Nov 14 2005
Econ301A Reading Notes
1. This Year’s Economy Nobel Prize Winners (from Economist 10/13)
Robert Aumann and Thomas Schelling won for their game theories. The former is a theoriest the latter an application guy. Game theory highlights:
- Self-interested participants;
- The prospect of future punishment forge co-operation;
- Application in Arms Control (surviveability, 2nd strike capability), negotiations.
2. Huge Oil Profits (from FT.com 11/2 Sheila McNulty)
- Public anguish over huge oil profits.
- Exxon/Mobile: $10B profits.
- High oil prices, tight refining capacity, low inventory level.
- Critics: low investment level.
- Oil Company: perspectives, fairness, regulations.
3. On Ben Bernanke (fromEconomist 10/27)
- School board member, econ professor at Princeton, Fed governor, chairman of GWB’s Concil of Economic Advisers. Now FRB Chairman nominee.
- Stellar academic career
- Inflation hawk, targeted inflation rate, early signaling, paced rate change.
- Leave asset values alone.
- Not too concerned with the cause and scale of current account deficits.
4. Inflation and Globalization (from Economist 10/20)
- Despite rising energy and labor prices, inflation rates in globalized economies have remained stable.
- Cheap labor in China holding down wage pressures.
- Cheap products from China placing a check on price levels.
- As a result, reduced corelation between costs and inflation. Supply and Demand is now within a global context.
- Risks: currently China and other developing countries are on the supply-side, if they move into demand side, the same inflation pressure will return.
5. Volatility in Financial Markets (Economist 11/1)
- Volatility is up recently.
- Volatility is a measurement of investment risks/uncertainties.
- 3 main measures: “realized volatility”, spreads on credit-default swaps, implied volatility in option contracts.
- The Chicago Board Options Exchange’s Volatility Index (VIX) is based on a basket of widely traded options on
the S&P 500. - Germany’s VDAX, an options contract on the DAX index’s 30 companies.
6. Growth Gap across the Atlantic (Economist 10/27)
- Conventional growth theory cannot explain why the U.S. has been growing faster than E.U.
- Two researchers, Philippe Aghion, of Harvard University, and Peter Howitt, of Brown University, tried to fill the gap.
- Main therom: technology innovation and its implications—
The pertinence of higher education (U.S. 3% vs. E.U. 1.4% of respective GDP on tertiary educations), and
The “freshness” of capital (50% drugs are new in the U.S., only 10% in E.U.) - Proposed policy measure: Government investment vs. consumption, counter-cyclical and long-term budgetary policies (questionable).