Macro Markets Beneficial for Economical Growth

How macro markets can be beneficial to the third world countries and developing countries. Over a period of thirty-five years, the per capita GDP of one industrialized country relative to that of another industrialized country could unexpectedly double.

For a broader group of countries, the risks are much larger. While not documented in this paper, large gains are likely to be achieved by trading other forms of aggregate income claims, particularly those associated with occupational risks. Also existing structure of economics of almost all third word countries are not stable. Mostly investors roll the money from the duty free ports or safe Eurpoean cream institutions. Do financial markets are good substitute for macro markets that cash-settle on a measure of national income.

Given that macro markets can provide substantial improvements in long-term financial security-improvements that cannot be achieved in existing markets-it may seem peculiar that these markets have not yet developed. We offer several explanations for the absence of macro markets. Investors tend to be focused on short-term financial performance and may not consider the benefits of long-term financial security. Moreover, research has shown that for most people, friends and family represent the main source of financial advice. It is therefore unlikely that investors will consider the benefits of protecting themselves from country-specific risks until a broad consensus develops on the value of macro markets among financial advisors, writers, lawyers, the media, regulators, and lawmakers.

Before aggregate income contracts can be introduced, many practical hurdles must be overcome. Rules for settlement need to be developed, and decisions must be made about income measures, contract size, and margin requirements. Circuit breakers or other measures that deal with the possibility of sudden booms or crashes in the macro markets will be necessary. An array of regulatory and tax issues will need to be resolved. Perhaps most important, methods for evaluating the aggregate income risk exposure of individual households and businesses will need to be developed so that people will know how to use the markets. Given the costs of introducing such markets, it is also important to think about where the first markets should be created and whether initial markets should be for individual countries or for aggregates of countries.

Some of the hurdles to a wide-scale use of macro markets could turn out to be too large. Margin requirements to enforce the contracts may be too big for many individuals. It may also be difficult to determine optimal exposure to aggregate income risk for individual people and to convince investors of the benefits of hedging this risk. Even if these markets are eventually introduced, they may be used more narrowly than has been suggested here. The presence of these obstacles, however, does not mean that we should avoid serious debate about the creation of aggregate income markets. Aggregate income growth uncertainty represents the largest macroeconomic risk incurred by households all over the world.

The benefits from trading in macro markets are potentially not so large but as less investment and low factor of risk involved the benefits can be seen much larger.  Factors that are essential to the start of such markets-including wellfunctioning financial exchanges, a sophisticated technology of trading, and the intellectual appreciation of the importance of risk management are already in place. Eventually, portfolio managers and individuals could routinely hedge aggregate income risks in macro markets.

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