June 08, 2006
Here and there around the web
A few items catching my eye around the web this week, including probability of recession, progress on refining capacity, and Greg Mankiw and his dog.
Recession probabilities. I earlier mentioned a model by Federal Reserve researcher Jonathan Wright that describes the probability of a recession as a function of the spread between the yield on 10-year and 3-month Treasuries and the level of the fed funds rate. Political Calculations developed a tool one can use to calculate this probability. For example, if the 10-year 3-month spread remains at its current 12 basis points and the Fed hikes the funds rate to 5.25, as many now expect, the probability would be around a third. Political Calculations now has a new tool to see when that probability will go over one-half. For the current spread, a funds rate of about 6% would do it.
New refineries. Updating concerns we've often raised about U.S. refining capacity (e.g., , ), Eaglespeak notes that if Americans won't build the refineries for the gasoline we use, other countries will.
Greg Mankiw. I trust that most Econbrowser readers have already discovered Greg Mankiw's excellent blog, whose traffic counts justify describing it as the Instapundit of econblogs. Greg's secret seems to be the same as Glenn's: link to lots of interesting stuff with an amazing ability to summarize the heart of the issues with a few well-chosen words.
And his dog. I've long appreciated the insights left in comments here and other blogs by Econbrowser reader knzn (not to spoil the inside joke, but I'm supposing it's pronounced "Keynesian"). knzn now has his or her own blog, which he or she self-promotes with the statement:
you'd have a hell of a time getting me to read my own blog-- at least until I realized how smart the author is.
Anyway, there's a hilarious discussion this week from knzn about the names of Greg Mankiw's dogs.
Posted by James Hamilton at June 8, 2006 11:20 AMdigg this | reddit
"...how smart the author is" I wasn't quite conceited enough to say that without putting a smiley at the end:) I guess I'll admit to having a gender (male), since it makes the grammar easier. Anyhow, thanks for the mention. (BTW, on the subject of my name: [link])
Posted by: knzn at June 8, 2006 01:40 PM
In the article on refining capacity we have this gem:
New refining capacity of at least 6.5 million barrels a day over the next decade could shave $2 or $3 from the price of a barrel of crude oil.
New refineries lead to an increase in the demand for crude. That is an outward shift of the demand curve.
Could somebody please explain to me how an outward shift of the demand curve reults in lower prices?
Posted by: bartman at June 10, 2006 10:40 PM
Bartman, I believe the argument is that if refineries were able to process more of the lower-quality crude, that could reduce the price of light, sweet crude.
Posted by: JDH at June 11, 2006 06:21 AM
JDH: I don't see new heavy-crude feedstock refineries reducing the demand for light crude unless they represent serious excess capacity in the refinig biz. Unless the new heavy-feedstock refineries will be using new technology that reduces the processing-cost spread between heavy and light crudes, but I'm not aware of any such technology - it still takes lots of energy to crack and recombine those long-chain molecules, and as the cost of energy increases, the spread between heavy and light crudes should grow more than linearly.
The current refining crunch has a big impact on refiner's margins, but a negligible one on the market price of crude. If we get more refineries the margin should shrink, but whether the reduced margins will be more or less than the expected increase in crude based on the increased demand is a question requiring detailed analysis, I guess.
Posted by: bartman at June 11, 2006 12:05 PM