The talk of Greece leaving the euro area – Grexit – is back. Will Grexit actually happen? I don’t know, but I do know that more and more people worry that it will in fact happen.
This is what Google Trends is telling us about Google searches for “Grexit“:
And guess what? While this is happening euro zone inflation expectations have collapsed. In fact this week 5-year German inflation expectations turned negative! This mean that the fixed income markets now expect German inflation to be negative for the next five years!
It is hard to find any better arguments for massive quantitative easing within a rule-based framework in the euro zone (with or without Greece). And this is how it should be done.
PS it has been argued recently that euro zone bond yields have declined because the markets are pricing in QE from the ECB. Well, if that is the case why is inflation expectations collapsing? After all investors should not expect monetary easing to led to lower inflation (in fact deflation) – should they?
PPS I do realise that the drop in oil prices play a role here, but the markets (forwards) do not forecast a drop in oil prices over the coming five years so oil prices cannot explain the deflationary expectations in Europe.
Posted by Lars Christensen on January 4, 2015
Lasse Birk Olesen’s guest post about Bitcoin inspired me to do a bit of Googlenomics. I simply had a look at searches in Google for ‘Bitcoin’ using Google Insight.
The “bubble” that Lasse talked about in 2011 is certainly also visible in google searches. Have a look on this graph.
Since June 2011 the search activity for Bitcoin, however, has gone down somewhat, but is still at a somewhat higher level than prior to the 2011 spike. So judging from a bit of Googlenomics Bitcoin is still alive – whether it is kicking is another question.
I am still not sure what to make of Bitcoin as an alternative currency. However, any monetary theorist should take the development in the Bitcoin market serious as it might tell us something about not only the Bitcoin itself, but also about the general monetary developments. It would for example be very interesting to see a study of what determines the exchange rate for Bitcoins against other currencies.
Furthermore, if anybody is aware of any serious academic studies of the Bitcoin market I would be very interesting in hearing from you (firstname.lastname@example.org).
Everybody interested not only in Bitcoin, but more generally in what George Selgin has termed Quasi-Commodity money should have a look here. Scott Sumner as a somewhat different, but equally relevant in a post today.
I will not in anyway promise to give more attention to the Bitcoin phenomon. That is not the is not the purpose of my blog, but I do promise that to the extent that I think the Bitcoin market can teach us more about monetary theory and monetary policy in general I surely will follow up on these developments in the future.
Posted by Lars Christensen on April 6, 2012
Market Monetarists like David Beckworth have long argued that the European crisis is not really a debt crisis or a fiscal crisis, but rather a nominal crisis. The crisis has been triggered not by too much debt, but rather than by overly tight monetary policy and the resulting drop in nominal GDP.
Recently tensions in the European markets has eased dramatically and this have strongly supported the overall sentiment in the global markets. So while the media attention to some extent still is on the Greek crisis the markets seem to have moved on.
A way to illustrate this is to look at Google searches for the “euro crisis” (take a look at Google Insights – its a great tool!). See graph below.
Judging from the graph the “euro crisis” peaked in mid-December – to be exact in the week of December 4 to December 12. Since then the “euro crisis” has eased dramatically. So what happened in that week? Well, on December 8 the ECB announce that it would move to ease monetary policy dramatically – including a commitment “[t]o conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months and the option of early repayment after one year.”
Since the December 8 annoucement the Google searches for “euro crisis” have dropped dramatically. This in my view is a pretty strong confirmation of the Market Monetarist position: The real crisis is nominal!
PS have a look at the graph again – when did it start “euro crisis” searches start to increase? Well, just around the ECB’s July 8 rate hike…
Posted by Lars Christensen on February 21, 2012