A note on health care inflation

A key issue in health care reform is the need to contain the inflation rate of the CPI for health care services without substantially reducing the quality of health care. Althought the previous literature has widely debated the causes of increasing inflation in the CPI for health care services, very little has been done to empirically test these arguments. We use an econometric framework that allows us to expressly examine the determinants of the inflation rate of the CPI for health care services. The data cover the period from 1960–1994. The main results provide empirical verification for many of the demand-side and supply-side theories of the inflation rate of the CPI for health care services that have been widely discussed in the literature.     

2014 – a year of widening monetary divergence

The Fed's December decision marks a change in active monetary policies. It is a natural consequence of the divergence in global growth that was one of the key developments of 2013. Over the course of the year, US and UK activity strengthened, remarkably so in the case of the UK where at the beginning of the year the talk was of a triple‐dip recession. Chinese activity held up, if below the stellar growth rates of the pre‐crisis years. Japan is beginning to see some dividend from Abenomics, but rather less than expected; while the Eurozone economy is slowing again after showing some brief strength in Q2, and may fall back into recession. Diverging growth was clearly signalled by diverging broad money growth earlier in the year…     

M-competition — A closer look at NAIVE2 and median APE : A note

Two observations regarding the M-Competition are presented. First, the seasonal indices that were used in the NAIVE2 method were not calculated using the exact procedures that were defined in the M-Competition paper. Second the median absolute percentage error comparative measure was not computed as one might expect it to have been and was not documented as such. The resolution of these matters might enhance the usefulness of the M-Competition study.     

Budgeting — an unnecessary evil

Almost 30 years ago — in 1970 — the largest commercial bank in Sweden, Handelsbanken, was in a major crisis. Profitability was low and the bank was in conflict with the authorities. As a result of the crisis the executive director left the bank, as did several of the top officials.At this point the board of the bank asked me to become executive director. At that time I was head of a provincial bank in the northern part of Sweden – Sundsvallsbanken. I had been at that bank for ten years. Before that I was a professional economist, head of a major research institute and an associate professor at the University of Stockholm. I did not have any practical business experience and knew nothing about banking, but after 10 years in Sundsvallsbanken, I had learned a lot and developed some firm ideas about how to run a bank with a large network of branch offices.     

Germany — the next Japan?

The German economy is in a hole, and it can’t stop digging. The tools that normally help an economy to get out of a hole are digging Germany further in. Hamstrung by the terms of the Stability and Growth Pact, it is planning a substantial tightening of fiscal policy over the next few years. And, with inflation below the Eurozone average and falling, and nominal interest rates set by the ECB, real monetary conditions are tightening as well: this at a time when Germany is already in recession. How long before the German economy sets off on the deflationary path trodden in Japan over the last decade?     

Emerging Markets Kablooie risk — likelihood and impact

The evidence for asset booms in larger emerging markets is camouflaged by the negative price impact of the sustained economic slowdown. Risk compression is far more conspicuous in smaller and lower‐rated EM sovereigns, where economic disappointment has not set in to the same degree. Typically, the riskier the sovereign, the stronger the rally, and reversals in recent weeks barely chip away at the gains of recent years. We therefore pitch our tent in “Camp Nervous”. We attach a 10% probability of major outflows from EM, and 25% to a lesser but still painful downturn. We illustrate the results from a scenario of EM capital outflows run on our global macroeconomic model. All eyes on the Fed: and the risk that that one of the most anticipated tightenings in the history of central banking still manages to throw up some big surprises.