Taiwan and the Global Economy - Where We Stand
A Short Course for July 2016

















Excellent video of Nouriel Rubini on the Global Economy and Japan March 2016


Tentative Schedule of Two-Day Proceedings


Economist Article on Secular Stagnation (Nov. 2014)

Summers on Secular Stagnation (Feb 2016)

Bloomberg on Negative Interest Rates

Sweden's Central Bank on Negative Interest Rates

Japan's BOJ Surprisingly Adopts Negative Rates

Bank for International Settlements (BIS) Report on Negative Interest Rates

European Parliament Worried About Secular Stagnation (Feb 2016)

The World Catches Japan's Disease - Stephen Roach (Feb 2016)
Discussion of Three Important Current Topics

1.  The Price of Oil

a.  oil began falling in mid 2014, fell from $100 to $30, last seen at this price in 2003, $140 in 2008
b.  continued production, especially by Iran, shale producers only accounted for 5%,
c.  world production is 96 billion barrels per day, world demand is 2 billion barrels per day less
d.  massive storage is going on, oil going into tankers anchored offshore
e.  (puzzle) Saudis tried to flood the market in 2014, investment in shale has been dropping, but prices have not recovered, probably must
wait until 2017
f.   (puzzle) cheap oil should be driving the world economy forward, but growth remains weak
g.  Iran is nearest reason for price declines, OPEC losing power to smaller producers, technology changing, big depreciations in producer
currencies helping, countries looking for greener fuel
h.  keeping pumps going good economics in the short run due to the fixed costs
i.  many of the rigs are fracked now, shale oil continuing to be produced, hedging going on
j. countries dependent on oil imports have grown more quickly, but consumers saving the windfall
k.  oil producers and supply chains have been hurt, low interest rates have caused producers to expand debt,
l. oil debts are affecting lower grade bond yields along with junk bonds
m.  strong suspicions about China’s growth prospects, some countries not allowing gas prices to fall
n.  some say the days of oil are coming to a close, more likely prices will recover later, what should oil companies do in the future?

2.  Secular Stagnation and the Euro Area

a.  Investment levels in the EU have fallen 15% from their high in 2007, some think EA is suffering like US and Japan from secular stagnation
b.  conditions: shrinking workforce, low demand, excess desired saving and low desired investment, low interest rates, deflationary
tendencies
c.  no simple cure for secular stagnation, EU created ECSI to expand investment and boost productivity
d.  monetary policy remains loose in EA, difficult to return to pre-recession growth and unemployment, expected growth in 2016 should be
1.6% and 1.7 % in 2017.
e.  Summers gave a speech to IMF in 2013, EA is particularly threatened and may become like Japan, an excessive desire to save (beyond
investment), the neutral (equilibrium) rate has become negative, a negative neutral rate means there must be significant disinflation, neutral
rate is real rate of interest that equates desired saving and investment, neutral rate would be rate producing full employment and no
changes in inflation
f.  Summers sees three options for dealing with secular stagnation, wait things out (like Japan did), try lowering the real interest rate (could
create bubbles), raising the level of demand (especially public investment),
g.  Bernanke does not believe in secular stagnation, he feels that policies encouraged a global saving glut, US is near full employment, full
employment does not require financial bubbles, US slow growth due to housing market and restrictive fiscal policy, Summers feels that h.
EA has many of the features or characteristics of secular stagnation

3.  Negative Interest Rates

a.  Five Central Banks have moved their policy rates to below zero – these are central banks associated with Denmark, the ECB, Sweden,
the Swiss, and Bank of Japan, motivations somewhat different
b.  issues include economic context, technical implementation, effect on monetary transmission, is there a lower bound on nominal rates,
and potential risks in using the policy
c.  four countries adopted policies in mid-2014 and 2015, Japanese came later, goal of ECB was to support inflationary expectations, Sweden
wanted to safeguard price and wage settlements as they relate to inflation, Swiss wanted to offset the pressure from the decline in the euro
on capital flows into the country and discourage such inflows, Denmark also wanted to stem purchases of the Danish kroner due to a drop in
the demand for holding euros, necessary if kroner was to follow the euro closely
d. essentially there was a charge on the holding of reserves (called deposits) and lending rates were adjusted down as well (such as repos
etc.), lower negative rates if there are dynamic changes from out of deposits into cash, attempt to micro-manage possible arbitrage between
instruments and accounts.
e. some reserves, deposits, etc. are not subject to negative interest rates
f.  some evidence that changes in negative rates are passed through to money market lending rates, although long term commercial lending
is still not clear, unknown effect on cash holding behavior
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