After keeping interest rates at close to zero for several years, the US Federal Reserve has moved to finally increase interest rates. This increase in interest rates is more significant than usual because it marks an end to the unique circumstance of ultra-low interest rates. The Federal Reserve has also indicated they expect to raise …
All economic forecasts are subject to margins of error. This is because: There are many variables affecting the economy. For example, the role of shadow banking was largely ignored in 2007 forecasts but failed sub-prime mortgage debt had a much bigger impact on the wider economy than ever before. There is always a big element …
The original Phillips curve suggested there was a trade-off between nominal wages and unemployment. Higher demand led to rising wages and a fall in unemployment. Lower aggregate demand (AD) led to a fall in nominal wages, but a rise in unemployment. This was adapted to suggest a trade-off between unemployment and inflation. During the 1950s …
What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase the cost of borrowing and reduce investment/consumer spending – leading to a lower rate of economic growth. See more at …
The natural rate of interest is the interest rate consistent with maintaining economic growth at its trend rate and stable inflation. Another definition of the natural rate of interest is: “the real interest rate consistent with real GDP equalling its potential level (potential GDP) in the absence of transitory shocks to demand. (FR) In other …
There was a time when joining the Euro was a big issue, frequently debated in the UK. With Brexit referendum, it has become almost irrelevant. However, if leaving the EU proves disastrous and public opinions changes – rejoining the EU, may well involve signing up to the Euro – as new members may not get …
One of the great achievements of the twentieth century is a dramatic rise in life expectancy. For examples, life expectancy in the US has increased from 45 in 1902 to 75.7 in 2004 (link). However, increased life expectancy combined with declining birth rates have caused many to worry about the cost of an ageing population. …
How to judge George Osborne’s and David Cameron’s economic record since May 2010? They inherited an economy recovering from a deep recession, high unemployment and large budget deficit. It was a difficult economic circumstance, but at the same time you might expect a strong economic recovery as there was much unused capacity and potential for …