Monday, June 22, 2015

Capital Mobility

When looking at exchange rate policies (fixed vs. flexible exchange rates) one of the factors that is considered in the IS/LM/BP model is the degree of capital mobility within the domestic economy.  Typically four versions are modeled:  perfectly flexible, relatively flexible, relatively inflexible and perfectly inflexible - where relatively flexible or inflexible is in comparison to the domestic money market.  While this is a theoretic concept, examples of changes in capital mobility are rare.  Here is an exception - Saudi Arabia is opening up its stock market to foreign investors, meaning that the movement of capital in (and out) of the Kingdom is increasing.  Theoretically, this would be an increase in capital mobility.

Thursday, June 18, 2015

China's Managed Float of the Yuan

The Wall Street Journal reports that China is evaluating whether to allow the yuan to depreciate due to market forces.  In my Global Economics and Business class, we talk about countries that have a managed float system for exchange rates and that in the short-run monetary policy is used to maintain the rate at which the nations domestic currency is traded for a foreign currency, but in the long-run market forces determine the exchange rate.  This is a good example of the long-run case, where an appreciation of the US dollar and declining growth rates in China are putting downward pressure on the yuan (renminbi).

Monday, May 4, 2015

Death Penalty Declines

The Wall Street Journal reports that executions and death penalties are at all time lows in the US.  One reason according to the article is the rise in life-without-parole options for juries.

Thursday, April 30, 2015

College Education as a Signalling Device for NFL Teams

The Wall Street Journal reports that the Philadelphia Eagles prefer to draft college graduates as opposed to players that choose to leave college before finishing their degree.  This could be an example of signalling that I talk about in Principles of Microeconomics.  It could also be that since a college degree takes longer to achieve that the players are more experienced than those that leave college early and thus are more productive.  Untangling that would be important as to whether it is due to signalling, experience or a combination of the two.

Wednesday, April 29, 2015

US Sugar Price Floor

The US has a binding price floor on sugar, resulting in sugar prices being higher than in world markets.  From the supply and demand market for sugar we know that a binding price floor will result in a surplus of sugar at the binding price floor.  Now let's think about the impact this has on US candy manufacturers.

As reported in the Wall Street Journal, US candy manufacturers are moving out of the US to avoid having to pay the higher US sugar prices and purchase sugar at the lower world prices.  This has resulted in a loss of jobs as the manufacturers are moving to where production costs are lower.

Monday, April 27, 2015

Nursing Home Labor Shortage

The Wall Street Journal reports that there is a shortage of nursing home workers.  Why - because the wage is below what workers are willing to work at.  How to solve this problem - raise the wage.