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Strategic Review and Beyond: Rethinking Monetary Policy and Independence
I survey monetary policy strategy, regulation, and central banks’ mandates and independence. I do not think strongly negative interest rates, vastly expanded quantitative easing, or extensive forward guidance can or should stimulate in the next recession.
Where is the market going? Uncertain facts and novel theories
The author surveys the statistical evidence on average stock return and the economic theories that try to explain it. The statistical evidence suggests a period of low returns, followed by a slow reversion to a high long-term average. However, that evidence is quite uncertain. Standard economics predicts tiny stock returns. The author surveys new economic models that predict high returns, but by fundamentally changing the description of stock market risk. He warns that a low forecast for stock returns does not mean one should sell.
Portfolio advice of a multifactor world
How does traditional portfolio theory adapt to the new facts? The old "two-fund" theorem becomes a "many-fund" theorem; some investors can improve returns by investing in portfolio strategies that let them take on nonmarket sources of risk; and other investors can shed nonmarket risks in the same way. Investors can, if willing to take on risks, improve returns by some modest market timing. However, the average investor must always hold the market, so only investors who are different from average can benefit from holding new and unusual portfolios
New facts in finance
In the last 15 years, the cherished "random walk" view that stock returns are unpredictable, the "CAPM" view the market is the only benchmark and market exposure the only source of returns, and the "expectations hypothesis" relating interest rates of various maturities and countries have all been abandoned. This article surveys this revolution in finance, explaining and integrating the new view of the facts.