Fed to Blame for One-Way Global Rate Increases: Cutting Research

The U.S.’s heft in the world economy means its monetary policy can send shock waves abroad.

That’s the conclusion of a Sept. 5 analysis by economists Nathan Sheets and Robert A. Sockin of Citigroup Inc., who seek to explain why long-term bond yields have risen across countries as the Federal Reserve signaled it may withdraw stimulus -- even as counterparts elsewhere pledge to keep policy loose.

The increase is driven by the U.S.’s “special role” in the world economy, meaning that the eventual tightening of Fed monetary policy will have significant implications for global growth, the authors said.

“The role of the United States may be diminished relative to a decade or two ago, but it is clearly still significant,” they wrote.

They found that the linkages only work one way: Events in the U.S. tend to influence growth and inflation in the euro area, the U.K. and key emerging markets. Those central banks then have to respond. The U.S. economy, by contrast, is less responsive to developments elsewhere.

A 100-basis-point tightening in U.S. policy translates over two quarters into a rise of as much as 25 basis points in the euro region and U.K., Sheets and Sockin estimated.

The lesson for the Fed’s counterparts is that once the U.S. does pull back on monetary support, they may need to deploy policies to shield themselves. One example is using so-called forward guidance to signal benchmark rates will stay low.

The worry is, “these tools strike us as limited and imperfect,” the Citigroup economists said.

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The world economy is passing from an age of commodities to an age of consumer durables, according to Goldman Sachs Group Inc.

Looking across 44 nations over 40 years, Goldman Sachs economists led by New York-based Dominic Wilson found the growth rate of commodity spending has peaked and is likely to decline.

As economies such as China become richer, there will instead be a jump in global demand for high-end durable goods, they said. For the so-called BRIC economies of Brazil, Russia, India and China, the peak in demand for such products will come in the next decade, said Goldman Sachs.

The projections of the Sept. 9 report are for emerging-market purchases of durables and services to outstrip those of developed countries by 2040. By then the service markets of developing nations will be bigger than those of all developed nations put together. Emerging-market demand for consumer durables will reach a similar point by 2030.

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The most transparent central banks as of 2010 were those of Sweden, New Zealand and Hungary, according to a review of 120 monetary policy institutions.

In the study, published this month by South Korea’s central bank, economists N. Nergiz Dincer of Turkey’s State Planning Organization and Barry Eichengreen of the University of California, Berkeley, reported a “steady movement in the direction of greater transparency and independence” since 1998.

They found pursuing both can help control inflation. The Czech National Bank, the Bank of England and the Bank of Israel also won high marks.

Sweden’s Riksbank scored 14.5 out of 15 on the grade for transparency, ahead of the 11 given to the Federal Reserve.

The six least transparent central banks were those of Angola, Aruba, Bermuda, the Cayman Islands, Libya and Tonga.

In a separate report released yesterday, Barclays Plc reported 83 percent of investors have a high level of satisfaction with how the Fed communicated, although half said the need for more unorthodox actions had affected its ability to inform the financial markets.

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Banks may be robbing other industries of skilled workers, according to a study by the Dutch central bank.

Using a sample of 13 mostly European countries from 1980 to 2005, economist Christiane Kneer found the liberalization of financial services resulted in an upgrading of talents in that sector.

Her research suggested that the employment of skilled individuals grew disproportionately slower in skill-intensive industries than in other sectors after the financial reforms had taken place.

Kneer also found loosening regulation on the finance industry decreases labor productivity in industries relying on skilled labor as their talented workers head into banking.

“This is consistent with the idea that financial liberalization hurts non-financial sectors via a brain-drain effect,” she said.

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Chief executive officers manage differently if they are running companies with family involvement.

Using a survey of 800 bosses in 22 emerging economies, William Mullins and Antoinette Schoar of the MIT Sloan School of Management found those with greater family participation have more hierarchical management. They tend to feel more accountable to stakeholders, such as employees, than to shareholders.

They also aim to maintain the status quo rather than deliver change, the economists said in a working paper published this week by the National Bureau for Economic Research.

In contrast, those CEOs whose firm is not based around a family focus on maximizing shareholder value, Mullins and Schoar said.

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Monkeys may show that stock traders have the right instincts.

A study published this week found evidence of increased risk-taking among macaque monkeys that is very similar to the choices made by humans, providing insight into our evolutionary behavior.

The researchers used water intake as a measure of monkey wealth. The “richer” monkeys, the ones that got more water, were the ones more willing to choose the riskier tasks to obtain it, while the monkeys taking the safer options had to settle for less water.

“Just like humans, monkeys are able to select objectively better options from a menu of choices,” co-author Agnieszka Tymula of the University of Sydney said in a statement accompanying the report’s release. “If there is an alternative that offers better outcomes in all circumstances, they will go for it.”

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