Category Archives: Economics

Argentina’s inflation deception — Alberto Cavallo

MIT Sloan Asst. Prof. Alberto Cavallo

For years Argentina has lied to the world about its inflation rate. INDEC, the official statistics institute, claims the country’s inflation rate stands at around 10%. But estimates by economists—myself included—show that figure is two to three times less than the real rate. According to MIT’s Billion Prices Project, which runs an index that aggregates online price information from the largest supermarkets all over the world and provides real-time inflation estimates, Argentina’s inflation rate is currently about 25%.

This vast discrepancy between reality and what the government claims has been observed since 2007. At that time the government began putting pressure on INDEC, traditionally an independent body, to change its statistical methodologies. It eventually fired workers responsible for creating the price index, and replaced them with employees who had close ties to the government. Since then the official inflation rate has been surprisingly stable—hovering around10%. Read More »

This popular mutual fund type is losing you money — Roberto Rigobon

MIT Sloan Prof. Roberto Rigobon

From CBSMarketWatch.com

Global-stock mutual funds have become extremely popular investments. But these funds — which invest in companies located anywhere in the world — are not well-diversified and lose investors more than 2% a year on average in additional returns.

That’s a lot of money in any currency. Read More »

The Legacy of Timothy Geithner – Simon Johnson

MIT Sloan Prof. Simon Johnson

From the New York Times

“Too big to fail is too big to continue. The megabanks have too much power in Washington and too much weight within the financial system.” Who said this and when?

The answer is Peggy Noonan, the prominent conservative commentator, writing recently in The Wall Street Journal.

As Timothy F. Geithner prepares to leave the Treasury Department, most assessments focus on how his policies affected the economy. But his lasting legacy may be more political, contributing to the creation of an issue that can now be seized either by the right or the left. What should be done about the too-big-to-fail category of financial institutions?

Read More.

Dropping the Ball on Financial Regulation — Simon Johnson

 

MIT Sloan Prof. Simon Johnson

From the New York Times

With regard to financial reform, the outcome of the November election seems straightforward. At the presidential level, the too-big-to-fail banks bet heavily on Mitt Romney and lost; President Obama received relatively few contributions from the financial sector, in contrast to 2008. In Senate races, Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio demonstrated that it was possible to win not just without Wall Street money but against Wall Street money. Read More »

Containing Contagion: ‘There is no replacement for good macro-fundamentals’ — Kristin Forbes

MIT Sloan Prof. Kristin Forbes

What began as a singular sovereign debt problem in Greece in 2009 quickly spread to the rest of Europe. First Ireland; then Portugal and Spain and Italy. Today—only three years after the first signs of trouble—virtually all Europeans have felt the destructive effects of the euro zone turmoil, and its impact is being felt around the world.

Contagion, a phenomenon where financial tumult in one country or region spreads to another country, is now a fact of life. The globalization of finance has, in many ways, made contagion inevitable. The world has become much more integrated through trade, investors, and banks, and these ties have caused countries’ financial markets to move together more closely during good times and bad. Read More »