Exploring Macroeconomic Risk Assessment in a Refreshing New Way
Looking for a fresh perspective on assessing macroeconomic risk? Look no further than Shocks, Crises, and False Alarms: How to Assess True Macroeconomic Risk by Philipp Carlsson-Szlezak and Paul Swartz, published by Harvard Business Review Press.
Traditional macroeconomic predictions and risk assessments often fall short. Instead of futile attempts at precise forecasts, the authors advocate for a shift towards developing better macro judgment. This book offers a unique approach that challenges the conventional methods of macroeconomic analysis.
A New Approach to Macro Risk
The book categorizes macroeconomic investment research into three distinct approaches: quantitative, narrative, and hybrid. However, it argues that these approaches often yield unsatisfactory results due to the inherent complexities of macro forecasts.
Carlsson-Szlezak and Swartz, both economists at Boston Consulting Group, provide a framework that emphasizes understanding the economic operating system and three foundational principles:
- Embrace judgment over specific forecasting models.
- View macro awareness as an ongoing debate rather than a definitive answer.
- Avoid solely focusing on downside risks and acknowledge the resilience of modern economies.
Core Areas of Analysis
The book delves into assessing risks in the real economy, the financial setting, and the global environment. It emphasizes the importance of understanding macroeconomic dynamics without relying on doomsday scenarios.
Within the real economy, the authors explore the business cycle, drivers of long-term growth, and the impact of technology. They stress the need for a broader perspective to navigate the complexities of economic trends.
When discussing the financial economy, the book highlights the role of policy stimulus and the potential risks associated with inflation and high debt levels. It warns of market bubbles resulting from excessive fiscal and monetary stimulus.
In the global context, the authors address the interconnectedness of economies and the impact of diverging trends. They challenge traditional views on global trade and the dominance of the US dollar.
Embracing Macro Judgment
While many investment professionals shy away from macro risks, the authors argue that embracing macro judgment can lead to better long-term returns. Their approach encourages readers to adopt a more holistic view of macroeconomic forces.
Despite initial skepticism, readers are likely to find valuable insights in the authors’ eclectic judgmental method. The book offers a refreshing perspective that challenges conventional macroeconomic analysis.
Whether you are a general reader seeking fresh insights or a CFA charterholder looking for an alternative approach to macro discussions, Shocks, Crises, and False Alarms provides a compelling framework for navigating macroeconomic risks.