Morningstar Advisor - April/May 2012 - (Page 49)
Morningstar Conversation
An Economist’s Response to Crises
By Francisco Torralba
Nobel-winner Thomas Sargent discusses the economic effects of policy responses to crises in Europe and the United States.
Macroeconomists have a really tough job. They do not have the luxury of empirically testing theories as many times as needed, under controlled conditions, the way physicists or biologists do. Instead, most of the time they rely on noisy data, gathered over decades, and from which cause and effect are not inferred easily, if at all. Thomas Sargent, a professor at New York University, earned the 2011 Nobel prize in economic sciences—with Christopher Sims—doing something really hard.
He developed models of the macroeconomy based on deep, microeconomic factors that do not change with economic policy. Using those models, Sargent was able to show that expected monetary growth will not do much for output because it does not fool people. Most of Sargent’s work involves serious math (which I know firsthand after taking his class when he was visiting the University of Chicago). But he has also produced very readable work on economic history, such as “The Ends of Four Big Inflations” (1981) and The Big Problem
of Small Change (Princeton University Press, 2002). Sargent gave the keynote address on Feb. 23 at the 2012 Morningstar Ibbotson Conference. Before his speech, we sat down to discuss inflation, unemployment, and the European crisis. Our discussion has been edited for clarity and length.
The Fiction of an Independent Fed
Francisco Torralba: People are worried in the United States about the possible
MorningstarAdvisor.com 49
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Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2012
Morningstar Advisor - April/May 2012
Contents
Contributors
Letter From the Editor
We’re Too Smart
How Do You Use Alternatives?
Taking the Lead
How to Find Economic Moats
The Beauty of Currencies
No Clarity on Bonds
Four Picks for the Present
Investment Briefs
Performance Chasing, Evaluated
Technology’s Slim Pickings
How Much Is Enough?
The Fear Bubble
Three Traits of a Successful Long-Short Equity Manager
Why Absolute-Return Funds Fail to Deliver
An Economist’s Response to Crises
Undiscovered in Plain Sight
Untangling ETF Tax- Efficiency Myths
Central Banks Driving the Gold Rush
U.S. Industrials Could Add Some Magic to Europe-Weary Portfolios
No-Hesitation Allocation Funds
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Greatest Story Ever Told
Morningstar Advisor - April/May 2012
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