Multi-Speed Recovery

A very interesting blog post from a good economics blog, Zero Hedge.

Although contemporaneous estimates of output gaps are somewhat elusive, the broad picture is clear: a growing portion of the global economy is facing inflation risks and the bulk of developed economies is no longer in the deflation danger zone. This uneven dynamic distribution matters a lot for investors, who need to make up their mind about inflation. One key lesson from the past cycle is that price movements have a larger common component than in previous times; call it the globalisation factor. Matteo Ciccarelli and Benoît Mojon estimated that “(inflation rates of) OECD countries have a common factor that alone accounts for nearly 70% of their variance” (ECB working paper, October 2005), a finding that is consistent with later research by Haroon Mumtaz and Paolo Surico (Bank of England working paper, February 2008). In such a world, the fact that China, India and Brazil have entered into the inflation risk zone matters more than Spain, Ireland and Greece being on the brink of deflation.

Published by Janar Wasito

Janar Wasito is the manager of Magis Capital in San Diego, CA. He is a graduate of Harvard and Stanford Law School, and a former Marine Officer.

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