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- Ok, first off I'm gonna say I didn't particularly read that. So I wrote some stuff, THEN I read the article (that's what the cool kids do).
Not entirely convinced by the data. It's a one year change in currency value so straight off the bat I think we can ask what was going on that year and how does it affect the data? I'm not sure we'd even expect a particularly strong correlation over a one year period anyhow.
The trend is still for strong currency to have a negative effect on inflation. These guys should have pulled some better stats out the bag.
It is however, clear that there are a bunch of other factors affecting interest rates. This basic correlation doesn't allude to the potential difference between the possible P value for a regression and the magnitude of that regression. I think it is highly likely that we'd have a pretty good P value but with a relatively small effect. That still means that a stronger pound will decrease inflation, but of course there are other things to be considered.
http://www.morganstanley.com/views/gef/archive/2008/20080519-Mon.html = goodDec 15, 2011
- I'm not sure there was a suggestion that the City was actively conspiring, just that it has different aims to the majority of manufacturers and that, at present, the aims of the City are seen as more important and this can cause negative externalities for industry.Dec 15, 2011
- That link was literally the first thing I found when I Googled "currency strength inflation" or something to that effect.Dec 15, 2011
- Bean says:
"As for inflation in the UK, a weaker £ means higher inflation, as companies have to pay their foreign suppliers more, margins are squeezed, and costs are passed on to consumers. The City cares a lot more for growth than low inflation. Stocks are sometimes used to hedge against inflation. I don't get the argument that what's good for UK Manufacturing is necessarily bad for UK Finance."
This was the type of answer I wanted, I don't get the same kind of understanding from regression analysis. Plus I don't know what a p-value is, unless it's the "p" referred to in scientific papers i.e. the probability of achieving a given outcome given the null hypothesis. Whenever someone says regression, I just think correlation. I have never done anything with data in my life.
Back to the details of Phil's suggestion. Shouldn't that mechanism only account for ongoing inflation when the currency continues to devalue? If a currency is weakens and stays (constantly) weak, it sounds as if this effect should stay the same, and thus once the currency stabilizes at it's new weak exchange rate, inflation should decrease back to normal (cetera paribus).Dec 15, 2011
- Haha! Doing the write first then read gives me mad satisfaction when the source agrees with me. (James is right about the cool kids).
"...to keep imported inflation low, the currency in question would need to appreciate perpetually. A stronger currency could only offset imported inflation temporarily."
Also, I did not understand the rest of the article at all. I understand the words and sentences individually, but no paragraph.Dec 15, 2011
- Uncanny valleyDec 15, 2011
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