October 15, 2013 ec 250
2013-47 More on Nobel winners and markets
Various publications have been stressing that there are differences of opinion between two of the laureates,
Eugene Fama and Robert Shiller
Fama is of the opinion that markets are rational and a monkey, picking stocks by throwing darts at stock market
listings, would do as well as a a professional money manager. Shiller thinks that this is not true and that there
are bubbles in the stock market (as well as in the housing market) caused by irrational behaviour of investors. In
his view, share prices tend to the average price/earning ratio, and house prices to the long-run average
proportion of income.
Shiller has a persuasive graph showing that prices return to long-run averages.
Here is an article from 2005 about Shiller's prediction that house prices in the US will fall
2013-46 The Yellen Fed? Precise and Predictable
The Yellen Fed? Precise and Predictable
The New York Times prediction on how Janet Yellen will run the US monetary policy is something you should
Here is what they stress:
"[...]in public speeches and academic work, she has suggested that the Fed should be more systematic,
predictable and transparent — in short, that it should lay down some rules and stick to them. It is a template that
Wall Street likes, and one that underscores the Fed’s departure from the days of Alan Greenspan, its chairman
from 1987 to 2006, whose Delphic pronouncements were endlessly parsed by economists and investors."
She is all for transparency and relatively simple rules.
Note the difference between decision-maiking at the White house and at the FED, stressed at the end of the
―The Fed meets every six weeks and makes usually one big decision after careful forethought and research,‖ the
colleague said. ―The White House meets every day and has 18 million things to deal with.‖
So a careful, deliberate approach is what is needed at the central bank.
In case you do not know what Delphic means, check out this download:
http://curiyo.com/ It installs as an add on to your browser and allows you to find things quickly.
The exchange rate of the Canadian dollar:
B ) is completely flexible, with Bank of Canada not intervening on the foreign exchange market
The Canadian dollar is different from most other currencies because
c) it is perceived as a resource currency
4.4.1. THE LAW OF ONE PRICE.
The law of one price says that, under certain assumptions, the price
of a good sh