Understanding Short Selling
Posted on July 25, 2008 - Filed Under Markets | Leave a Comment
If you think that the value of a stock will rise, you can buy the stock and sell it later when the price is higher. If you think that the value of a stock will fall, the situation is a bit more complicated. One way to bet on a falling stock price is [...]
Read More..>>Understanding the Retail Sales report
Posted on July 24, 2008 - Filed Under Economy | Leave a Comment
Retail sales is, after the employment report, the second major piece of economic data to be released (see here for the date of retail sales releases) typically arriving 9 working days into the month (around the 14th), about ten days after the employment report.
Personal consumption of goods is about 28% of GDP (personal consumption of [...]
How the Fed Communicates with the Markets
Posted on July 22, 2008 - Filed Under Central Banks | Leave a Comment
The Fed communicates in very specific ways to the markets. Because of its structure (seven governors and 12 regional Fed Presidents), the views of the different speakers often diverge on important issues. A good Fed chairman will use his power and influence to present a unified view of the Fed’s view of the current situation, [...]
Read More..>>Understanding the Policy Tools of the Fed
Posted on July 21, 2008 - Filed Under Central Banks | Leave a Comment
The Fed has three traditional policy tools to implement monetary policy: (1) the Fed Funds rate; (2) the discount rate and (3) reserve requirements.
To understand these tools you must first understand a bit about how banks operate. Banks must keep deposits at the Federal Reserve (more about this below under the section describing reserve [...]
The Many Mandates of the Fed
Posted on July 20, 2008 - Filed Under Central Banks | Leave a Comment
The Federal Reserve Act states the objectives of monetary policy: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of [...]
Read More..>>The Structure of the Fed
Posted on July 19, 2008 - Filed Under Central Banks | Leave a Comment
The Federal Reserve was created by Congress almost 100 years ago, when the economy and markets were very different from today. Creating a central bank was controversial at the time and the political compromises led to a peculiar structure (see here for the official version of the Fed’s history; there are numerous alternate versions of [...]
Read More..>>Understanding the Federal Reserve
Posted on July 19, 2008 - Filed Under Central Banks | Leave a Comment
The Fed is the US central bank. The US has a fairly complex history of central banking (see here for the official version); the Fed was officially created by Congress in 1913 but did not really get the independence that it enjoys today until 1951. The following essays address the structure of the [...]
Read More..>>Understanding Inflation Data: PPI
Posted on July 15, 2008 - Filed Under Economy | Leave a Comment
[If you would like a brief review of ways to measure inflation and the most important U.S. monthly inflation indices you should read Understanding Inflation Data: An Introduction first and then return to this article that is about the PPI, the producer price index]
The PPI or the Producer Price Index is published by the Bureau [...]
Understanding Consumer Confidence Measures
Posted on July 9, 2008 - Filed Under Economy | Leave a Comment
One of the biggest problems facing an economic analyst is the lack of timeliness of published data. Most economic numbers are published a month or two after the data are collected, due to the difficulty in collecting and assembling the data (for example, the CPI measures the prices of 80,000 goods and the employment [...]
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