Fed Monetary Policy game – "Fed Guru Reappointed"

Have a go at the Fed’s online monetary policy game (click here), where you take the role of Chairman Bernanke in setting rates in the face of a number of economic scenarios. I’ve just been reappointed as Fed Chairman thanks to my “solid” policies. The game seems to reward mimmicking the Fed’s past actions – success will come by marching interest rates to the top of the hill, then marching them all the way back down again.

On an unrelated note, a book recommendation. Tim Harford’s “The Undercover Economist” is a brilliant look at real world economics. Did you know, for example, that low end computer printers are often identical to the more expensive models, but have had a chip added to slow them down? He also explains why the secondhand car market is utterly disfunctional – imagine half the secondhand cars on the market are great runners (peaches) and half are bangers (lemons), but all look pretty much the same to an untrained eye. If a peach is worth £4000, and a lemon worth £1000, and the buyer can’t tell the difference, the “fair” average price is £2500. However, the seller can tell the difference, having already owned the car. If the seller has a peach, he won’t sell for £2500 as he knows that it’s worth £4000, not £2500. Thus the only cars that come onto the market are lemons – and if you buy a secondhand car, you are buying a lemon. This “inside” information distorts the efficient market for both buyer and seller. Plenty more interesting anecdotes covering everything from the economics of coffee shops, to the benefits of road pricing (“we recognise that food, clothes and housing cannot be free or we would quickly run out of them. It is because roads are free that we have run out of spare road space”).

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Jim Leaviss

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