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Dynamic Economic Decision Making: Strategies for Financial Risk, Capital Markets, and Monetary Policy

Book 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 Dynamic Economic Decision Making: Strategies for Financial Risk, Capital Markets, and Monetary Policy, 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

Dynamic Economic Decision Making: Strategies for Financial Risk, Capital Markets, and Monetary Policy details the real-world application of economic principles and financial strategy in making better business decisions.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. Chapter 1: Dynamic Decision Making
    1. PROBLEMS CHANGE—WHY NOT SOLUTIONS?
    2. DEVELOPING A DYNAMIC DECISION-MAKING PROCESS
    3. DISCUSSION QUESTIONS
    4. NOTES
  9. Chapter 2: Measuring Economic Benchmarks
    1. BENCHMARKING GROWTH
    2. COMPONENTS OF THE GDP
    3. BENCHMARKING INFLATION: PRICING POWER AND THE COST OF GOODS SOLD
    4. INTEREST RATES: REAL NOMINAL, THE SHORT AND LONG END OF IT ALL
    5. EXCHANGE RATES: A RELATIVE PRICE WITH MANY RELATIVES
    6. PROFITS
    7. UNBIASED INFORMATION: BIASED USERS
    8. DISCUSSION QUESTIONS
    9. NOTES
    10. RECOMMENDED READING FOR SERIOUS PLAYERS
  10. Chapter 3: Cyclical and Structural Change
    1. FORCES OF ECONOMIC SUCCESS
    2. CYCLICAL PATTERNS, LINEAR PROJECTIONS
    3. LEADING, COINCIDENT, AND LAGGING ECONOMIC INDICATORS
    4. IDENTIFYING TRENDS AND CYCLES
    5. BIAS IN DECISION MAKING
    6. CYCLES, STRUCTURAL CHANGE, AND THE EVOLUTION OF A FRAMEWORK
    7. DISCUSSION QUESTIONS
    8. NOTES
    9. RECOMMENDED READING FOR SERIOUS PLAYERS
  11. Chapter 4: Economic Dynamism: Growth and Overcoming the Limits of Geography
    1. A FRAMEWORK FOR GROWTH
    2. POPULATION GROWTH AND THE WESTWARD EXPANSION OF THE UNITED STATES
    3. INSTITUTIONS AND THE SAVINGS/INVESTMENT DECISION
    4. WHY DOES CAPITAL NOT FLOW TO POOR COUNTRIES?
    5. OVERCOMING GEOGRAPHY: STRETCHING THE PRODUCTION POSSIBILITIES CURVE
    6. THE COMPETITIVE IMPLICATIONS OF ALTERING THE EXCHANGE RATE
    7. GROWTH, OPPORTUNITY, AND PRESERVATION
    8. DISCUSSION QUESTIONS
    9. NOTES
    10. RECOMMENDED READING FOR SERIOUS PLAYERS
  12. Chapter 5: Information: Competitive Edge in the Twenty-First Century
    1. INFORMATION IN AN EXISTING BUSINESS
    2. INFORMATION AS AN INPUT TO TODAY'S COMPETITIVE ADVANTAGE
    3. INFORMATION IN A NEW GROWTH BUSINESS
    4. INFORMATION AS INPUT TO THE DECISION PROCESS FOR FIRMS AND HOUSEHOLDS
    5. THREE STEPS OF INFORMATION PROCESSING FOR DECISION MAKERS
    6. INFORMATION IN THE DECISION MAKER'S FRAMEWORK
    7. INFORMATION AS PART OF THE BUSINESS MODEL
    8. CHOICES AND INFORMATION CHOKE POINTS
    9. DISCUSSION QUESTIONS
    10. NOTES
    11. RECOMMENDED READING FOR SERIOUS PLAYERS
  13. Chapter 6: Risk Modeling and Assessment
    1. ECONOMICS AND THE RISK MODELING PROCESS
    2. HOUSING PRICES: DEFLATION AND THE SHOCK TO THE AMERICAN PSYCHE
    3. MANAGING ECONOMIC RISK WITHIN THE DECISION-MAKING PROCESS
    4. ASSESSING RISKS USING ECONOMETRIC MODELS
    5. IDENTIFYING CHANGE
    6. PRINCIPLES FOR A NEW MODEL
    7. Discussion Questions
    8. NOTES
    9. RECOMMENDED READING FOR SERIOUS PLAYERS
  14. Chapter 7: Money, Interest Rates, and Financial Markets
    1. MARKETS BEFORE INSTITUTIONS
    2. MARKETS: INTERDEPENDENCE AND THE DRIVING FORCE OF UNEXPECTED EVENTS
    3. CHANGE AND PUTTING OUR FRAMEWORK THROUGH ITS PACES
    4. SHORT-RUN TO LONG-RUN ADJUSTMENT
    5. QUALITY SPREADS, THE ECONOMIC CYCLE, AND ACCOUNTING FOR RISK
    6. EVOLUTION OF THE MONEY, INFLATION, AND INTEREST RATE FRAMEWORK
    7. LESSONS FOR DECISION MAKERS
    8. DISCUSSION QUESTIONS
    9. NOTES
    10. RECOMMENDED READING FOR SERIOUS PLAYERS
  15. Chapter 8: Strategy, Risk, Uncertainty, and the Role of Information
    1. FOUR LEVELS OF STRATEGIC THINKING
    2. DISCUSSION QUESTIONS
    3. NOTES
    4. RECOMMENDED READING FOR SERIOUS PLAYERS
  16. Chapter 9: Capital Markets: Financing Operations and Growth
    1. ENGINE OF ANALYSIS: THE MARKET FOR REAL CAPITAL AND THE MARKET FOR FUNDS
    2. PERSPECTIVE OF CHANGE OVER TIME
    3. ECONOMIC CHANGE AS DRIVER OF AN EVOLVING CAPITAL MARKET FRAMEWORK
    4. COMPLEX INTERACTIONS: ECONOMICS, EXPECTATIONS, AND INFORMATION
    5. THE 1980S: ANOTHER DECADE, ANOTHER NEW NORMAL FOR THE FINANCIAL MARKETS, AND THE CRITICAL ROLE OF THE RECENCY BIAS
    6. INTERNAL CYCLICAL CHANGES IN CAPITAL MARKETS AND THE OVERCONFIDENCE BIAS
    7. TWO UNDERAPPRECIATED FORCES IN FINANCIAL MARKETS ARE IRONY AND PARADOX
    8. THE GREAT RECESSION OF 2007 TO 2010: UNDER THE HEADING THAT FACTS DON'T MATTER UNTIL THEY DO
    9. ECONOMIC EVOLUTION AND THE CHANGING RISK/REWARD CALCULATION
    10. PRICE DICHOTOMY: TRADED AND NON-TRADED GOODS
    11. INTRODUCING THE WAKE-UP CALL
    12. PRECISE MATHEMATICS GIVES WAY TO IMPRECISE REALITY: WHAT HAPPENS TO MARKETS WHEN THE AVERAGE EXPECTED RETURN AND THE VARIABILITY OF RETURNS BECOME UNCERTAIN?
    13. CHOICES: REACTING TO FEEDBACK—THE MOST DANGEROUS PHASE OF THE CREDIT CYCLE
    14. CREDIT CRUNCHES: WHEN MARKETS DON'T CLEAR
    15. CAPITAL MARKETS AND THE LIFE CYCLE OF AN INSTITUTION
    16. CAPITAL MARKETS AND THE ALLOCATION OF CAPITAL
    17. DISCUSSION QUESTIONS
    18. NOTES
    19. RECOMMENDED READING FOR SERIOUS PLAYERS
  17. Chapter 10: Financial Ratios: The Intersection of Economics and Finance
    1. FINANCIAL RATIOS
    2. DEVELOPING A FRAMEWORK WITHIN A BROADER ECONOMIC SETTING
    3. FINANCIAL RATIOS AS INFORMATION
    4. DISCUSSION QUESTIONS
    5. NOTES
    6. RECOMMENDED READING FOR SERIOUS PLAYERS
  18. Chapter 11: Fiscal Policy as Agent of Change
    1. FISCAL POLICY OVER TIME: ALTERING INCENTIVES AND REWARDS OF RISK TAKING
    2. PUBLIC POLICY AND PRIVATE EXPECTATIONS— THE LUCAS CRITIQUE
    3. INTERDEPENDENCE BETWEEN FISCAL AND MONETARY POLICY
    4. POLICY IN THE CONTEXT OF EXPECTATIONS AND INFORMATION
    5. LONG-RUN EQUILIBRIUM VERSUS SHORT-RUN EQUILIBRIUM
    6. WHEN THE LONG-RUN OUTLOOK IMPACTS TODAY'S BEHAVIOR
    7. POLITICAL BUSINESS CYCLE: POLITICAL REALITIES FOR PRIVATE DECISION MAKERS
    8. FISCAL POLICY IN AN OPEN ECONOMY: THE UNITED STATES IN THE TWENTY-FIRST CENTURY
    9. DISCUSSION QUESTIONS
    10. NOTES
    11. RECOMMENDED READING FOR SERIOUS PLAYERS
  19. Chapter 12: Global Capital Flows: Financing Growth, Creating Risk and Opportunity
    1. BUILDING A FRAMEWORK FOR UNDERSTANDING
    2. A MODEL OF CAPITAL FLOWS TO FRAME OUR DECISIONS
    3. THE AMERICAN FRAMEWORK IN GLOBAL CAPITAL MARKETS: THE EVOLUTION OF IMBALANCES
    4. GLOBAL INTEREST RATES
    5. RISKS AND OPPORTUNITIES: NOT ALL COUNTRIES FIT ONE MOLD
    6. IMPLICATIONS FOR DECISION MAKERS: INTRODUCING RISK INTO THE GLOBAL CAPITAL MARKETS
    7. FEEDBACK, ALTERED EXPECTATIONS, AND BUILDING THE NEW FRAMEWORK
    8. A NEW FRAMEWORK AND THE OVERCONFIDENCE BIAS
    9. DISCUSSION QUESTIONS
    10. NOTES
    11. RECOMMENDED READING FOR SERIOUS PLAYERS
  20. Chapter 13: Innovation and Its Role in Economics and Decision Making
    1. INNOVATION AND THE ECONOMY
    2. INNOVATION AND THE PATTERNS OF PROGRESS
    3. RISK, INNOVATION, AND PROSPECT THEORY
    4. INNOVATION, ECONOMIC THOUGHT, AND THE BIG CHALLENGES OF THE DAY
    5. DISCUSSION QUESTIONS
    6. NOTES
    7. RECOMMENDED READING FOR SERIOUS PLAYERS
  21. Appendix: The Hodrick-Prescott Filter
    1. AUTOREGRESSIVE CONDITIONAL HETEROSCEDASTICITY (ARCH)
    2. NOTE
  22. About the Author
  23. What's on the Companion Web Site
  24. Index