My Interview With Ed Mitchell on Share Radio

Yesterday I was interviewed at lunch time by Ed Mitchell of Share Radio and below is excerpt of the discussion which covers developments in the Chinese economy and recent changes in the policy of the European Central Bank. This includes yesterday’s speech from ECB President Mario Draghi.

This was the first part of what was quite a wide-ranging interview and I will post the second part as soon as I receive it.


3 thoughts on “My Interview With Ed Mitchell on Share Radio

  1. Great interview, Shaun.
    Regarding the ECB’s goal of price stability and its declared target rate of something under 2%, you may find this excerpt of interest. It is from the background information released in February 1991 announcing an inflation targeting regime for the Bank of Canada: “These targets provide for a year-over-year rate of increase in the consumer price index (CPI) of 3 per cent by the end of 1992, 2 1/2 per cent by the middle of 1994. and 2 per cent by the end of 1995….Thereafter the objective would be further reductions in inflation until price stability is achieved.” So the now iconic 2% rate, referenced by all the G7 central banks, started out as just the last of a series of intermediate targets towards price stability designated by the Canadian Finance Minister, Michael Wilson, and the Governor of the Bank of Canada, John Crow. We know from Mr. Crow’s memoirs that he saw 1.5% as the next intermediate target. In fact he refused to stand for a second term when the new Finance Minister, Paul Martin, chose to make 2% the target rate at least until 1998, in the initial renewal agreement for the inflation targeting regime in late, eliminating any references to lower target rates in the future. The thing is, there was fairly large upward substitution bias in the Canadian CPI in the early 1990s, so a sub-2% target rate for the ECB’s Monetary Union Index of Consumer Prices (MUICP) is actually probably equivalent to at least a sub-2¼% target for the 1990’s vintage Canadian CPI. Or in other words, a point target of 1¾% for MUICP inflation would be equivalent to a 2% target for Canadian CPI inflation at the time of the 1993 renewal agreement, and a point target of 1¼% would be equivalent to the 1.5% target that Governor Crow favoured.

    So while 0.4% inflation for the MUICP in October 2014 definitely looks a little low, there seems no reason for Governor Draghi to try to generate a lot more inflation. Bring the rate up just to 1¼% and it is already effectively at the 1.5% target rate that Governor Crow favoured, if one adjusts for the lower upward bias of the MUICP measure. As you say, it does seem rather strange for a central banker to be calling for much higher prices, especially when the goal of his bank is supposed to be price stability.

    • does make you wonder what goal they are targetting doesnt it ?

      suprised me again Shaun , wasn’t expecting a post on Saturday !!



  2. Hi Shaun
    I recently sat next to a guy at a business dinner, he runs one of the biggest pension funds in the UK. He told me an amusing story about the official visit to the UK in June by Chinese Premier Li Kiqiang.

    This guy was invited to a posh banquet organised by the DTI (or whatever it’s called these days) and he was strategically seated next to the female Chinese Deputy Minister of Finance, who is responsible for issuing China’s economic statistics. Keen to get a better grasp of Chinese quantitative and analytical methodology, he asked her to explain how they arrived at the results.

    The minister replied; “First Thursday in every month I sit behind desk. At 10 am telephone ring and senior party official tell me figures”.

    Anyway, she didn’t seem think it was in the least bit strange…

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