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January 31, 2009
The Consumption Collapse Continues
Jim covered the salient aspects of the 2008Q4 advance release in an earlier post. A few additional points: (i) exports for sure are not adding to growth, (ii) the positive contribution from decreasing imports does not augur well for future growth, and (iii) nonresidential investment has now followed residential investment with vigor. But the key point is consumption is now collapsing at a rate comparable to the 1980 recession...
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Posted by Menzie Chinn at 10:00 AM permalink | Comments (35)
January 30, 2009
Oh yes it's a recession all right
The Bureau of Economic Analysis reported today that U.S. real GDP fell at a 3.8% annual rate in the fourth quarter of 2008.
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Posted by James Hamilton at 11:11 AM permalink | Comments (13)
January 28, 2009
Multipliers, again
From CBO Director Doug Elmendorf's testimony yesterday, some numbers relevant to the ongoing debate over fiscal policy efficacy [1] [2]:
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Posted by Menzie Chinn at 05:57 PM permalink | Comments (31)
IMF: "World Growth Grinds to Virtual Halt..."
Well, that's the IMF Survey title, describing the IMF's World Economic Outlook.
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Posted by Menzie Chinn at 12:20 PM permalink | Comments (9)
January 27, 2009
Stimulus bill
House Democrats have unveiled their proposal for economic stimulus. Here's mine.
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Posted by James Hamilton at 08:24 PM permalink | Comments (28)
HR 1 and the Fiscal Impulse over the next 20 months (and an instance of deja vu).
The CBO has posted an actual "cost estimate" on HR 1 (not just a partial examination of Division A, as explained in the Director's Blog, the locus of great disinformation in previous discussions, as recounted by Dean Baker). Here is a graphical depiction of what CBO believes will be the impact on the deficit (once again, recalling that there is an explicit omission of repercussion effects on tax revenues and transfers that would arise from elevated aggregate demand; in other words, this is the estimated impact on the full employment budget balance).
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Posted by Menzie Chinn at 03:55 PM permalink | Comments (7)
January 26, 2009
Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition
It's been frustrating to me that so much virtual ink has been spilled about why the fiscal package will or will not be effective, with so little clarity. Lots and lots of words are being thrown around, [1] [2] when a lot of the arguments can be summarized pretty easily in terms of four cases, and hence four graphs (I won't deal with the fifth, in detail). There are numerous excellent critiques; here in the interest of specificity, the exposition will be fairly dense.
1. With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
2. With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
3. With prices predetermined, the sensitivity of money demand to wealth is high.
4. Output is at full employment levels.
5. Neo-Ricardian equivalence, as put forward by Barro, holds.
Posted by Menzie Chinn at 07:10 PM permalink | Comments (24)
January 25, 2009
Bailouts should be no fun
If everybody wants a bailout, that's a good indication that we're making some mistakes.
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Posted by James Hamilton at 07:47 AM permalink | Comments (35)
January 24, 2009
A Concise Summary of Macro Performance under the Presidents
From "Economic Setbacks That Define the Bush Years":
"No matter who took office in 2001, they were destined to oversee dashed expectations regarding the economy, the markets and the geopolitical outlook," said Robert Barbera, the chief economist of ITG. "It was all captured in the lunacy of the $5 trillion surplus on the horizon. That vision required no wars, no recessions and a nonstop spectacular bull market for equities."
That said," he added, "it certainly did not have to come to this."
...
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Posted by Menzie Chinn at 10:03 AM permalink | Comments (42)
January 21, 2009
Chinese Growth Plunges
From Bloomberg:
Jan. 22 -- China's economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.
Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.
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Posted by Menzie Chinn at 08:48 PM permalink | Comments (18)
A New Meme: Blame It on Beijing (and Seoul, and Riyadh...)
Perhaps I'm overstating it, but I think this is the abridged version of the Bush Administration's perspective on how we got into the financial mess we find ourselves in. You might ask why I focus on the ideas of the outgoing government. Well, it's because I'm confident that this will be a thesis pushed by some commentators eager to absolve previous policymakers of blame [1]. And indeed (as Mish points out), this view has apparently adherents in high places.
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Posted by Menzie Chinn at 05:43 PM permalink | Comments (36)
January 20, 2009
I Hope They're Right: The Forecast in the 2009 ERP
The Bush Administration's last Economic Report of the President [large pdf] (Link updated 1/21/09 12:35pm Pacific) was released on Friday. From Chapter 1:
The Administration's forecast calls for real GDP to continue to fall in the first half of 2009, with the major declines projected to be concentrated in the fourth quarter of 2008 and the first quarter of 2009. An active monetary policy and Treasury's injection of assets into financial institutions are expected to ease financial stress and to lead to a rebound in the interest-sensitive sectors of the economy in the second half of 2009.
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Posted by Menzie Chinn at 07:08 AM permalink | Comments (15)
January 19, 2009
Executive compensation
Is there a problem? And is there a solution? My answers: yes, and yes.
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Posted by James Hamilton at 03:19 PM permalink | Comments (37)
January 17, 2009
One of My Favorite Papers on Multipliers
Germane to some of the ongoing debates over fiscal policy effectiveness [1] [2]:
Fiscal policy multipliers are central to Keynesian macroeconomics. In this paper I explore a possible microeconomic foundation for one fundamental theory of income determination, the 'Keynesian cross'. My model deviates from a Walrasian equilibrium model only by the assumption of imperfect competition in the goods market. I show that textbook fiscal policy multipliers arise as a limiting case.
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Posted by Menzie Chinn at 07:31 PM permalink | Comments (17)
January 16, 2009
Industrial Production during Previous Post-War Recessions
Since Minneapolis Fed and others are posting various comparisons of employment and output during recessions (and pseudo-recessions -- see the discussion at Spencer at Angry Bear), I thought I'd post an analogous picture of industrial production.
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Posted by Menzie Chinn at 09:38 AM permalink | Comments (15)
January 14, 2009
The Startling Dropoff in Trade Flows
The trade release has already been remarked upon, in terms of the dropoff in both exports and imports signaling a synchronized recession. [1], [2], [3], [4] I have little to add here, except for plotting the "cliff-diving" in log real terms.
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Posted by Menzie Chinn at 05:26 PM permalink | Comments (12)
January 13, 2009
Bernanke on the Fed's balance sheet
In remarks in London today, Fed Chair Ben Bernanke let the world know how he views the risks and benefits of the recent dramatic changes in the assets and liabilities of the U.S. Federal Reserve.
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Posted by James Hamilton at 08:10 PM permalink | Comments (41)
January 12, 2009
CEA Chair Lazear on the Economy
From Washington Post:
...
"It does look like a great eight years, aside from the last quarter, unfortunately," Edward P. Lazear, chairman of Bush's Council of Economic Advisers, said in a recent interview. "In the long term, things look good. The reason things look good is this economy will rebound, and it will rebound strongly. . . . We expect things to turn around, and I would say early in President Obama's administration."
...
Posted by Menzie Chinn at 04:13 PM permalink | Comments (40)
International Imbalances: Measurement and Implications
Paul Kedrosky has observed that a statistical analysis (word cloud) of the American Economic Association session titles, or even of the papers, leads to the impression that the economics profession has been relatively uninterested in the ongoing financial and economic crisis. Unfortunately, this observation misses ignores the fact that session proposals are submitted a full eleven months ahead of the ASSA meetings. Think back to January 2008, and the terms ascribed to those who warned of a severe slowdown ("alarmist", etc.), and the whole discussion is cast in a different light.
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Posted by Menzie Chinn at 03:10 PM permalink | Comments (16)
January 11, 2009
Signs of a thaw
Yes, I saw the discouraging headlines. But I also see signs of hope in last week's economic news.
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Posted by James Hamilton at 08:06 AM permalink | Comments (29)
January 10, 2009
Estimated Impact of "American Recovery and Reinvestment Plan"
By way of Paul Krugman, here is the estimated impact on employment provided by C. Romer and J. Bernstein.
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Posted by Menzie Chinn at 02:34 PM permalink | Comments (21)
January 09, 2009
Is the Implementation Lag for Infrastructure Investment a Problem?
There's been a lot of discussion about how the lack of "shovel-ready" infrastructure projects puts a constraint on government investment spending as a mode for delivering stimulus, since most infrastructure projects take a long time to plan and build. But what if the negative output gap is going to be deep and long-lived? Is this concern so pertinent? I don't think so.
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Posted by Menzie Chinn at 09:21 PM permalink | Comments (32)
Employment and Output in December
From Bloomberg:
The U.S. lost more jobs in 2008 than in any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office.
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Posted by Menzie Chinn at 09:17 AM permalink | Comments (26)
January 07, 2009
CBO's Projected Output Gap
The CBO released its Economic Outlook today. Here's its projection of the output gap, under current law.
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Posted by Menzie Chinn at 08:29 PM permalink | Comments (31)
January 06, 2009
December auto sales
On a seasonally adjusted basis, U.S. light vehicle sales remained deeply depressed in December. But at least things don't seem to be any worse than they had been the previous month.
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Posted by James Hamilton at 04:01 PM permalink | Comments (16)
January 04, 2009
Forecasted GDP in the New Year
The description of the consensus that growth will resume around mid-year -- while accurate -- does not convey much information about what is the consensus regarding the depth of the recession. Nor does it convey the degree of disagreement regarding the timing and strength of the recovery. To provide some isnight , here is the mean forecast for GDP into the new year, according to the WSJ's December survey.
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Posted by Menzie Chinn at 04:00 PM permalink | Comments (18)
January 02, 2009
The oil shock and recession of 2008: Part 2
In my previous post, I presented evidence that the oil price increase over 2007:H2-2008:H1 made a significant contribution to the slowdown in consumption spending in general and decline in spending on domestic automobiles in particular. Here I discuss why this should be regarded as a key development that turned the slowdown in growth into a recession.
Continue reading "The oil shock and recession of 2008: Part 2"
Posted by James Hamilton at 08:56 PM permalink | Comments (25)
January 01, 2009
"Trade finance is collapsing"
...said Victor K. Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. "We've got orders we can't ship right now."
Source: "As Trade Slows, China Rethinks Its Growth Strategy," NYT Jan 1, 2009.
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Posted by Menzie Chinn at 10:15 PM permalink | Comments (7)