2016-17 It is all about milk

Here is an article from the NYT: How Dairy Farmers in Belgium Held Up a Big E.U. Trade Deal.
It describes opposition of Wallonian dairy farmers to CETA: the Comprehensive Economic Trade Agreement between Canada and EU.
What is interesting about it? The agreement will have little effect on dairy farmers in Belgium, since Canadian dairy is protected and so Canadian producers are not competitive. Also, Canada accounts for 1/500th of Wallonia trade.
So what is going on? There seems to be a significant trend away from free trade. The opposition of Wallonia is one manifestation of it.

2016-16 Since we talked about Apple products and Brexit:

As you know, the pound has been falling in value since the Brexit vote. We discussed how quickly the lower exchange rate gets reflected in prices. Well, Apple just did this. They introduced a new product, and priced it higher in the UK than in the US: 1750 pounds=over $2100, in the US $1800 (by the way, the price is Canada is CAD2300; so does the law of one price approximately hold)?
But they also took the opportunity to raise prices of their old products.
Bottom line: changes in exchange rate are not reflected right away in prices.

2016-15 News

1. CETA - still no progress
2. Skilled migrants go mostly to just four countries: US, UK, Canada and ASustralia.
3. For the first time, among highly skilled migrants the number of females exceeded the number of males.
4. The World Bank has just published a report "Doing Business 2017".
It provides information on various aspects of the ease fo doing business around the world.
Interested? It is free; you can download it here. Read it after the mid-term - it is 350 pages long.
Here are the rankings. The top countries are the usual suspects: New Zealand, Singapore, Denmark, Hong Kong, Korea, Norway, United Kingdom, United States, Sweden and FYROM (Macedonia)

Canada is 22nd, just after such powerhouses as Iceland and Lithuania.
Canada is ranked 2nd in the ease of opening a business, but you may need a generator: it is 108th in getting electricity (just after Kenya and the Republic of Micronesia). We do not do well in contract enforcement (112th - Somalia is ranked a bit ahead of us). So there are opportunities for improvement.

5. Austria has just sold bonds: maturity in 2023, yield (interest rate) -0.191%
maturity in 2086: yield 1.53%. The second was record length for sovereign bonds. The buyer will see the money tripled in 70 years.

2016-14 CETA

Canada's trade agreement with the UE - CETA - is in jeopardy
(by the way, I am writing it on Sunday but it is tomorrow's news today: the article is dated Monday 24 October 2016 01.34)
CETA - the Comprehensive Economic and Trade Agreement - has been negotiated for the last 7 years. The summit at which it was to be signed was planned for Thursday. But Wallonia - the French-speaking southern part of Belgium - said no. On the EU side the agreement must be signed by all 28 countries. Belgium is divided into 3 regions and, according to Belgian constitution, all three must agree for Belgium to sign. And Wallonia does not. It wants more protection for its farmers (obviously) and less power for the multinationals (obviously again) plus a few more things.
Here are the populations:
Wallonia: 3.5 million
Canada: 36 million
EU: 500 million.
But a rule is a rule. The visit by Trudeau on Thursday is in question. In latest news Walonia was given an ultimatum by the European commission. Agree by Monday evening, or the visit by Trudeau is cancelled.
Guess what they said.
This is part of a general move against globalization (see Brexit, Trump). I suspect that, quietly, some EU countries are not unhappy. If EU cannot agree with a friendly, benign nation such as Canada, who can they agree with? EU is facing negotiations with Britain about Brexit. The fate of CETA shows that it may not be easy, giving the EU strong negotiating position
There is (almost) always a silver lining.

No silver lining in our trade numbers below

Canada's Exports
United States	73%	76%
European Union	9%	8%
China	4%	4%
Mexico	2%	2%
Canada's Imports
United States	63%	66%
European Union	10%	10%
China	6%	7%
Mexico	3%	3%

How many times bigger to the US?

Exports	2010	2015
European Union	7.9	10.1
China	20.9	18.5
ROW	8.0	8.8
Imports	2010	2015
European Union	6.4	6.8
China	9.8	9.3
ROW	5.7	7.4

Roughly speaking, US, EU and China + Mexico are each around 25% of the world economy, So if foreign trade intensity was the same, all numbers in the last table would be 1. 

Not only is our intensity of trade with anyone but US very small, but except for China it is declining.

2016-13 Bank of Canada interest rate decision

will be announced today, together with Monetary Policy Report.
The Bank of Canada makes an interest rate decision 8 times a year, and publishes Monetary Policy Report four times a year.The interest rate is a short - term rate at which banks lend and borrow money from each over overnight. The idea is that this rate determines the cost of funds to banks, and affects other interest rates.
The Bank is expected to keep the rate unchanged.
We will study the policy of the bank of Canada later in the course.

2016-12 Back from the UK

Over the break I was in London. UK was consumed by a dispute between Unilever and Tesco. Because of depreciating pound, Unilever, a big producer of foodstuffs wanted to raise wholesale prices. Tesco, the biggest supermarket chain, rejected the increase and stopped ordering from Unilever.
The result: a tragedy. Just look at this picture:

Only one jar of Marmite!!!!!!

Now here is the exchange rate since the brexit vote

Here is a story of an Englishman. What is wrong with his economic reasoning?

Philip Walker spreads Marmite on his daily crumpet and stockpiles jars of the yeast spread. He’s a fan, and he’s upset at plans to raise the price of this icon of the British breakfast table.

Love it or hate it, Marmite has become the most visible sign yet of Britain’s decision to leave the European Union after consumer giant Unilever sought to raise wholesale prices for its products by a reported 10% following a sharp drop in the pound.

Tesco, the U.K.’s biggest supermarket chain, has rejected the increase and removed many Unilever products from its website. #Marmitegate was not far behind.

“I am more angry at Unilever than I am at Tesco,” said Walker, a 43-year-old regional manager for St. John Ambulance. “It seems Unilever is using Brexit as an excuse to hold Tesco customers to ransom.”

2016-11 Since we are talking about exchange rates

here is an article on the falling pound
The pound is falling because of Brexit: the vote in a British referendum in June to leave the European Union.
The pound lost 13% since the vote and 20% in one year compared to the US dollar and 20% in a year in terms of the Euro.
What are the consequences? Since prices changed little during this period, the real exchange rate of the pound fell and so

• foreign holidays for Brits became more expensive
• holidays in Britain became cheaper

The article also says that imported goods will cost more. Sure, but it may take some time. It depends on the exchange rate pass-through: the speed with which changes in the real exchange rate are reflected in prices. Initially, sellers try to keep prices from increasing too much by reducing profits.

Similarly, British goods will become cheaper abroad, but it will take some time: sellers will happily book higher profits. 

2016-10 Canada’s Big Bet on Stimulus Draws Global Attention

In yesterday's WSJ there was a long article on Canada's stimulus program.
Some background:

• after the Great Recession, growth in most developed countries has been slow. In Canada in recent years the additional break on growth was the decline in resource prices
• to get out of recession, most countries relied on monetary policy.  Central banks reduce interest rates to near zero. Interest rates remained at record lows ever since. This means that monetary policy is not as useful as it once was, as interest rates cannot be reduced much.

We will be discussing it in more detail at the end of the course (chapter 10)

• As debts increased during the recession and its aftermath, there was little stimulus spending. Many countries introduced austerity policies to reduce deficits.

We will be discussing it in more detail at the end of the course (chapter 11)

• In Canada, there was a significant increase in fiscal spending in 2009-2010 ($47 billion).
• With the exception of Japan, few countries are engaged in fiscal stimulus.
• Unlike other countries, the new Canadian  government embarked on significant stimulus spending: $10 billion a year for  10 years. A big portion will be on infrastructure
• Why such a long horizon? Two reasons:

- Canada is in for a long period of slow growth. So it needs a long period of fical stimulus;
- a long horizon will allow to choose good projects;

• Other countries are looking at how things would work in Canada. Interest rates are at record low, so it is a good time for the government to borrow to stimulate the economy.