Kevin Coldiron of BGI reviews some of the literature of note on investment topics
Challenges for Monetary Policy: New and Old
Mervyn King, presented at Federal Reserve Bank of Kansas City Symposium on “New Challenges for Monetary Policy”, August 1999
King begins by reminding us that powerful, independent central banks are a relatively recent phenomenon; he concludes by suggesting advances in electronic transactions technology might ultimate-ly remove their ability to influence money supply.
In King’s words, “the successors to Bill Gates would have put the successors to Alan Greenspan out of business”. In between these points, King addresses a number of controversial issues currently facing policy makers. Is a little inflation a good thing? Is monetary policy impotent when interest rates are near zero (as at present in Japan)? How should the international monetary system be governed? He offers a clear and (mostly) non-technical discussion of the competing arguments but - in classic central banker style – is cautious about suggesting which will ultimately prevail.
The History of Finance
Merton Miller, The Journal of Portfolio Management, Volume 25, Number 4, Summer 1999, pp. 95–101
What would Merton Miller study if he were beginning his PhD today? In a modified version of his 1998 address to the German Finance Association, Miller gives an “eyewitness account” of the highlights in financial theory in the past 40 years. He organises his story around the notion that there have been two distinct streams of finance research. One stream is characterised as the business school approach. Here, the objective to is model how individuals make optimal decisions given observed prices. The second stream – the economics department or macro approach – assumes a world of optimal individual decisions and attempts to deduce how prices themselves evolve. The tension between these approaches is evident in Miller’s own work on optimal capital structure, as well as in the continuing debate over the efficient markets hypothesis. But reconciliation, in the form of options theory, may be at hand. Specifically, options theory gives finance a base in observable (or virtually observable) variables that has hitherto been lacking. This may offer both macro and micro researchers the key to unlock genuinely new insights into financial decision-making and financial markets.
Kevin Coldiron is head of European research at Barclays Global Investors in London