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Who Scared the Rocking Horse? 
Andrew G Haldane 
Chief Economist 
Eton College Keynes Society 
2 October 2014
Extraordinary Times 
UK Euro area US 
135 
130 
125 
120 
115 
110 
105 
100 
95 
Real GDP (Index: 2004 = 100) 
11% 
Sourc...
3 
Extraordinary Times 
Real GDP (Peak = 100) 
120 
115 
110 
105 
100 
95 
90 
85 
1929 crash 
1970s recession 
1980s rec...
Percentage points 
18 
16 
14 
12 
10 
8 
6 
4 
2 
0 
UK US 
1694 1734 1774 1814 1854 1894 1934 1974 
4 
Extraordinary Tim...
18 
16 
14 
12 
10 
8 
6 
4 
2 
0 
UK (a) 
US (b) 
Germany (c) 
1730 1790 1850 1910 1970 
Per cent 
5 
Extraordinary Times...
30 
25 
20 
15 
10 
5 
0 
1821 1861 1901 1941 1981 
Per cent of GDP 
6 
Extraordinary Times 
Bank of England balance sheet
50 
45 
40 
35 
30 
25 
20 
15 
10 
7 
Extraordinary Times 
5 
0 
Central Bank balance sheets 
BoE 
Federal Reserve 
ECB 
...
8 
“If you hit a rocking horse with a stick, the movement of the horse 
will be very different from the stick. The hits ar...
Normal? 
9 
0.5 
0.45 
0.4 
0.35 
0.3 
0.25 
0.2 
0.15 
0.1 
0.05 
-5 -4 -3 -2 -1 0 1 2 3 4 5 0 
No of heads No of tails
Abnormal? 
10 
0.5 
0.45 
0.4 
0.35 
0.3 
0.25 
0.2 
0.15 
0.1 
0.05 
-5 -4 -3 -2 -1 0 1 2 3 4 5 0 
No of heads No of tail...
11 
National Income
12 
Stock Returns
13 
Rice Prices
14 
Who Scared the Rocking Horse?
Explaining Fat Tails – Chaos Theory 
15
Flash Crash, May 2010 
11,000 
10,800 
10,600 
10,400 
10,200 
10,000 
9,800 
14:20 14:30 14:40 14:50 15:00 15:10 
Time 
I...
17 
Explaining Fat Tails – Fragile Systems
18 
Explaining Fat Tails - Contagion
19 
Mapping the financial web 
(a) A food web of predator-prey interactions between species in a freshwater lake 
(b) The ...
20 
Global Financial Network 
1980 1985 1990 
1995 2000 2005
21 
Implications for Economics and Economic Policy 
• There has never been a better time to be studying it! 
• Crossing th...
23 
Connectivity 
Notes: Superconnected companies are red, very connected companies are yellow. The size of the dot repres...
Dog and frisbee 
23
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Andy Haldane - Keynes Society

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Andy Haldane - Keynes Society

  1. 1. Who Scared the Rocking Horse? Andrew G Haldane Chief Economist Eton College Keynes Society 2 October 2014
  2. 2. Extraordinary Times UK Euro area US 135 130 125 120 115 110 105 100 95 Real GDP (Index: 2004 = 100) 11% Source: Thomson Reuters Simple linear trend used for pre-crisis trends 2 135 130 125 120 115 110 105 100 95 90 Real GDP (Index: 2004 = 100) 11% 2004 2006 2008 2010 2012 2014 135 130 125 120 115 110 105 100 95 90 Real GDP (Index: 2004 = 100) 14% 2004 2006 2008 2010 2012 2014 90 2004 2006 2008 2010 2012 2014
  3. 3. 3 Extraordinary Times Real GDP (Peak = 100) 120 115 110 105 100 95 90 85 1929 crash 1970s recession 1980s recession 1990 recession 2008 recession 0 1 2 3 4 5 6 7 Number of years following onset of recession August 2014 IR forecast Source: ONS
  4. 4. Percentage points 18 16 14 12 10 8 6 4 2 0 UK US 1694 1734 1774 1814 1854 1894 1934 1974 4 Extraordinary Times Source: GFD Short-term policy rates
  5. 5. 18 16 14 12 10 8 6 4 2 0 UK (a) US (b) Germany (c) 1730 1790 1850 1910 1970 Per cent 5 Extraordinary Times Source: GFD Long-term rates (a)UK interest rate is the yield on a 2.5% coupon Consol (b)US interest rate is the constant maturity yield on a 10-year Treasury bond (c)German interest rate is the yield on a 10-year German government bond
  6. 6. 30 25 20 15 10 5 0 1821 1861 1901 1941 1981 Per cent of GDP 6 Extraordinary Times Bank of England balance sheet
  7. 7. 50 45 40 35 30 25 20 15 10 7 Extraordinary Times 5 0 Central Bank balance sheets BoE Federal Reserve ECB Bank of Japan Per cent of GDP 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
  8. 8. 8 “If you hit a rocking horse with a stick, the movement of the horse will be very different from the stick. The hits are the cause of the movement, but the system’s own equilibrium laws condition the form of movement” Knut Wicksell (1918) The Rocking Horse
  9. 9. Normal? 9 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 -5 -4 -3 -2 -1 0 1 2 3 4 5 0 No of heads No of tails
  10. 10. Abnormal? 10 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 -5 -4 -3 -2 -1 0 1 2 3 4 5 0 No of heads No of tails
  11. 11. 11 National Income
  12. 12. 12 Stock Returns
  13. 13. 13 Rice Prices
  14. 14. 14 Who Scared the Rocking Horse?
  15. 15. Explaining Fat Tails – Chaos Theory 15
  16. 16. Flash Crash, May 2010 11,000 10,800 10,600 10,400 10,200 10,000 9,800 14:20 14:30 14:40 14:50 15:00 15:10 Time Index Dow Jones Industrial Average 16
  17. 17. 17 Explaining Fat Tails – Fragile Systems
  18. 18. 18 Explaining Fat Tails - Contagion
  19. 19. 19 Mapping the financial web (a) A food web of predator-prey interactions between species in a freshwater lake (b) The network of collaborations between scientists at a private research institution (c) A network of sexual contact between individuals in the study
  20. 20. 20 Global Financial Network 1980 1985 1990 1995 2000 2005
  21. 21. 21 Implications for Economics and Economic Policy • There has never been a better time to be studying it! • Crossing the disciplines – economics, physics, sociology, anthropology etc • Mapping the network – economic, financial, social • Communicating about policy –Twitter-driven crises • Making policy “robust” – dogs and frisbees
  22. 22. 23 Connectivity Notes: Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue. Source: Vitali, S, Glattfelder, J and Battiston, S. (2011) “The network of global corporate control”.
  23. 23. Dog and frisbee 23

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