In a celebrated 1980 paper, Mr. Sims showed how vector autoregressions -- a statistical technique now widely used by economists -- could be applied to studying changes in the economy.
"He said, let's push statistics as far as we possibly can and figure out what we can pull out of the data and what we cannot," says Middlebury College economist David Colander. "That was a major advance in macroeconomics."
Mr. Sims continued to build on that idea, working on ways to uncover the lines of cause and effect in the economy. In a telephone interview with Swedish television Monday morning, Mr. Sims said that he didn't know how to solve the world's economic problems, but that he thinks the techniques he and Mr. Sargent developed "are central to getting us out of this mess."
The two economists will share a total prize of 10 million Swedish kronor ($1.5 million), the same amount as for other Nobel prizes, to be paid by the RiksbankMr. Sargent is perhaps best known for his work in the early 1970s on "rational expectations theory," which argues that people base their behavior not just on government policies but also on what they expect those policies and their impacts to be in the future.
Thus, as the Minneapolis Fed explained in the introduction to an interview with Mr. Sargent last year, central banks "can't permanently lower unemployment by easing monetary policy ... because people will (rationally) anticipate higher future inflation and will (strategically) insist on higher wages for their labor and higher interest rates for their capital."
That work has significant implications now, as central banks around the world grapple with how to boost struggling economies without sparking runaway inflation in the future. One answer, according to another Sargent paper: They can't do it alone. Good monetary policy, Mr. Sargent argued, is impossible without good fiscal policy, a perhaps troubling conclusion at a time when gridlock in Washington has brought fiscal policymaking to a near-standstill.
BRUSSELS – The Belgian state will buy the national subsidiary of embattled bank Dexia for 4 billion euro ($5.4 billion) and provide tens of billions of euros in new guarantees as part of a wider bailout of the lender, the first victim of a new squeeze in European credit markets
BRUSSELS – The Belgian state will buy the national subsidiary of embattled bank Dexia for 4 billion euro ($5.4 billion) and provide tens of billions of euros in new guarantees as part of a wider bailout of the lender, the first victim of a new squeeze in European credit markets
The part-nationalization of Franco-Belgian Dexia, announced Monday, was triggered by other banks' increasing reluctance to lend to it due to its exposure to highly indebted eurozone states like Greece and Italy and to struggling municipalities in the United States.
Banks depend on loans to one another for a large part of their daily financing, but can quickly withhold them if they sense there is a danger that a counterpart might collapse and not repay the money. Such fears intensified last week, pushing Dexia, which had a larger dependence on such funding than many of its rivals, to need rescuing from the government.
Belgium's caretaker prime minister Yves Leterme said the nationalization was necessary to insulate the Belgian retail bank from the risks of the wider group, Dexia SA. He said support from the state ensures that all of Dexia's clients "can be sure and certain that their money is in full security."
On top of the nationalization, the governments of Belgium, France and Luxembourg together will provide an additional 90 billion euro ($121 billion) in funding guarantees for the bank for up to 10 years.
Belgium will provide 60.5% of these guarantees, 36.5% will come from France and the remaining 3% fromAt the same time, Dexia's board is in negotiations with French banks Caisse des Depots et Consignations and La Banque Postale to find a solution to the financing of French local authorities, in which Dexia plays an important role.
Dexia's shares plunged 33% when they started trading again on the Brussels stock exchange Monday afternoon, but quickly recovered to rise 2.6% to 87 euro cents. The shares had been suspended Thursday afternoon as management and governments were sorting out the bailout.
Announcement of the bailout followed marathon negotiations between the three governments and the bank's management.
Officials were worried that a collapse of the bank would exacerbate an already tight funding environment for banks in Europe, as analysts warn of a credit crunch similar to the one that followed the collapse of Lehman Brothers.
To avert such a scenario, European leaders are now pushing banks to shore up their capital cushions. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they were working on a coordinated plan to recapitalize European banks that would be completed by the end of the month. Greece, meanwhile, said Monday that it had to rescue local lender Proton Bank.
However, many governments across the continent are reluctant to put up more taxpayer money to save the financial sector as they are already facing rising debts.
In the case of Dexia, the Belgian and French governments were concerned that a bailout would threaten their credit rating and drive up interest rates on their bonds.
On Friday, Moody's Investors Service placed Belgium's Aa1 rating on review for a possible downgrade, due in part to the expected expense of guaranteeing that Dexia's depositors will lose no money.
Belgian finance minister Didier Reynders said the bailout would lift the country's debt from around 97% of economic output to about 98%.
The French government, too, was under acute pressure to save Dexia as the bank is one of the country's largest lenders to towns and cities.
France and Belgium already became part owners of the bank during a 6.4 billion euro bailout in 2008.
Last week Dexia announced it was in negotiations with a group of international investors interested in buying its Luxembourg subsidiary.
At a news conference Monday, the bank's management blamed the renewed problems on the risks that were piled up before they took over in 2008.
"We realized very quickly that we found ourselves in front of a very difficult mission," said Chairman Jean-Luc Dehaene. Efforts to strip down Dexia's balance sheet and shift funding from short-term to long-term were taken quickly, but management did not have enough time to get the lender back on track before it was slapped hard by the government debt crisis, Dehaene added.
The chairman insisted that Dexia faces a crisis of liquidity, not solvency — meaning it is not bankrupt, but just doesn't have the ready cash it needs in the short-term. That is why the bank managed to pass pan-European stress tests just this summer, Dehaene said.
Chief Executive Pierre Mariani added that a threat to downgrade the bank's credit worthiness by rating agency Moody's last Monday, exacerbated by rumors during the week, "put some pressure on group funding."
Beijing will buy more shares in China’s biggest banks, in an expression of support for the beleaguered stock market and most concrete state action to date to shore up confidence in the slowing economy.
Central Huijin, the domestic arm of China’s sovereign wealth fund, will buy the shares to help stabilise the pillars of the country’s financial system, the official Xinhua news agency said on Monday.
Coming as the Chinese stock market closed at a 30-month low, the move was the strongest sign that Beijing wants to engineer a restoration of confidence in share prices and the economy. It paid instant dividends with a rally in the final minutes of trading on Monday.
Although Chinese growth has so far held up well, the European debt crisis and the risk of a double-dip recession in the US have cast a shadow over the country’s economy. With inflation running near three-year highs and debt levels swollen by heavy spending, economists doubt that Beijing could launch the kind of stimulus it did when the global financial crisis struck in 2008.
Sensing vulnerability, investors have turned against China, driving down commodity prices, betting on the chances of a government default and selling shares in the banks that are the economy’s lifeblood.
The government, through Huijin, is already the majority shareholder in all of the country’s major banks. While the announcement gave no details about how much more it intends to buy, it was unabashed in declaring that it aimed to halt the roughly 30 per cent slide in bank stocks in recent months.
In a rebuff to traders who have been betting that the renminbi will weaken as the Chinese economy slows, Beijing also allowed the currency to record its biggest one-day gain in years on Monday, letting it rise 0.6 per cent against the dollar.
The motivation for that also appeared to be diplomatic, with the US Senate set to vote on Tuesday on legislation that would punish China for keeping its currency undervalued.
Xinhua said the objective of the Huijin move was “to support the healthy operations and development of the key state-owned financial institutions and to stabilise the share prices of state-owned commercial banks”.
It added that Central Huijin would start the purchases “in the coming days”, buying shares in the country’s four largest banks: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China.
The last time Huijin made such a publicised move was in September 2008, when the outbreak of the global financial crisis had dealt a blow to the Chinese stock market. The Chinese market staged a huge rally after Huijin’s 2008 move, which also paved the way for broader government support for the economy in the form of an Rmb4,000bn ($625bn) stimulus package.
The announcement that Huijin was again wading into the market made an immediate impact. Mainland China’s stock markets were already closed, but Chinese bank shares in Hong Kong turned sharply positive on the news. ICBC, which had been down 3 per cent, rallied at the finish line to close up 1 per cent. Analysts said the sudden turn-around may have partly reflected short covering.
Global investors have soured on Chinese bank shares over the past year, worried that their bad debt levels will soar because of their lending spree since 2008. Shorting Chinese bank shares in Hong Kong has also been a popular play for investors who believe that the world’s fastest-growing major economy is due for a slowdown.
“They [Huijin] are trying to signal to the market that they feel confident,” said Sanjay Jain, a Chinese bank analyst with Credit Suisse. “And of course valuations are depressed, so it’s not a bad idea to buy at these levels for a long-term strategic investor.”
Tired of incessant leaks to the media about its poor performance, Paulson & Co., the hedge fund started by billionaire John A. Paulson, decided a few weeks ago to amend its reporting policies to make it harder to obtain performance data.
But the changes failed to obscure this painful fact: one of his largest funds is down 47 percent through September, a loss that would require returns of almost 100 percent to surmount, according to investors in the fund. The non-leveraged version of the same fund is down about 32 percent, according to the investors.
Other funds that were doing fine earlier this year are now also taking a nosedive, including Mr. Paulson’s gold fund ( up 1 percent for the year after falling 16 percent last month), which placed bets on various assets linked to the precious metal, as well as his Recovery fund (down 31 percent for the year), which placed a bet on the recovery of the U.S. economy. Both funds were hit with double digits losses in September after a gold price slide and further turmoil in the stock market.
Such reporting changes are common in the world of hedge funds. For many of the indexes and databases, information is collected on a voluntarily basis, and often funds stop reporting when their returns lag. In Mr. Paulson’s case, investors say that instead of giving updates on each fund’s performance to all investors, the changes now mean, the data now show only those funds in which an investor had money.
Redemptions through September were low, somewhere in the neighborhood of 2 to 3 percent of overall assets, according to an investor, as fund devotees stick with Mr. Paulson through this rough patch. And while there is another window to make requests approaching (Oct. 31) for his Advantage funds, mass withdrawals are not a foregone conclusion, according to investors. On Tuesday, Paulson & Co. will have a conference call with investors.
Mr. Paulson has aggressively raised assets ever since shorting the subprime mortgage market minted him and his fund billions, and many of his new investors are high net worth clients at major banks like Morgan Stanley, who are notoriously quick to flee. But his more enduring investors, those who made money alongside him in 2007, may be more reluctant to leave, some say. One investor noted that since the assets Paulson & Co. owns are so depressed, it could make sense to hang until there is a snap back in the markets.
It’s been a bad year for Mr. Paulson’s firm. While choppy markets earlier this year kept a number of big hedge funds flat performance-wise, Paulson & Co. began suffering big losses early. The firm lost nearly $500 million on a failed investment in a Chinese timber concern when a researcher betting against the stock accused the company of fraud. Later, as the markets fell on European debt concerns, Paulson & Co.’s portfolio tumbled along with it.
trading on Monday after a renewed pledge by France and Germany to come up with a plan to resolve the euro zone debt crisis by month's end lifted sentiment.
The Dow Jones industrial average <.DJI> was up 232.20 points, or 2.09 percent, at 11,335.32. The Standard & Poor's 500 Index <.SPX> added 27.89 points, or 2.41 percent, at 1,183.35. The Nasdaq Composite Index <.IXIC> gained 60.84 points, or 2.45 percent, at 2,540.19.
The benchmark S&P 500 traded above its 50-day moving average for the first time since late July. A close above it would be considered a bullish technical signal.
(Reporting by Rodrigo Campos; Editing by Kenneth Barry)
