Simple international macroeconomics for trading

June 10, 2017

Simple New Keynesian macroeconomic models work well for analyzing the impact of various types of shocks on small open economies and emerging markets. The models are a bit more complex than those for large economies, because one must consider the exchange rate, terms-of-trade and financial pressure. Yet understanding some basic connections between market factors and the overall economy already supports intuition for macro trading strategies. Moreover, the analysis of the effect of various shocks is possible in simple diagrams.

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Simple macroeconomics for trading

June 7, 2017

Most modern dynamic economic models are too complex and ambiguous to support macro trading. A practical alternative is a simplified static model of the “New Keynesian” tradition that combines basic insights from dynamic equilibrium theory with an intuitive and memorable representation. Macro traders can analyse real life events in this framework my shifting curves in a simple diagram. In this way they can analyse the effect of fiscal policy shocks, monetary policy shocks, inflation expectation shocks, economic supply shocks and so forth. Part 1 of this post focuses on a model for a large closed economy (or the world as a whole).

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