Sunday, December 30, 2012

A video of Hayek in 1980

An amazing video of a great thinker and a dominant influence of the XX century. At the age of 81 years old he still showed his enormous oratory and his ability to expose his arguments and do it in a profusely way.

Monday, December 24, 2012

Anscombe’s Quartet

The following chart (Anscombe’s Quartet chart) is the result of numbers that have identical statistical qualities (mean, variance, correlation, linear regression) but different visual patterns. Without visualization these patterns would have been difficult to spot.

Monday, December 17, 2012

Republican votes

I was reading this post about Republican votes in US and I came across this chart.

It shows the percentage of votes to Republicans in 2000, 2004, and 2008 elections (not 2012 unfortunately). It seems that less education and more salary both increase the chances of voting for Republicans (white voters). I want to focus on how chart is displayed. It seemed to me a bit confusing or at list no easy to read. So I tried to imitate Hans Rosling and designed this dynamic chart. It shows all the info except standard deviation. I don’t know if it is clearer but the attempt deserves to be here.

Saturday, December 8, 2012

Financial markets and economic growth 2

Last post reminded me about this article that appeared in February 2012 in The Economist. We were talking about the relation between economic growth and financial liberalisation. According to recent research the second improves the first but the price to pay for it is a higher risk and less financial and economic stability. Using Modern Portfolio Theory, we could argue that more stability can be found using diversification. So, a more diverse and opened society or country should improve its economic growth while keeping its economic stability under control. Unfortunately, diversification it’s becoming difficult to find. According to The Economist article, the correlation of international assets is becoming higher.
As The Economist says:
There is an irony at work here. Global funds are invested in Brazil and China because investors want a diversified portfolio. But the very act of diversification means that these markets become more tied to the developed world and the rewards of diversification are accordingly reduced. It is not really diversification when everyone has the same idea.

Saturday, December 1, 2012

Financial markets and economic growth

This article appeared in Voxeu.org on November the 3rd 2011. Wrote by Popov and Smets from ECB it summarizes recent available research on the relation between finance and economic growth. According to them, a decade ago researchers were already convinced of the relation:
A host of academic papers had concluded that deeper domestic financial markets improve economic efficiency, lead to a better allocation of productive capital, and increase long-term economic growth (see Levine 2005 for a recent review) […] Financial market liberalisation – in particular, equity market liberalisation – has also been found to raise long-term growth by about 1% per year (Bekaert et al 2005).
financial markets provide valuable services, like channelling resources from people with money and no ideas to people with ideas and no money, screening out unproductive projects, and actively monitoring and providing value-enhancing services to productive projects
But other researchers argued that this growth increase is not for free:
more dynamic financial industries and more integrated financial markets are associated with more frequent financial shocks and higher macroeconomic risk. For example, there has been a strong perception that foreign capital increases volatility both in the financial markets and in the real economy (Stiglitz 2000).
Authors Popov and Smets, argue that
there is a tradeoff between growth and risk and that vibrant financial markets may tend to exacerbate this tradeoff
In summary, although well-developed financial systems play a crucial role in stimulating growth they are also associated with more frequent financial shocks and higher macroeconomic risk.

The truth, authors say, is that this is an old debate:
Schumpeter’s view was that cycles are efficient. Because productive ideas do not arrive at a constant rate, economic growth tends to be associated with a boom phase, followed by a recession that ensures that unproductive projects are cleansed from the economy. In contrast, Minsky (1986) – and also Kindleberger (1978) – contended that finance tends to cause an inefficient boom-bust cycle. Good times give rise to speculative investor euphoria and excessive debt and leverage which ultimately leads to a costly financial crisis.
All this reminds me about the Modern portfolio theory which essentially says that increasing asset returns are inherently linked to more risk and diversification can reduce that risk.