zudora
Download Presentation

Human Error or Animal Spirit? Hayek vs. Keynes

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Human Error or Animal Spirit?Hayek vs. Keynes October 2011

  2. Financial Crises Become more Frequent • US: Deviation from the Taylor Rule in 2001-2007 • South East Asia: High growth of bank credit and asset market • Japan: 10-year low interest rate • Competing Theories • Hayek: Central bank’s manipulation of interest rate distorted intertemporal allocation of resources • the natural rate of interest parallel to Friedman’s natural rate of unemployment • Monetary authority may not push rate below the natural rate in the long run • Keynes: Private sector, irrational animal spirit • Monetary Policy is the Single most Important factor

  3. Deviation from the Taylor Rule Percentage Point Sources: The Federal Reserve, Deutche Bank

  4. 4.6 US Housing Price/Per Capita Disposable Income 4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 Jun-1991 Jun-1995 Jun-1999 Jun-2003 Jun-2007 Jun-2011 Housing Bubble Created by …? Sources: CEIC

  5. % 9 40000 9 8 35000 8 7 7 30000 6 6 25000 5 5 20000 4 4 3 15000 3 2 10000 2 1 5000 1 0 0 0 Jul-1980 Jul-1984 Jul-1988 Jul-1992 Jul-1996 Jul-2000 Jul-2004 Jul-2008 Discount Rate（LHS） Nikkei（RHS） Japan: Whose Animal Spirit? Source: CEIC

  6. Rational Response to Low Interest Rate • High leverage of US households and financial institutions • Financial innovations sped up since 2001 • The Keynesian Theory Unsatisfactory • Where animal spirit comes from? Stock market crash in 1929. Why stock market crashed? Animal spirit • An inconsistency, why the government does not have animal spirit? • China: the Other Side of the Equation • Saved and invested too much before the crisis • Excess capacity absorbed by strong US demand fueled with easy credit • Subsidized exports and the “China Price” helped contain US inflation, which allowed the Fed to keep monetary policy loose

  7. 8 US Household Saving Rate，% 7 6 5 4 3 2 1 Jun-1987 Jun-1991 Jun-1995 Jun-1999 Jun-2003 Jun-2007 Jun-2011 Highly Leveraged Rationally Sources：CEIC

  8. Policy Failure • US QEs had little effect on bank lending & repair of balance sheet, Policies to support to housing prices prolonged market correction • China: Fiscal stimulus to add more excess capacity • China not to be the Savior this Time • Inflation worse than official numbers indicate • Debt crisis of Chinese version, more than 10,000 local government financing vehicles, total debt outstanding 25% of GDP, defaults reported • Inefficient government investment projects such as high speed train and solar power. Suspension and delay of investment due to difficulties in fund raising

  9. 14 YoY, % 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 Jun-1996 Jun-1999 Jun-2002 Jun-2005 Jun-2008 Jun-2011 US Plenty of Money but No Credit Sources：CEIC

  10. 12 % 10 8 6 4 2 0 -2 -4 -6 Sep-1977 Sep-1982 Sep-1987 Sep-1992 Sep-1997 Sep-2002 Sep-2007 Loans Discount Rate Japan: Plenty of Money but No Credit Source: CEIC

  11. 70 YtD, % 60 50 40 30 20 10 0 Nov-2006 Nov-2007 Nov-2008 Nov-2009 Nov-2010 Manufacturing Infrastructure Real Estate Drink Poison to Quench Thirst Sources：CEIC

  12. The Way out: Bite the Bullets • US: Balance budget, increase savings, recapitalization of banks • China: Reform not reflate, deregulation, tax reduction

  13. Thank You! 译：游 校：赵

More Related