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The Nobel Prize went to Bernanke, Diamond and Dibwig

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The Nobel Prize goes to Bernanke, Diamond and Dibwig for their work in banking. Bernanke seems to be an obvious choice. Doesn’t he already have one? Well, no. But few people have had an excellent academic career topped by another excellent career in public policy. Few economists have become famous politicians, but it is difficult to think of any economist whose work in public policy consists in applying, applying, and testing the knowledge they have built up in academia.

Bernanke, of course, wrote major papers on the Great Depression – the Nobel Committee refers in particular to his 1983 paper The non-monetary effects of the financial crisis on the spread of the Great Depression which showed that it was not only a decrease in the money supply that mattered (Alaa Friedman and Schwartz) but also a decrease in the supply of credit. Another way to put it is that the waves of bank failures in the 1930s reduced the economy’s ability to produce output in a way that could not be countered simply by printing more money. As Tyler and I emphasize in our textbook, modern principles, nominal and real shocks are often intertwined. Bernanke then became famous for bringing this kind of thinking into his actions as Chairman of the Federal Reserve during the 2008-2009 financial crises. Bernanke believed it was important to save the banks and shadow banks not because he owed financial interests (he wasn’t a Wall Street guy) but because he believed that the banks were a crucial bridge between savers and investors and if this bond was further broken the results would be disastrous. Bernanke bailed out banks to save bridges.

I am also a fan of a second, somewhat less well-known paper, also published by Bernanke in 1983 ( Annus Mirabilis paper phenomena), Irreversibility, uncertainty and cyclical investment. Bernanke in this paper pioneered what would later become the analysis of real options for investing, i.e. thinking of investing as an option, akin to a financial option. Thus, investing has two main features – you can usually wait a bit to gather more information before investing but once you strike, the investment is dumped i.e. irreversible. These two features have important implications for investment decisions and large business cycles. In particular, Bernanke demonstrated something surprising he called the “bad news principle”. The bad news principle states that only the expected severity of bad news matters in an investment decision, and good news should not matter at all. The reason is that the real decision an investor should make is to invest right away or wait a bit to find out more, but what makes waiting important is not the possibility of good news but the possibility of avoiding mistakes. Avoiding mistakes is what margin investors care about. In turn, what that means is that avoiding bad news – creating negative insurance – can generate significant upside because it can lead to a flurry of investment. Bernanke also took that lesson into his role at the Federal Reserve.

Big sums have already been written on Bernanke, of course, including his own Diary And I don’t think I can add much to this torrent other than to underscore the remarkable consistency of Bernanke’s thoughts and actions from academia to central banks.

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Diamond and Dybvig are responsible for the current basic model of banking. You can read Tyler below for More details on Bernanke And the DD model explanation.

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Economic

FirstFT: Zelensky vows to resist attacks on Russian infrastructure

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good morning. This article is an in situ version of our site FirstFT the news. Subscribe to our site AsiaAnd the Europe/Africa or The Americas A release to send straight to your inbox every weekday morning

Volodymyr Zelensky said Russia’s new strategy of destroying Ukraine’s infrastructure and plunging it into darkness will not weaken the country’s resolve to liberate all occupied territories, describing the conflict as a “war of strength and resilience.”

We must return all lands. . . Because I think the battlefield is the way to go when there is no diplomacy,” Zelensky said said the financial times in an interview. If you can’t fully reclaim your land, the war is simply frozen. It’s only a matter of time before it resumes.”

Moscow has stepped up its bombing campaign on Ukraine’s critical infrastructure since last month, hoping to force Kyiv to make concessions despite its progress on the battlefield.

On Wednesday, Russia fired 70 missiles at infrastructure targets across Ukraine, leaving about 80 percent of the country in the dark and without water. All fifteen of Ukraine’s nuclear reactors have been shut down because electricity has become unstable.

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Zelensky admitted that the fate of Crimea was rising on the international agenda. “I understand that everyone is confused by the situation and what will happen to Crimea. If someone is ready to offer us a way in terms of ending the occupation of Crimea by non-military means, I will only be in favor.

“If the solution [does not involve] removal of occupation and [Crimea] is part of the Russian Federation, so no one should waste their time on this. It’s a waste of time.”

Do you think you caught up on the news this week? Take ours a test And find out.

1. Chinese lenders are pouring $162 billion in credit into real estate developers Industrial and Commercial Bank of China, China’s largest lender by assets, announced an extension Credit lines totaling RMB 655 billion ($92 billion) to 12 developers. The lending marks a key moment for China’s ailing real estate sector, which drives more than a quarter of economic output but has been mired in a liquidity crisis for more than a year.

2. Foxconn moves to quell protests at the iPhone factory Foxconn, Apple’s manufacturing partner Payments of 10,000 RMB ($1,400) For newly hired employees who chose to leave the iPhone factory and pledged to honor wage agreements, in an effort to quell unrest after workers clashed with police.

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3. Twitter disbands Brussels office Twitter has dissolving its entire Brussels officewhich raised concerns among EU officials about whether the social media platform would abide by the bloc’s strict new rules on online content monitoring.

4. Disney awarded Iger a $10 million consulting deal to advise the CEO Bob Iger on a $10 million deal to advise his successor Bob Chapek even though the two executives were hardly on speaking terms. Iger returned to Disney this week as CEO after ousting his heir-chosen entanglement in an internal revolution.

5. Anwar Ibrahim is sworn in as Prime Minister of Malaysia Anwar was a protégé of former Prime Minister Mahathir Mohamad. The reformist leader was sworn in on Thursday night after five days of uncertainty following Saturday’s general election. He takes over the country Torn apart by political divisions and struggling with a fragile economy reeling from the pandemic.

note join Top Financial Times journalists in conversation with leaders in business and government, including Sequoia’s managing director for India and Southeast Asia, a former economic advisor to the Government of India, vice dean of the Shanghai Institute for Advanced Finance, and many more in The Global Boardroom on 7-9 Dec. Register for free to get your digital card today.

next day

Sentencing Bishop Zain Sentencing is scheduled for the 90-year-old former Bishop of Hong Kong, Cardinal Zen, and five others accused of failing to register a now-defunct fund set up to help people arrested at mass anti-government protests in 2019. All have pleaded not guilty. If convicted, they face a fine of up to HK$10,000, with no jail time.

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Black Friday One of the biggest days begins for the retail docket, as analysts closely monitor any signs of consumers cutting spending. In the wake of Black Friday, major retailers such as Argos and Woolworths have taken off The advertising industry has transformed.

world Cup Iran will face Wales in the first match today. Qatar plays Senegal next, followed by the Netherlands, Ecuador, England and the United States.

World Cup circuit
Day five of the World Cup kicks off tomorrow © AFP via Getty Images

What else do we read

The cost of Chinese chips Check out the new Big Read program at a cost America ban on Chinese semiconductors. New US technology rules will hurt chipmakers in China but also add to inflationary pressures on many products.

In the court of King Trump Jemima Kelly visits Mar-a-Lago And it mingles with the former US president’s “hooters” and superfans at his home base, part social club, and part political nerve center for a man whose obsession with winning threatens to split the Republican base.

The United Kingdom limits the use of Chinese-made surveillance systems on government websites When announcing the ban, Cabinet Office Minister Oliver Dowden said it would cover Visual monitoring equipment Produced by companies subject to the National Intelligence Law of the People’s Republic of China.

How magical thinking enabled the ups and downs of FTX Since the cryptocurrency exchange imploded this month, it has become clear that the concentration of power, coupled with a lack of oversight, has caused huge losses for customers because the money has been funneled without any accountability. Gillian Tate reflects The deep contradictions of the sector. If you miss an FTX bankruptcy hearing, We’ve got you covered.

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How China’s close contacts are ramping up pressure on Beijing’s Covid-free policy More than 1.3 million people in China were under medical observation this week as close contacts of Covid-19 cases, the highest level since the outbreak began in Wuhan. The number of nearby contacts is a measure of whether The authorities are still able to control the virus. If it gets out of control further, the government can impose stricter lockdowns.

The 1.3 million Chinese close contacts are piling pressure on the country’s zero-tolerance policy © Getty Images

drink food

I have nothing against staples like sour cream, chives, tzatziki or guacamole. But when you want something with gastronomic clout, What are your choices of dips after the hummus? American chef Lucas Folgers Snacks for dinner An entire chapter is devoted to dives that feel adventurous and luxurious while being relatively simple.

Recipes of snacks for dinner, including (clockwise from bottom left) Dill & White Bean Spread, Focaccia, and Cottage Cheese Grebec
Recipes from Snacks for Dinner, including (clockwise from bottom left) dill and white bean spread, focaccia and cottage cheese gribiche © Cara Howe

Thank you for reading and remembering that you can Add FirstFT to myFT. You can also choose to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.com

Climate chart: an explanation – Learn about the most important weather data for the week. Participation over here

Long story short – The biggest and best-read stories in one smart email. Participation over here


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PMI, PMI baby by Reuters

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© Reuters. FILE PHOTO: Pedestrians in silhouette walk past an electric stock price board outside a brokerage firm in Tokyo, Japan October 18, 2022 REUTERS/Isei Kato/File Photo

Written by Jimmy MacGyver

(Reuters) – A look at the day ahead in Asian markets from Jamie MacGyver.

Asian markets are looking to end the week on a positive note on Friday, with regional stocks heading for a fourth straight weekly rise.

However, the relative calm may not last if recession risks and concerns accelerate. There are good reasons to think this is in the cards.

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Indicators from the first batch of November PMI data released so far show that private sector business activity is weaker than expected and in many countries contracting, most notably in the US.

Flash estimates in Asia showed manufacturing activity in Japan contracting at its fastest pace in two years. Investors will be paying close attention to the PMI reports for most other Asian countries – including heavyweights China, South Korea and India – due for release on December 1st.

Meanwhile, Fed officials left the markets for a Thanksgiving crunch to chew through the minutes from the latest policy meeting. They wrote that a US recession next year is “almost as high as the (projected) baseline.”

Wall Street dismissed this on Wednesday, but it can’t do it for long. Certainly.

Right now, stock investors’ glass is half full. The MSCI Asia ex-Japan Index is on track to post a fourth consecutive weekly rise, and so far in November it is up 14%. This would be his best month since March 2009 and one of his best ever.

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Of course this comes at the end of a tough year for global markets as Asia suffered from historically high US interest rates and historically weak local currencies.

Like stocks, regional currency markets are enjoying a period of relative calm as weaker inflation readings in the US weighed on the dollar. Some have held more than others: the latest intervention has boosted the value of the yen, and the Thai baht has risen for six consecutive weeks.

Investors are hoping for more consolidation and calm on Friday, leaving potential PMI fireworks for next week.

Three key developments could provide more direction to the markets on Friday:

Tokyo Japan Inflation (Oct)

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– Malaysian Inflation (Oct)

Singapore Industrial Production (October)

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The Bank of England warns of higher UK interest rates in the future if inflation persists

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The Deputy Governor of the Central Bank said on Thursday that the tax increases and spending cuts announced in the UK government’s autumn statement are unlikely to convince the Bank of England to adjust future interest rate increases.

Speaking to the first Bank of England watchers’ conference at King’s College London, Sir Dave Ramsden appeared to undercut the argument of chancellor Jeremy Hunt, who said in his book statement That £55bn of budget consolidation would allow interest rates to be “much lower”.

Ramsden said measures to cut public borrowing would come into play too late to influence the BoE’s monetary policy in the coming months.

The vast majority of the measures that Hunt disclosed, “do not come into force until April 2025, so they will have very little impact on the MPC’s three-year outlook horizon, compared to what was assumed in the November monetary policy report,” he told the conference.

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The Bank of England had previously said it would reconsider its plans for interest rates if the government imposed measures in the statement that immediately changed the picture of the economy, deepening the economic slowdown and putting downward pressure on inflation.

Ramsden said he believes the Bank of England still needs to tighten monetary policy. “I expect that further increases in the bank interest rate will be required to ensure a sustainable return of inflation to the target,” he said.

The deputy governor said he would consider another large rate hike at the next meeting in mid-December if he saw that companies still felt able to raise prices to defend profit margins and raise wages well above the 2 percent inflation target.

“If the forecast is for more persistent inflationary pressures, I will continue to vote to respond strongly,” Ramsden told delegates.

The Bank of England raised interest rates by 0.5 percentage points in August and September by 0.75 percentage points this monthwhich raised the official rate to 3 percent, the highest level since 2008.

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Ramsden noted that although he had a bias “toward tightening,” he would “consider the issue of lowering the bank rate” if the economy develops differently from his expectations and persistent inflation ceases to be a concern.

At its last meeting, the Monetary Policy Committee indicated that if inflation begins to deflate, which is expected as the UK enters recession, it will not need to raise interest rates much more to bring inflation down to the 2 percent target.

But this was criticized Thursday night in a speech in Italy by Lord Mervyn King, the bank’s former governor. King said that “intellectual errors” by central banks caused inflation to double digits worldwide, and that because officials printed so much money during the pandemic, it had become hyperinflationary.

King said the likely mistake policymakers could make now is not raising interest rates enough as inflation begins to fall in 2023.

“An early end to the monetary pressure needed to reduce core inflation will lead to a prolonged recession than is necessary. He predicted that political pressures on central banks would push them in this direction.”

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Catherine Mann, the MPC’s outside member, agreed with the former governor that not raising interest rates fast enough last year was probably a policy error. But she said she had always voted for a tougher policy since joining the committee in September 2021. “If there is something wrong with the policy, it is not my fault,” she added.

Financial markets still expect the Bank of England rate to rise to 4.5 percent next year.

The Bank of England Watchers Conference, held for the first time this year, is the British version of the long-running annual “ECB and Bank Watchers” event in Frankfurt. It brings together policymakers, market economists and academics to discuss monetary and fiscal policy.

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