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September 30, 2009
The Dollar in Doubt?
I've found it puzzling that there's all this talk about the prospects for the dollar, in the wake of the G-20 meetings, and more recently World Bank President Zoellick's comments about the primacy of the dollar as a reserve currency. My puzzlement arises from the fact that many of the concerns now being voiced have been voiced before.
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Posted by Menzie Chinn at 09:25 PM permalink | Comments (33)
Multipliers, Reviewed
Mark Thoma has assembled a set of useful discussions of multipliers. Econbrowser has added a handy new category "multipliers", that compiles entries on the topic. In addition, Ethan Ilzetzki, Enrique G. Mendoza and Carlos A. Vegh provide a very useful cross-country (including emerging market economy) survey here and here [pdf].
Posted by Menzie Chinn at 09:00 PM permalink | Comments (15)
September 29, 2009
Home prices stabilized, but...
The S&P/Case-Shiller home price indices registered another month of increase in July. That's a critical bit of favorable news, since continued declines in home prices would mean further increases in default rates and new stresses on financial institutions.
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Posted by James Hamilton at 09:16 PM permalink | Comments (16)
September 28, 2009
Guest Contribution: Lessons from the 1970s for Fed Policy Today
By David Papell
Today, we're fortunate to have David Papell, Professor of Economics at University of Houston, as a guest contributor.
The Federal Open Market Committee voted last Wednesday to keep the federal funds target rate at a record low of between zero and 0.25 percent. If it was not constrained by the zero lower bound, should the federal funds rate be negative? If the answer is yes, this suggests that the rate should remain at its record low for a considerable period and provides a justification for continued increases in the Fed's balance sheet. If the answer is no, then the Fed may need to raise its interest rate target sooner rather than later.
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Posted by Menzie Chinn at 06:31 PM permalink | Comments (26)
September 27, 2009
Federal Reserve reverse repurchases
Here I offer some thoughts on Bloomberg's account that the Fed has made inquiries with its dealers about the feasibility of a significant increase in the Fed's reverse repo operations.
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Posted by James Hamilton at 06:30 AM permalink | Comments (38)
September 25, 2009
Links for 2009-09-25
Tim Duy worries that some FOMC members are overestimating the inflation risk.
Arnold Kling proposes a mackerel theory of value.
The discussion at Cato of monetary policy continues.
Posted by James Hamilton at 07:26 AM permalink | Comments (11)
September 23, 2009
The G-20 and Rebalancing
According to news accounts [0], rebalancing is going to be a central topic. Brad Setser, now in his official capacity as NEC/NSC director of international economics, blogs:
We will press the G-20 to agree on a framework for strong, balanced and sustainable growth. As the U.S. starts to act more responsibility, it will borrow less and spend a bit less on the rest of the world's goods. That means borrowing by U.S. households cannot be the main source of global demand growth in the future.
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Posted by Menzie Chinn at 09:32 PM permalink | Comments (23)
September 22, 2009
We Should'a Run Smaller Deficits
From today's chapters 3 and 4 of the IMF World Economic Outlook, released today. From Chapter 4:
"...the results based on the small-scale regressions suggest that economies with larger current account deficits, rising inflation, and a deteriorating fiscal balance before a crisis experienced significantly larger output losses [from financial crises].
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Posted by Menzie Chinn at 08:12 PM permalink | Comments (19)
September 21, 2009
IMF Global Financial Stability Report on Financial Sector Interventions
Chapters 2 and 3 of the IMF's Global Financial Stability Report are out.
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Posted by Menzie Chinn at 10:00 AM permalink | Comments (6)
September 20, 2009
Economy improves but concerns remain
Last week we received positive readings for some key economic indicators. But I still see plenty to worry about.
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Posted by James Hamilton at 07:32 AM permalink | Comments (28)
September 19, 2009
Current Account Imbalances, and Global Liquidity
These topics are the subject of two special issues, the first in IMF Staff Papers, and the second in the Review of International Economics.
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Posted by Menzie Chinn at 06:33 PM permalink | Comments (11)
September 18, 2009
Regulating compensation in the banking sector
I see a good case for this, but also some big things to worry about.
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Posted by James Hamilton at 10:08 AM permalink | Comments (35)
September 17, 2009
Credit Stock Growth versus New Credit
Deleveraging implies slow growth in total credit, and according to the usual reasoning, slow growth in GDP. Several of Deutsche Bank's economists, however, focus on what they call the credit impulse. They provide the following provocative graph, which suggests a rapid recovery:
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Posted by Menzie Chinn at 06:43 AM permalink | Comments (24)
September 16, 2009
Scott Sumner on the Fed's mistakes
The Cato Institute is hosting a discussion this month of the extent to which monetary policy may have contributed to our current economic problems. In the lead essay that appeared on Monday, Professor Scott Sumner of Bentley University suggested that the Fed erred in allowing nominal GDP to grow as slowly as it did. My response appeared this morning. I agree that faster growth of nominal GDP would have been a good thing, but argue that, particularly if you start the clock in the fall of 2008, the Fed lacked the tools to prevent a decline in nominal GDP.
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Posted by James Hamilton at 08:12 AM permalink | Comments (29)
September 14, 2009
Guest Contribution: Reforming Banking by Reforming Housing
By Simon van Norden
Today, we're fortunate to have Simon van Norden, Professor of Finance at HEC Montréal (École des Hautes Études Commerciales), continue as a guest contributor.
In my previous post, I wrote about some of the evidence linking serious banking crises to real estate market collapses. That evidence is far from iron clad; it is simply the observation that many banking crises in mature economies have their origins in a real estate boom and bust cycle. However, the idea is also intuitively appealing.
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Posted by Menzie Chinn at 09:00 PM permalink | Comments (42)
September 11, 2009
The ARRA's Progress
...and a Rejoinder to Posner.
The CEA Analysis of ARRA's Impact
Yesterday, the Council of Economic Advisers released the first of its mandated reports on the impact of the ARRA on economic activity. Based upon a variety of approaches (VAR, multiplier based), it concludes:
"...our multiplier analysis and estimates from a wide range of private and public sector forecasters confirm the estimates from the statistical projection analysis. There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter.
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Posted by Menzie Chinn at 04:20 PM permalink | Comments (34)
Guest contribution from Michael Dueker on the economic recovery
Michael Dueker is Head Economist for North America at Russell Investments and a member of the Blue Chip forecasting panel. In February of 2008 he warned Econbrowser readers that it appeared unlikely that the economy was going to escape the slowdown without a recession. In December of 2008, he predicted in this forum that the recession would last until July or August of 2009, but that employment growth would not resume until March of 2010.
With that track record, we were very interested to learn the latest macroeconomic predictions stemming from Russell's Business Cycle Index, subject to the disclaimer that the content does not constitute investment advice or projections of the stock market or any specific investment.
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Posted by James Hamilton at 04:19 PM permalink | Comments (30)
September 09, 2009
Tracking the Consumption Decline
The new semester has begun, and I was reviewing economic trends in my macro courses. In my lectures, I highlighted the sharp drop-off in consumption. In the following, I discuss how well my predictions for consumption from last November have held up.
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Posted by Menzie Chinn at 08:35 PM permalink | Comments (10)
September 08, 2009
Supply and demand for judicial services
I've been trying to understand changes over time in the California state budget, though the data are presented in a way that makes that extremely difficult to do. I did spend enough time to discover one component of the budget that seems to have grown at a pretty healthy pace if you look at the last decade as a whole.
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Posted by James Hamilton at 08:09 PM permalink | Comments (36)
September 07, 2009
Guest Blog: Financial Crisis and Reform Déjà Vu
By Simon van Norden
Today, we're fortunate to have Simon van Norden, Professor of Finance at HEC Montréal (École des Hautes Études Commerciales), as a guest blogger.
"Once you've seen one financial market crisis...you've seen one financial market crisis."
-- Attributed to Federal Reserve Board Governor Kevin Warsh by former US Treasury Assistant Secretary for Economic Policy Phillip Swagel in The Financial Crisis: an Inside View, March 2009, p. 4.
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Posted by Menzie Chinn at 05:01 PM permalink | Comments (41)
September 04, 2009
State and Local Employment and Spending Trends
In a recent Economix post, Casey Mulligan asserts that aid to the states and localities is unwarranted given that state and local government employment is doing just fine. His graph highlighting cumulative gains/losses ends in January 2009, to show what had transpired by the time the stimulus bill was being debated. How do things look if one extends the sample to August 2009? And what about spending as opposed to employment?
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Posted by Menzie Chinn at 08:50 PM permalink | Comments (22)
September 03, 2009
Furloughed professors
The University of California may say I'm just taking a few days off. That's not how I see it.
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Posted by James Hamilton at 08:21 PM permalink | Comments (55)
September 02, 2009
The Cyclically Adjusted Budget Balance
My article with Jeffry Frieden and the decomposition of the 2001-07 change in the deficit discussed in The Lasting Legacy of the Bush Tax Cuts inspired lots of vigorous debate regarding the role of the Bush deficits in the current crisis. Here is the CBO's take on the cyclically adjusted budget balance:
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Posted by Menzie Chinn at 07:00 PM permalink | Comments (20)
September 01, 2009
Car sales up, but for how long?
August auto sales provided the strongest signal of an economic rebound that we've seen yet. But August is so yesterday.
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Posted by James Hamilton at 08:08 PM permalink | Comments (30)