Eoin Treacy's view

Fed: “The Equity Risk Premium: A Review of Models”

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels—of around 12 percent—not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

Fed: “THE IMPORTANCE OF THE ENERGY SECTOR IN THE MOUNTAIN STATES”

Examine the current reliance of the Mountain States’ economies on the energy sector and compares today’s activity with peak levels in the early 1980s.

BIS: “Assessing the CNH-CNY pricing differential: role of fundamentals, contagion and policy”

Renminbi internationalisation has brought about an active offshore market where the exchange rate frequently diverges from the onshore market.

BoE: “Interactions among high-frequency traders”

Using unique transactions data for individual high-frequency trading (HFT) firms in the UK equity market, we examine if the trading activity of individual HFT firms is contemporaneously and dynamically correlated with each other, and what impact this has on price efficiency. We find that HFT order flow exhibits significantly higher commonality than the order flow of a control group of investment banks, both within and across stocks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information-based and so does not generally contribute to undue price pressure and price dislocations.

Fed: “Where Are The Construction Workers?”

Employment in the construction sector fell nearly 25 percent from more than 11-1/2 million in 2006 to about 9 million in 2010. Even though the construction sector employs only about 7 percent of total employment, it accounted for about half of the economy-wide drop in employment over that period.

It seems there are many underemployed workers who appear to be relatively good candidates for construction employment, at least on the basis of these basic characteristics. In particular, there may be a large pool of people who would find construction work attractive but did not enter the industry during the bust years. The open question is how difficult it will be to draw these people into the sector if demand for new homes picks up. These potential workers may require more training to compensate for "lost" on-the-job training during the bust years. Alternatively, if labor supply decisions are "sticky", underemployment among relatively high-probability construction workers--mostly non-college educated men--could be more persistent, regardless of the training available.

IMF: “Investment in the Euro Area: Why Has It Been Weak?”

This paper shows that a part of this weakness can be explained by output dynamics, particularly before the European sovereign debt crisis. The rest is explained by a high cost of capital, financial constraints, corporate leverage, and uncertainty.

IMF: “Uncertainty and Unemployment: The Effects of Aggregate and Sectoral Channels”

Using S&P500 data from the first quarter of 1957 to third quarter of 2014, we construct separate indices to measure aggregate and sectoral uncertainty and compare their effects on the unemployment rate in a standard macroeconomic vector autoregressive (VAR) model. We find that aggregate uncertainty leads to an immediate increase in unemployment, with the impact dissipating within a year. In contrast, sectoral uncertainty has a long-lived impact on unemployment, with the peak impact occurring after two years. The results are consistent with a view that the impact of aggregate uncertainty occurs through a “wait-and-see” mechanism while increased sectoral uncertainty raises unemployment by requiring greater reallocation across sectors.

Fed: “Domestic Bond Markets and Inflation”

This paper explores the relationship between inflation and the existence of a local, nominal, publicly-traded, long-maturity, domestic-currency bond market. Bond holders are exposed to capital losses through inflation and therefore represent a potential anti-inflationary force; we ask whether their influence is apparent both theoretically and empirically. We develop a simple theoretical model with heterogeneous agents where the issuance of such bonds leads to political pressure on the government to choose a lower inflation rate. We then check this prediction empirically using a panel of data, examining inflation before and after the introduction of a domestic bond market. Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without one. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal variables suggested by theory to account for the potential endogeneity of domestic bond issuance. Notably, we do not find a similar effect for short-term or foreign-currency bonds.

Fed: “Assessing the Health of the Labor Market: The Unemployment Rate vs. Other Indicators”

the unemployment rate is still as good at measuring labor market conditions as it has been in the past

Fed: “Where's the Wage Pressure?”

The changes in wages over a business cycle, such as the Great Recession and recovery, are minute compared with the gradual changes to the wage structure that have occurred over the past few decades. The wide distribution of wages also complicates the relationship between wages and the unemployment rate. The spread is so wide that the mean wage is a poor measure of the well-being of most workers.