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July 31, 2009
Been down so long it looks like up
The Commerce Department reported today that the seasonally adjusted real value of the nation's production of goods and services fell at a 1% annual rate during the second quarter. That's about as bad as things ever got during the recession of 2001. But after the -5.4% and -6.4% growth rates that the Commerce Department now says characterized 2008:Q4 and 2009:Q1, some folks are cheering today's news. Reminds me a little of how I've seen people in Minnesota take off their shirts for the first 40oF day of spring, a little shocking to a traveler from San Diego.
Continue reading "Been down so long it looks like up"
Posted by James Hamilton at 10:56 AM permalink | Comments (24)
July 29, 2009
Fiscal Policy and Banking Sector Repair Synergies
From the conclusion to "How Effective is Fiscal Policy Response in Systemic Banking Crises?", by E. Baldacci, S. Gupta, and C. Mulas-Granados:
This paper assessed the effects of fiscal policy responses during 118 episodes of systemic banking crises in advanced and emerging market economies. The results indicate that timely countercyclical fiscal responses (both due to discretionary measures and automatic stabilizers), accompanied by actions to deal with financial sector weaknesses, contribute to shortening the length of crisis episodes. During crisis caused by financial sector distress, fiscal expansions increase the likelihood of earlier exit from a shock episode. Expansionary fiscal policies reduced the crisis duration by almost one year. These results hold for different definitions of crisis duration and alternative specification and estimation methods. The findings are consistent with recent studies that highlight the importance of countercyclical policy in response to recessions associated with financial sector problems (Classens, Kose, and Terrones, 2008; IMF, 2009b; IMF, 2009c).
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Posted by Menzie Chinn at 07:50 PM permalink | Comments (2)
July 28, 2009
Green jobs
One of our local papers did a better job of reporting this issue than I have seen from any of the big guys, in part because the reporter started with the question that I think everyone should be asking: what does it mean to create a green job? Here's what I said:
If you have two people making the same amount of energy that one person used to make, would you want to describe that as creating one new job? I would say no, you're significantly reducing productivity. Ultimately, creating jobs has to do with promoting productivity.... We might well make a decision that we want to be promoting economic growth in a way that's more friendly toward the environment. That's a fine decision to make, but I don't think we ought to be doing it under the pretense we're creating jobs for people.
Posted by James Hamilton at 06:20 PM permalink | Comments (48)
July 27, 2009
Three Pictures: China's Exchange Rate and Trade Balances
There's plenty of commentary on the ongoing China-US Strategic and Economic Dialog, from the Economist [1], Reuters [2], [3], and Bloomberg [4] [5]. Here are three pictures to place some of the issues in perspective.
My first observation is while the nominal USD/CNY had stabilized in recent months, the exchange rate that matters most for global imbalances, the Chinese real trade weighted CNY, has moved around a bit, as the dollar has appreciated and depreciated.
Continue reading "Three Pictures: China's Exchange Rate and Trade Balances"
Posted by Menzie Chinn at 12:37 PM permalink | Comments (9)
July 26, 2009
Are Unemployment Statistics Meaningless? Are Spillover Effects Zero?
Casey Mulligan rebuts my post asserting slack in the economy by posing the scenario "Construction Workers Teaching Kindergarten" (Note: Mulligan's blog is down; here is an alternative link currently working - 8/2/09). He writes:
Econbrowser now claims* that the stimulus bill can be effective, because unemployment rates are high (whatever that means) in health care and education. Let's take a look at employment changes Dec 2007 - June 2009 (millions) by industry:
Total nonfarm payrolls: -6.5
Construction: -1.3
Manufacturering: -1.9
Education and Health: +0.7
How exactly is fiscal policy going to create 3.5 million jobs by primarily hiring people in education and health? I see only two scenarios, both absurd and/or dishonest:
He argues these two scenarios are: (1) "The construction workers become kindergarten teachers" or (2) "The people in construction and manufacturing stay unemployed."
Continue reading "Are Unemployment Statistics Meaningless? Are Spillover Effects Zero?"
Posted by Menzie Chinn at 02:24 PM permalink | Comments (14)
July 25, 2009
Links for 2009-07-25
You might find these interesting:
Continue reading "Links for 2009-07-25"
Posted by James Hamilton at 07:56 PM permalink | Comments (1)
July 23, 2009
Looking for an exit: Part 2
In my previous post I commented on Ben Bernanke's recent communication of the Fed's exit strategy for getting its balance sheet and daily operations back to historical norms. I suggested that one necessary ingredient to convince the public that we will see a return to a stable monetary regime would be a credible explanation of how the United States government will be able to meet its enormous current and implicit future fiscal obligations. Today I'd like to discuss a second element that I feel is missing from the exit strategy articulated by Bernanke, and this is a compelling vision of what a healthy financial market not propped up by the Treasury and the Fed would look like.
Continue reading "Looking for an exit: Part 2"
Posted by James Hamilton at 08:37 PM permalink | Comments (23)
July 22, 2009
Output Gap Measurement and Prospects in the Wake of the Crisis
Different concepts of potential GDP
For serious macroeconomists, the magnitude (or existence) of the output gap is a central factor for determining the appropriate policy actions (see for instance Weidner and Williams). In several recent posts, I've discussed the variety of approaches to estimating the output gap [0] [1]. A recent symposium on Projecting Potential Growth published by the Federal Reserve Bank of St. Louis is an excellent resource for anybody who wants to think seriously and carefully about the challenges in estimating this variable. In the lead article entitled "What Do We Know (And Not Know) About Potential Output?", the authors Susanto Basu and John Fernald write:
Continue reading "Output Gap Measurement and Prospects in the Wake of the Crisis"
Posted by Menzie Chinn at 08:33 PM permalink | Comments (15)
July 21, 2009
Looking for an exit
In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.
Continue reading "Looking for an exit"
Posted by James Hamilton at 08:37 PM permalink | Comments (51)
July 20, 2009
The Failure of Macroeconomics?
This must be the period of soul searching, with the Economist engaging upon multi-article exegeses on where mainstream macro went wrong [1], [2], [3]. Alternatively, I think this is a happy time for some economists outside the (perceived) mainstream, who can now chortle "I told you so". One recent example is by Mario Rizzo.
Continue reading "The Failure of Macroeconomics?"
Posted by Menzie Chinn at 03:43 PM permalink | Comments (51)
July 19, 2009
Natural gas and oil prices
Since the start of the year, the price of crude oil has risen about 40% while the price of natural gas has fallen by about 40%. Can that divergence be maintained?
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Posted by James Hamilton at 06:35 AM permalink | Comments (25)
July 17, 2009
Links for 2009-07-17
Some quick remarks about the evidence for economic recovery, central bank independence, and Goldman Sachs.
Continue reading "Links for 2009-07-17"
Posted by James Hamilton at 01:33 PM permalink | Comments (12)
July 16, 2009
In the news
Russ Roberts, Mark Calabria, and I weigh in on the lessons from CIT at the NYT.
And the WSJ surveys economics blogs. I'll give away the plot: the one you're reading rates "five calculators" on the geekiness scale.
Posted by James Hamilton at 08:06 PM permalink | Comments (8)
July 15, 2009
Casey Mulligan on the Stimulus: Stock-Flow Mismatch, Sectoral Stimulus Mismatch, and Construction Crowding Out
In today's Economix post, Casey Mulligan argues that the greater than predicted unemployment numbers should not be ascribed to the negative effect of the stimulus, but rather to bigger than anticipated negative shocks.
We cannot blame the Obama administration for failing to predict June's 9.5 percent unemployment rate. That result just shows the size of the shocks hitting the economy: Even the best forecasters can miss the unemployment rate by almost two percentage points, even when forecasting fewer than six months ahead.
Posted by Menzie Chinn at 09:40 PM permalink | Comments (12)
July 14, 2009
Concerns about the Fed's New Balance Sheet
That's the title of a chapter I contributed to a new book edited by John Ciorciari and John Taylor entitled The Road Ahead for the Fed. The book grew out of a conference held at Stanford University in March.
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Posted by James Hamilton at 09:08 PM permalink | Comments (24)
A New Survey of Multipliers
For people who want an impartial survey of multipliers, see Patrick Van Brusselen, "Fiscal Stabilisation Plans and the Outlook for the World Economy". It's a useful antidote to the blogposts that cherry-pick multipliers from a given model to make a given point. The survey ranges over US, euro-area, and Japan; and structural macroeconometric models, DSGEs, and VARs.
Continue reading "A New Survey of Multipliers"
Posted by Menzie Chinn at 03:51 PM permalink | Comments (10)
July 13, 2009
Pre-ARRA, How Badly Did Macroeconomic Forecasters Overpredict GDP and Employment in 2009Q1?
There's been a lot of breast beating over the fact that the Administration underestimated the severity of the downturn. From this has come a lot of confused argument -- sometimes not internally consistent -- over whether this invalidates the usefulness of the stimulus package, whether the stimulus worsened the economic outlook, etc. I'll dispense with the clearly economically illogical arguments and try to tease out what is the "surprise" element in the 2009Q1 figures, and from that infer how much worse the economy was relative to what private sector forecasters predicted, conditional upon the passage of the ARRA.
Posted by Menzie Chinn at 01:03 PM permalink | Comments (28)
July 12, 2009
Links for 2009-07-12
A very neat interactive graphic from the NYT showing changes in same-store sales for different establishments. (Click on the store name at the left, and tip your hat to Economix).
Keith Hennessey, who used to have Larry Summers' job in the Bush White House, on the challenges facing the White House in framing discussion of the effectiveness of the existing stimulus package. See Obama's apparent answer here.
And a hilarious story via Calculated Risk on why Wells Fargo is suing itself.
Posted by James Hamilton at 06:42 AM permalink | Comments (4)
July 11, 2009
Ed Lazear on the Stimulus Package
From the WSJ editorial page:
Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.
Continue reading "Ed Lazear on the Stimulus Package"
Posted by Menzie Chinn at 12:44 PM permalink | Comments (19)
July 09, 2009
Guest Contribution: Index Funds and Commodity Prices... Here We Go Again
By Scott Irwin
Econbrowser is pleased to host another contribution from Scott Irwin, who holds the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois, and today offers some insights from his research on the current debate concerning commodity speculation.
Continue reading "Guest Contribution: Index Funds and Commodity Prices... Here We Go Again"
Posted by James Hamilton at 08:30 PM permalink | Comments (13)
July 08, 2009
Global Financial Stress
Several months ago, I discussed the indicators of financial stress developed by the IMF in two posts [1] [2]. The working paper documenting and extending the results in the World Economic Outlook has just been released.
Continue reading "Global Financial Stress"
Posted by Menzie Chinn at 07:25 PM permalink | Comments (2)
July 07, 2009
Back where we started
BLS reported that the total number of Americans employed in June on nonfarm payrolls came to 131.7 million workers on a seasonally adjusted basis. That's below the June 2000 figure of 131.8 million with which we started the decade.
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Posted by James Hamilton at 07:59 PM permalink | Comments (17)
July 06, 2009
The Informational Content of the OECD Leading Indicators
Sunday's NYT had a great interactive graphics by Amanda Cox detailing the dynamics of recessions and recoveries. One interesting graph pertained to the OECD Leading Indicators:
Continue reading "The Informational Content of the OECD Leading Indicators"
Posted by Menzie Chinn at 07:53 PM permalink | Comments (11)
July 05, 2009
Off-balance-sheet federal liabilities
Just how much has the U.S. government promised to pay?
Continue reading "Off-balance-sheet federal liabilities"
Posted by James Hamilton at 02:14 PM permalink | Comments (34)
July 04, 2009
Waxman-Markey and the Great Depression II?
"With the passage of Cap and Trade there is a good chance that unemployment will be worse than 1933 by the end of 2010."
So writes an Econbrowser reader. Well, anything can happen, but that is not the outcome I predict. Nor the CBO, EPA, and other informed analysts.
Continue reading "Waxman-Markey and the Great Depression II?"
Posted by Menzie Chinn at 07:45 AM permalink | Comments (43)
July 02, 2009
Back to the Stimulus Debate: W, Timing, the States, and Baselines
A "W" Recession?
Martin Feldstein has recently raised the possibility that we might experience a relapse into recession (a beautiful symmetrical W), with the next dip in 2010. In my view, this means (1) we should have opted for a bigger and better composed stimulus package, and (2) the timing of expenditures in the stimulus package might not be as problematic as many commentators have indicated. From Bloomberg:
Continue reading "Back to the Stimulus Debate: W, Timing, the States, and Baselines"
Posted by Menzie Chinn at 07:45 PM permalink | Comments (16)
July 01, 2009
No rebound for autos
Autos are worth watching as one sector where economic growth could resume first. But despite what others are saying, I don't believe that it's happening yet.
Continue reading "No rebound for autos"
Posted by James Hamilton at 05:25 PM permalink | Comments (9)
A V-shaped recession?
As James Morley has pointed out, often a sharp economic downturn is followed by an equally sharp economic recovery. One reason for that is the liquidation of inventories that accompanies any recession and restocking that takes place in recovery. What should we expect this time?
Continue reading "A V-shaped recession?"
Posted by James Hamilton at 01:41 PM permalink | Comments (21)