Articles worth reading:

  • Do you think Santa Claus lives in Finland? Wrong. Santa is Chinese, check Globalist article.

chinese_santa.jpg

  • Thousands of analysts around the world are crunching numbers and are scratching their heads to forecast how will China perform in 2007-2008. I found this very interesting forecast in the recent UOB research piece : “T_he Beijing Olympics will commence from 8 to 24 August 2008. As this is meant to be a showcase of China’s development, this means that China will do its utmost to main stability and progress on all fronts, including economic and macro policy. As such, China is unlikely to pursue any drastic economic policy changes in the run up to the 2008 Olympics”._ So simple!_

_

  • South Korea has “unlimited resources” to limit the won’s rise against the US dollar, a senior finance ministry official said Friday. You can read the full article in FT. It may sound odd, but almost ten years ago Thailand, Korea and few other Asian economies experienced massive capital outflows. This time around they face the opposite problem, of too much capital flowing in, which made Thai authorities to impose capital controls and led to a one day 15 percent stock index drop. We shoudl brace for a very interesting year 2007, indeed.
  • Here is a very interesting article, showing that Federal Reserve inflation forecasts had a very significant bias, and that the bias was rational. Check Banco de Mexico Documentos de Investigacion, titled “Bias in Federal Reserve Inflation Forecasts: Is the Federal Reserve Irrational or Just Cautious?“. Abstract is below: “Inflation forecasts of the Federal Reserve seem to have systematically under-predicted inflation from the fourth quarter of 1968 until Volcker’s appointment as Chairman, and to systematically over-predict it afterwards until the second quarter of 1998. Furthermore, under quadratic loss, commercial forecasts seem to have information not contained in those forecasts. To investigate the cause of this apparent irrationality, this paper recovers the loss function implied by Federal Reserve’s inflation forecasts. The results suggest that the cost of having inflation above an implicit time-varying target was larger than the cost of having inflation below it for the period since Volcker, and that the opposite was true for the pre-Volcker era. Once these asymmetries are taken into account, the Federal Reserve’s inflationforecasts are found to be rational.” This paper may explain why sometimes inflation projections in some countries appear too low or too high relative to consensus forecasts.
  • China discusses USD 2bn loan to Zimbabwe, see Times article. I read Chinal daily online on daily basis, and I see enormous diplomatic offensive followed by a rapid buildup of business ties with African and Asian countries. Europe and US falls behind.