Dynamic Economic Decision Making - Strategies for Financial Risk, Capital Markets and Monetary Policy
Published on 6. December 2011
Software
Other digital
400 pages
978-1-118-27319-7 (ISBN)
Description
A comprehensive analysis of the macroeconomic and financial forces altering the economic landscape Financial decision-making requires one to anticipate how their decision will not only affect their business, but also the economic environment. Unfortunately, all too often, both private and public sector decision-makers view their decisions as one-off responses and fail to see their decisions within the context of an evolving decision-making framework. In Decision-Making in a Dynamic Economic Setting , John Silvia, Chief Economist of Wells Fargo and one of the top 5 economic forecasters according to Bloomberg News and USA Today , skillfully puts this discipline in perspective. Details realistic, decision-making approaches and applications under a broad set of economic scenarios Analyzes monetary policy and addresses the impact of financial regulations Examines business cycles and how to identify economic trends, how to deal with uncertainty and manage risk, the building blocks of growth, and strategies for innovation Decision-Making in a Dynamic Economic Setting details the real-world application of economic principles and financial strategy in making better business decisions.
More details
Language
English
Place of publication
New York
United States
Target group
Professional and scholarly
Dimensions
Height: 250 mm
Width: 150 mm
Thickness: 15 mm
Weight
666 gr
ISBN-13
978-1-118-27319-7 (9781118273197)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Person
John E. Silvia is the Chief Economist of Wells Fargo. He has previously worked on Capitol Hill as senior economist for the U.S. Senate Joint Economic Committee and chief economist for the U.S. Senate Banking, Housing and Urban Affairs Committee. Silvia teaches in the Wake Forest MBA program, serves as a member of the Blue Chip Panel of Economic Forecasters, and is on an informal advisory group for the Federal Reserve Bank of Philadelphia.
Content
Preface xiii Acknowledgments xvii CHAPTER 1 Dynamic Decision Making 1 Problems Change--Why Not Solutions? 3 Developing a Dynamic Decision-Making Process 7 Discussion Questions 19 Notes 21 CHAPTER 2 Measuring Economic Benchmarks 23 Benchmarking Growth 24 Components of the GDP 27 Benchmarking Inflation: Pricing Power and the Cost of Goods Sold 36 Interest Rates: Real Nominal, the Short and Long End of It All 41 Exchange Rates: A Relative Price with Many Relatives 45 Profits 48 Unbiased Information: Biased Users 50 Discussion Questions 51 Notes 52 Recommended Reading for Serious Players 53 CHAPTER 3 Cyclical and Structural Change 55 Forces of Economic Success 55 Cyclical Patterns, Linear Projections 57 Leading, Coincident, and Lagging Economic Indicators 59 Identifying Trends and Cycles 64 Bias in Decision Making 66 Cycles, Structural Change, and the Evolution of a Framework 73 Discussion Questions 78 Notes 79 Recommended Reading for Serious Players 80 CHAPTER 4 Economic Dynamism: Growth and Overcoming the Limits of Geography 81 A Framework for Growth 83 Population Growth and the Westward Expansion of the United States 88 Institutions and the Savings/Investment Decision 90 Why Does Capital Not Flow to Poor Countries? 92 Overcoming Geography: Stretching the Production Possibilities Curve 92 The Competitive Implications of Altering the Exchange Rate 95 Growth, Opportunity, and Preservation 96 Discussion Questions 97 Notes 99 Recommended Reading for Serious Players 99 CHAPTER 5 Information: Competitive Edge in the Twenty-First Century 101 Information in an Existing Business 102 Information as an Input to Today's Competitive Advantage 103 Information in a New Growth Business 104 Information as Input to the Decision Process for Firms and Households 106 Three Steps of Information Processing for Decision Makers 107 Information in the Decision Maker's Framework 116 Information as Part of the Business Model 117 Choices and Information Choke Points 119 Discussion Questions 119 Notes 121 Recommended Reading for Serious Players 122 CHAPTER 6 Risk Modeling and Assessment 123 Economics and the Risk Modeling Process 124 Housing Prices: Deflation and the Shock to the American Psyche 129 Managing Economic Risk within the Decision-Making Process 132 Assessing Risks Using Econometric Models 138 Identifying Change 141 Principles for a New Model 153 Discussion Questions 155 Notes 157 Recommended Reading for Serious Players 158 CHAPTER 7 Money, Interest Rates, and Financial Markets 159 Markets before Institutions 162 Markets: Interdependence and the Driving Force of Unexpected Events 162 Change and Putting Our Framework through Its Paces 166 Short-Run to Long-Run Adjustment 170 Quality Spreads, the Economic Cycle, and Accounting for Risk 172 Evolution of the Money, Inflation, and Interest Rate Framework 173 Lessons for Decision Makers 175 Discussion Questions 176 Notes 177 Recommended Reading for Serious Players 178 CHAPTER 8 Strategy, Risk, Uncertainty, and the Role of Information 179 Four Levels of Strategic Thinking 180 Discussion Questions 197 Notes 198 Recommended Reading for Serious Players 198 CHAPTER 9 Capital Markets: Financing Operations and Growth 199 Engine of Analysis: The Market for Real Capital and the Market for Funds 200 Perspective of Change over Time 201 Economic Change as Driver of an Evolving Capital Market Framework 203 Complex Interactions: Economics, Expectations, and Information 205 The 1980s: Another Decade, Another New Normal for the Financial Markets, and the Critical Role of the Recency Bias 208 Internal Cyclical Changes in Capital Markets and the Overconfidence Bias 210 Two Underappreciated Forces in Financial Markets Are Irony and Paradox 211 The Great Recession of 2007 to 2010: Under the Heading That Facts Don't Matter until They Do 212 Economic Evolution and the Changing Risk/Reward Calculation 213 Price Dichotomy: Traded and Non-Traded Goods 215 Introducing the Wake-Up Call 216 Precise Mathematics Gives Way to Imprecise Reality: What Happens to Markets When the Average Expected Return and the Variability of Returns Become Uncertain? 217 Choices: Reacting to Feedback--The Most Dangerous Phase of the Credit Cycle 221 Credit Crunches: When Markets Don't Clear 224 Capital Markets and the Life Cycle of an Institution 226 Capital Markets and the Allocation of Capital 230 Discussion Questions 232 Notes 233 Recommended Reading for Serious Players 235 CHAPTER 10 Financial Ratios: The Intersection of Economics and Finance 237 Financial Ratios 237 Developing a Framework within a Broader Economic Setting 240 Financial Ratios as Information 248 Discussion Questions 267 Notes 268 Recommended Reading for Serious Players 270 CHAPTER 11 Fiscal Policy as Agent of Change 271 Fiscal Policy over Time: Altering Incentives and Rewards of Risk Taking 272 Public Policy and Private Expectations--the Lucas Critique 284 Interdependence between Fiscal and Monetary Policy 285 Policy in the Context of Expectations and Information 289 Long-Run Equilibrium versus Short-Run Equilibrium 292 When the Long-Run Outlook Impacts Today's Behavior 294 Political Business Cycle: Political Realities for Private Decision Makers 296 Fiscal Policy in an Open Economy: The United States in the Twenty-First Century 298 Discussion Questions 298 Notes 300 Recommended Reading for Serious Players 301 CHAPTER 12 Global Capital Flows: Financing Growth, Creating Risk and Opportunity 303 Building a Framework for Understanding 304 A Model of Capital Flows to Frame Our Decisions 306 The American Framework in Global Capital Markets: The Evolution of Imbalances 313 Global Interest Rates 320 Risks and Opportunities: Not All Countries Fit One Mold 323 Implications for Decision Makers: Introducing Risk into the Global Capital Markets 328 Feedback, Altered Expectations, and Building the New Framework 330 A New Framework and the Overconfidence Bias 332 Discussion Questions 332 Notes 333 Recommended Reading for Serious Players 334 CHAPTER 13 Innovation and Its Role in Economics and Decision Making 335 Innovation and the Economy 336 Innovation and the Patterns of Progress 349 Risk, Innovation, and Prospect Theory 352 Innovation, Economic Thought, and the Big Challenges of the Day 354 Discussion Questions 357 Notes 358 Recommended Reading for Serious Players 359 APPENDIX The Hodrick-Prescott Filter 361 Autoregressive Conditional Heteroscedasticity (ARCH) 365 About the Author 369 What's on the Companion Web Site 370 Index 371