February 18, 2021

Macro Series

Our product principles and development

BY John Llewellyn, Russell Jones

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( 3 mins)

We are extending our signature ‘Watch fors’ to our new products

 

The sentiment that “the current situation is more than usually uncertain” tends to be overworked. However, currently that arguably is indeed the case. Perhaps on only two previous post-WWII occasions – the 1973/74 oil price crisis, and the 2008 financial crisis – has there been so much uncertainty about what factors stand to drive economies, and what the consequences will be. 1

This has caused us to reflect anew on what we do; how we do it; and how best to present it.

Our ‘Watch fors’

In such novel times, historical experience offers disturbingly little help. The natural tendency is to fall back on a priori reasoning, or even just a priori beliefs. 2 And this is when analysts and forecasters tend to make their largest mistakes. 3

Because of this we have, for some years, concluded our fundamental analytic pieces with one or more ‘Watch fors’ – developments that, were they to occur, would support, challenge, or at the limit refute, the basis of our argument. 4

Not only is this good methodological procedure: it also has another virtue. Readers today are plied with continuous streams of data and policy announcements such that many feel besieged. Hence we have increasingly come to see it as incumbent on us also to sift that flow of data, and extract just those few that throw light on the solidity or otherwise of the underpinnings of our analysis.

These twin considerations – the need to make analytic foundations clear, and to focus on just the most informative data – lead us now to extend the ethos of our ‘Watch fors’ to our entire suite of products. 5

Global Letters, Comments, and Focus

In these pieces we analyse not only the customary demand side of economies, but also supply-side influences, which are becoming increasingly influential and are worthy of systematic attention climate change; technological change; demographic change, structural policies, inequalities, ESG, and more.

Our new World View

Periodically – a number of times per year – we present our judgement on what seems likely to happen over the coming twelve months or so. We present this as:

  • A 1-page summary of the most important drivers, outcomes, and ‘Watch fors’; and
  • Many pages of endnotes that detail the key elements of our analytic framework, and present the most important empirical evidence.

Our new Key Developments & Chart of the week

Each week we select, from the plethora of the previous week’s data and policy announcements, the handful that seem to us to be the most important for illuminating whether, or the extent to which, our World View is on the face of things being supported, or challenged, by the evidence. Thus this entire document is a crystallisation of ‘Watch fors’.

We also present a Chart of the week that bears on one of the most important issues.

Economic Risks

In turn, but before changing our World View in any major way, it is necessary to take periodic stock of the accumulating evidence. Monthly seems an appropriate frequency. So in Economic Risks we review the past four weeks’ worth of economic and policy developments, 6 and assess how much of a challenge to our view they cumulatively represent.

To the extent that this review proves significant, we in turn update our World View. And thereby the circle is complete!

 

Macro series – Our product principles and development – February 2021

Trimmed Means

( < 1 min) The ‘Core’ measure of US inflation has risen misleadingly: it seems unlikely virulently to ‘infect’ other prices.  

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World View & Risks

( < 1 min) Please find attached our foundation document, World View & Risks. Published quarterly, it presents: In two concise summary pages our judgement about the likely behaviour of the principal drivers of the world economy and financial

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Economic recovery and resilience

( < 1 min) The rate to which economic growth settles down will depend on countries’ investment response, including to going digital and green, and the quality of their structural policies.

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Focus – The effects of climate change on productivity

( < 1 min) Global warming stands to have quantitatively important effects on country productivity While most countries will apparently be affected negatively , some may see large gains Canada and Russia could see considerable increases in productivity India

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Global Letter – Post-COVID-19: country prospects

( 5 mins) Large country differences in performance are in prospect: and due largely to policy     Performance to date Recovery from recession typically takes years – between 3 and 6 before output regains its prerecession level.

Read More »