Aurelia Butler

Drug companies have patent portfolios, great power navies have aircraft carriers and central banks have their “canonical” econometric models. Burnished and tweaked over the decades, the canonical models (all rather similar to one another) are proof, not least to the central bankers themselves, that their decisions are based on a coherent philosophy.The profession does not want to appear driven by whim, a desire for momentary popularity or micro political scheming among the central bank’s board members. It wants to be seen to encourage productive investment and equitable economic growth, not speculation.Two decades ago there was a general belief that in the event of a financial crash or economic emergency, central banks would act in an apolitical and disinterested manner to keep the system functioning. In the post-bailout world, worsening social inequalities, a scandal over trading by top Federal Reserve officials, and the politicisation of high-level appointments have all weakened the public consensus. Now, there is a lot more cynicism. There is also a deep suspicion that all the post-crash bailouts and “unconventional measures” have done is make the rich richer. Central banks have acquired a lot of financial assets, but are losing the public’s trust.When badgered and challenged by politicians or journalists, the central bankers retreat to reciting what the canonical models tell them. The professed goal of the models is to indicate what short-term interest rates, asset purchase programmes, or “guidance” through public statements are necessary for the economy to reach the elusive “R-star” interest rate.R-star is the real short-term interest rate consistent with full employment and a stable inflation rate in the long run. In policy terms, that is the central banker’s nirvana.Not that R-star is supposed to be fixed or stable over long periods of time. The stable interest rate should rise if technological developments or education levels improve quickly enough so that the economy’s potential growth rate increases. Or, if productivity falls due to a plague or ageing population, R-star will be lowered.The central bankers’ task would be much simpler if the R-star at any moment were readily observable, say on a page on a Bloomberg screen. Those rates could just be plucked and entered into input fields for the canonical models. Presto: policy.But no. R-star, the key rate, the lodestone for central bank policy, is unobservable, and can only be estimated by the economists making an informed guess on what it should be, in the absence of direct empirical information.The guesses have become rather depressing over the decades. R-star has fallen by more than 5 percentage points in advanced economies since the 1980s. And since the financial crisis of 2008, R-stars throughout the developed world have converged to a very low level, as if waiting for an economic recovery that never comes. Are the central banks signalling to the private sector that little growth is possible, and is that depressing and misleading conviction reflected back to the central bankers themselves?Yes, according to Phurichai Rungcharoenkitkul, a staff economist at the Bank for International Settlements in Basel. In a paper he co-authored with Fabian Winkler of the Federal Reserve Board, the two find central banks and the private sector “end up misperceiving the macroeconomic effects of their own actions as genuine information. They are staring into a hall of mirrors.”Rungcharoenkitkul and Winkler tweak the standard policy model to prove that, in recent years, “with the hall-of-mirrors effect operating, an aggressive policy strategy may be less effective in reviving spending, and worse could even exacerbate the very problem policymakers are trying to solve”.In other words, by staring at the reflections of their own policies of the recent past, the central banks have kept official rates too low for too long, and their communication of their expectations has depressed long-term saving and investment in the private sector.Unproductive activity was unintentionally encouraged. Setting low rates for too long led to overpriced housing, too little class or labour mobility and the growth of leveraged speculation.We have been asking central banks to take on too much of the responsibility for economic recoveries. And we have mistakenly expected them to be all-knowing, even as they look to the private sector to provide essential cues. Consequently, central banks’ “signals” and “communications” arguably have caused confusion and excessive long-term economic pessimism. And as the BIS reports says, “these consequences are more severe the more the private sector and the central bank overestimate each other’s knowledge of the economy”. More

The announcement comes days after a virtual meeting between U.S. President Joe Biden and Chinese leader Xi Jinping. After the meeting, Xi warned that supporters in the United States of Taiwanese independence were “playing with fire.”A State Department statement said the U.S. under secretary for economic growth, energy and the environment, Jose Fernandez, will lead the second U.S.-Taiwan Economic Prosperity Partnership Dialogue on Monday.It said the dialogue would be conducted under the auspices of the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office (TECRO) in the United States, which act as respective unofficial embassies.”Our partnership is built on strong two-way trade and investment, people-to-people ties, and in common defense of freedom and shared democratic values,” the statement said.Taiwan’s Foreign Ministry said the virtual meeting would be led from its side by Economy Minister Wang Mei-hua and Science and Technology Minister Wu Tsung-tsong. Taiwan hopes the dialogue may lead eventually to a free-trade agreement with the United States and hailed last year’s inaugural meeting as a step forward.It was part of increased U.S. engagement with Taipei under former President Donald Trump that the Biden administration has continued, to the anger of Beijing, which claims Taiwan as its own. The two sides held long-delayed talks on a Trade and Investment Framework Agreement virtually in July, and Taiwan said it hoped it would be possible to sign an FTA one day.Last year, Taiwan’s government lifted a ban on the import of pork containing a leanness-enhancing additive, ractopamine, removing a major stumbling block to a deal with Washington, but is due to hold a referendum on the issue in December.Taiwan is a major producer of semiconductors, a shortage of which has roiled supply chains globally and affected auto makers in particular, concerning Washington, which has pressed Taiwan to speed up chip production. More

LOS ANGELES (Reuters) -What a difference two years make. The 2019 Los Angeles auto show featured a parade of vehicle debuts, a flurry of press conferences and other events in the opening two days, along with hundreds of thousands of people eager to see new cars.Fast forward to 2021. The Los Angeles Auto Show, the first major U.S. auto show since the start of the pandemic, kicked off on Wednesday with a single day of press events, with some automakers even skipping the show.The show illustrates how the pandemic has accelerated automakers’ shift toward the online world, as consumers buy more vehicles on the internet, though many still favor in-person visits. The LA Auto Show opened to the public on Friday for 10 days. A smaller crowd waited for the doors of an exhibition hall to open, and visitors were spread out at convention halls.”I would really like to see it with my own eyes instead of seeing it on the iPad all the time,” said Peter Borch, who flew from Denmark to see Fisker’s electric sport utility vehicle Ocean.”The size is bigger than on the photo,” Borch, 52, said, saying he spent all of his pension to buy an Ocean, which will start deliveries late next year.Dustin Haug, 47, a construction manager in Los Angeles, said, “It is nothing like seeing an actual car in person, touching, feeling.” David Fortin, head of consumer marketing at Los Angeles Auto Show, told Reuters that although online reservations lag 2019 levels, they are “strong enough that we believe we’re going to have a great year.”Honda and BMW both skipped the show in favor of separate, earlier events. Honda showed off a reincarnation of its iconic Integra prototype sedan at a livestreamed event in Los Angeles about a week earlier.”That was an event that was exclusively ours. We find that we don’t have to compete like you do on the press days of an auto show to get the attention,” Honda executive vice president Dave Gardner told Reuters on a Zoom interview. Korean automaker Kia expressed a similar view. “The pandemic has taught us that we can work differently. … There will be auto shows still in the future, but there’ll be also different types of presentations,” Karim Habib, head of Kia Design Center, told Reuters at the show. Kia and affiliate Hyundai Motor (KS:005380) were among the few automakers that debuted electric SUV concepts at the show and flew in executives, including chief executives, from their Seoul headquarters to Los Angeles.”Auto shows used to be very, very popular for automakers to make a big media splash. That has changed with social media and with other forms of access to the media by consumers,” Brett Smith, technology director at Center for Automotive Research, said. “I think the pandemic was maybe the last straw in this.” Smaller companies see a positive side to the changes.”It gives more attention to us,” Henrik Fisker, CEO of electric vehicle startup Fisker, told Reuters. He said his Ocean SUV is a “sexy sports car” best seen in person. “I know I’m zoomed out. I don’t think I enjoy any more sitting just looking at computers and pictures. I want to see the real stuff,” Fisker said. More