MacroScope

For Bank of Israel governor Stanley Fischer, this week’s high-powered macroeconomics conference at the International Monetary Fund was a homecoming of sorts. After all, he was the IMF’s first deputy managing director from 1994 to 2001. The familiar nature of his surroundings may have helped inspire Fischer to use a household analogy to describe the vaunted but often ethereal principle of central bank independence.

Fischer, a vice chairman at Citigroup between 2002 and 2005, sought to answer a question posed by conference organizers: If central banks are in charge of monetary policy, financial supervision and macroprudential policy, should we rethink central bank independence?  His take: “The answer is yes.”

In particular, the veteran policymaker, who advised Fed Chairman Ben Bernanke on his PhD thesis at MIT, argued various degrees of independence should be afforded to different functions within a central bank.

While monetary policy should be more insulated – though it is not always – from politics, it might be appropriate for the financial stability function to entail greater coordination with fiscal authorities, as is the case in Israel. Which is where marriage comes in:

Some of my colleagues say, well, you can’t be independent in one role and not in another. Well, I don’t think any of them are married, if that’s what they say. You can be. There are things you do (separately) and there are things you do together.

Following on from Nigeria’s rebasing of its GDP numbers, giving it a huge growth boost on paper, it is Israel’s turn to tinker with the numbers.  This time, though, the end result was not positive.

The country’s Central Bureau of Statistics said on Monday that the first-quarter jobless rate was 6.7 percent. This a good 1.3 percentage points higher than the announced fourth-quarter figure.

It does not, however, signal a sudden cull of workers across Israel. It is the result, rather, of Israel adopting a new way of counting employment designed to bring it in line with the way leading Western economies do it. So the equivalent fourth-quarter number would have been 6. 8 percent, slightly higher.

Could the dreaded R word come back to haunt the developing world? A study by Goldman Sachs shows how differently financial markets and surveys are assessing the possibility of a recession in emerging markets.
One part of the Goldman study comprising survey-based leading indicators saw the probability of recession as very low across central and eastern Europe, Middle East and Africa. These give a picture of where each economy currently stands in the cycle. This model found risks to be highest in Turkey and South Africa, with a 38-40 percent possibility of recession in these countries.
On the other hand, financial markets, which have sold off sharply over the past month, signalled a more pessimistic outcome. Goldman says these indicators forecast a 67 percent probability of recession in the Czech Republic and 58 percent in Israel, followed by Poland and Turkey. Unlike the survey, financial data were more positive on South Africa than the others, seeing a relatively low 32 percent recession risk.
Goldman analysts say the recession probabilities signalled by the survey-based indicator jell with its own forecasts of a soft patch followed by a broad sustained recovery for CEEMEA economies.
“The slowdown signalled by the financial indicators appears to go beyond the ‘soft patch’ that we are currently forecasting,” Goldman says, adding: “The key question now is whether or not the market has gone too far in pricing in a more serious economic downturn.”