human error or animal spirit? hayek vs. keynes
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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 - PowerPoint PPT PresentationTRANSCRIPT
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Human Error or Animal Spirit?Human Error or Animal Spirit?Hayek vs. KeynesHayek vs. Keynes
October 2011
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• 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
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Deviation from the Taylor Rule
- 3. 5
- 2. 5
- 1. 5
- 0. 5
0. 5
1. 5
2. 5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Sources: The Federal Reserve, Deutche Bank
Percentage Point
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Housing Bubble Created by …?
Sources: CEIC
Jun-1991 Jun-1995 Jun-1999 Jun-2003 Jun-2007 Jun-2011
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
US Housing Price/Per Capita Disposable Income
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Japan: Whose Animal Spirit?
Source: CEIC
0
1
2
3
5
6
7
8
9%
0
44
5000
10000
15000
20000
25000
30000
35000
40000
Jul-1980 Jul-1984 Jul-1988 Jul-1992 Jul-1996 Jul-2000 Jul-2004 Jul-2008
Nikkei ( RHS) Discount Rate ( LHS)
9
8
7
6
5
3
2
1
0
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• 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
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Highly Leveraged Rationally
Sources : CEIC
Jun-1987 Jun-1991 Jun-1995 Jun-1999 Jun-2003 Jun-2007 Jun-2011
8
7
6
5
4
3
2
1
US Household Saving Rate , %
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• 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
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US Plenty of Money but No Credit
Sources : CEIC
Jun-1996 Jun-1999 Jun-2002 Jun-2005 Jun-2008 Jun-2011
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
YoY, %
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Japan: Plenty of Money but No Credit
Source: CEIC
Sep-1977 Sep-1982 Sep-1987 Sep-1992 Sep-1997 Sep-2002 Sep-2007
12
10
8
6
4
2
0
-2
-4
-6
%
Loans Discount Rate
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Drink Poison to Quench Thirst
Sources : CEIC
Nov-2006 Nov-2007 Nov-2008 Nov-2009 Nov-2010
70
60
50
40
30
20
10
0
YtD, %
Manufacturing Infrastructure Real Estate
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• The Way out: Bite the Bullets– US: Balance budget, increase savings, recapitalization of banks– China: Reform not reflate, deregulation, tax reduction
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Thank You!Thank You!
译:游 校:赵