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January 31, 2011

UK: No Expansionary Fiscal Contraction Yet

The UK can be seen as a kind of test case for the proposition that contractionary fiscal policy can induce an economic expansion, a proposition forwarded by most recently Alesina and Ardana (2010) [wp version] (following up earlier work by Alesina and Perroti). So far, admittedly early in the process, the evidence is not consistent with the view of expansionary contraction. Here's Gavyn Davies' view:

...The statistics were expected to show a significant slowdown in output growth, but nothing like the drop of 0.5% in real GDP (-2 per cent quarter-on-quarter annualised) which was actually announced this morning. ...

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Posted by Menzie Chinn at 12:10 PM permalink | Comments (12)

January 29, 2011

Geopolitical unrest and world oil markets

Change is on the way in the Arab world, with Egypt the latest focal point. Here I review recent events and their implications for world oil markets.

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Posted by James Hamilton at 02:15 PM permalink | Comments (32)

January 28, 2011

A modestly brighter GDP report

The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 3.2% during the fourth quarter of 2010. That's about the historically average growth rate. But we expect much better than average at this point in the cycle, and need much better than average to make real progress with the unemployment rate.

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Posted by James Hamilton at 09:09 AM permalink | Comments (29)

January 27, 2011

Chinese Exchange Rate Pass-Through

Jian Wang had an interesting article on the Chinese rebalancing issue, and how renminbi revaluation would fit in. One point he raised pertained to exchange rate pass through. That inspired me to check the literature on this subject.

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Posted by Menzie Chinn at 06:15 PM permalink | Comments (12)

January 26, 2011

Three Years after the Great Recession's Start

I thought it useful to take a look at a few retrospective macro indicators pertaining the December 2010, three years after the beginning of what some term "the Great Recession". In particular, recall that some observers were, even ten months into the recession, and a month after Lehman's collapse, denying the possibility of a truly deep loss in employment, and the idea of a lack of credit availability.

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Posted by Menzie Chinn at 07:55 AM permalink | Comments (27)

January 25, 2011

Real-time analysis of the Aruoba-Diebold-Scotti Business Conditions Index

One of the economic indicators to which we frequently call attention is the Aruoba-Diebold-Scotti Business Conditions Index that is maintained by the Federal Reserve Bank of Philadelphia. This uses a number of important economic indicators immediately upon release to get an updated view of the overall level of economic activity. One question that arises in using this index is that the raw data from which the index is constructed can be subject to considerable revision in subsequent data releases. A new analysis by the authors takes a look at this issue.

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Posted by James Hamilton at 08:23 AM permalink | Comments (7)

January 23, 2011

The Fed's new policy tools

We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I'd like to discuss three new papers that have come out since then.

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Posted by James Hamilton at 06:49 AM permalink | Comments (20)

January 20, 2011

The Yuan, the Chinese Trade Balance and the US, Again

...through the Lens of Multiple Regression

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Posted by Menzie Chinn at 08:54 AM permalink | Comments (26)

January 18, 2011

How much are gasoline prices weighing on consumers?

On Friday Reuters reported:

Rising gasoline prices beat down U.S. consumer sentiment in early January, overshadowing an improved job outlook and passage of temporary federal tax breaks, a survey released on Friday showed. A year-end surge in gasoline prices ratcheted up consumer inflation expectations to their highest in more than two years, according to the latest data from Thomson Reuters and the University of Michigan. The surveys' preliminary January reading on the overall consumer sentiment slipped to 72.7, below 74.5 in December. It fell short of a 75.4 reading predicted by economists polled recently by Reuters.

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Posted by James Hamilton at 06:30 PM permalink | Comments (21)

January 17, 2011

Cumulative Output Loss

...lest we forget how much the mindless deregulation and irresponsible fiscal policy induced-crisis [1] [2] [3] and great recession has cost us in terms of lost output, and how difficult the road to recovery remains. (Very important as certain forces seek to gut financial regulation by way of "defunding". [4])

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Posted by Menzie Chinn at 10:03 PM permalink | Comments (35)

The Financial Crisis, Interpreted

And some unanswered questions. From Jeffry Frieden, "A Classic Foreign Debt Crisis," The Political Economist 12 (2) (Fall 2010) [newsletter of the Political Economy section of APSA, not online]:

Much of the popular, and scholarly, analysis of the crisis has focused on its financial aspects: the breakdown of financial markets, the malfunction of financial innovations, the failure of financial regulation. ...

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Posted by Menzie Chinn at 06:14 PM permalink | Comments (13)

January 15, 2011

Oil shocks and economic recessions

I've just completed a new research paper that surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Here I report the paper's summary of oil market disruptions and economic downturns since the Second World War. Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.

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Posted by James Hamilton at 08:18 AM permalink | Comments (60)

January 12, 2011

Exchange Rate Modelling at AEA

Or, at least one session's worth of recent thinking on the topic.

Presiding: Philippe Bacchetta (University of Lausanne)

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Posted by Menzie Chinn at 09:00 PM permalink | Comments (7)

January 11, 2011

The first oil shock

A research paper by Eyal Dvir of Boston College and Ken Rogoff of Harvard suggests some interesting parallels between the recent behavior of oil prices and what was observed at the very beginning of the industry. I've been doing some related research on the history of the oil industry that looks into the events behind historical oil price shocks. Here I describe the first oil shock, which occurred a century and a half ago.

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Posted by James Hamilton at 04:56 PM permalink | Comments (29)

January 10, 2011

Explaining Recent Trends in Household Saving

From Reuven Glick and Kevin Lansing, Consumers and the Economy: Household Credit and Personal Saving:

In the years since the bursting of the housing bubble, the personal saving rate has trended up from around 1% to around 6%, while the ratio of household debt to disposable income has dropped from 130% to 118%. Changes over time in the availability of credit to households can explain 90% of the variance of the saving rate since the mid-1960s, including the recent uptrend, according to a simple empirical model.

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Posted by Menzie Chinn at 08:30 PM permalink | Comments (25)

January 08, 2011

Interpreting the employment numbers

There might seem to be some conflicting signals from Friday's employment report from the Bureau of Labor Statistics. But I see a uniform message in the various numbers-- the economic recovery remains disappointingly weak.

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Posted by James Hamilton at 01:22 PM permalink | Comments (16)

January 06, 2011

The BIS on Global Forex Trends

The results from the triennial BIS forex survey are out. Unsurprisingly, trading volume continues to rise, the dollar retains its dominance in forex transactions, and the dollar/euro currency pair is the most heavily traded. But, notably, algorithmic trading is on the rise.

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Posted by Menzie Chinn at 07:44 AM permalink | Comments (9)

January 05, 2011

Debt ceiling politics

The decision to raise the debt ceiling will be the first test of whether the Republicans can move from tree shaking to jelly making.

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Posted by James Hamilton at 05:50 AM permalink | Comments (66)

January 03, 2011

On Reading "The Financial Crisis Primer"

The Republican members on the FCIC released a Financial Crisis Primer that has been debunked by a number of observers (since so many of the old canards were hauled out, this was easily accomplished). [0] [1] But the refusal to allow the phrase "Wall Street" in the final commission report [2] impelled me to quantify the attempts by Wall Street to influence financial legislation in the years leading up to the financial crisis.

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Posted by Menzie Chinn at 02:20 PM permalink | Comments (23)

January 02, 2011

Energy cornucopia?

Don Boudreaux and Mark Perry are among those who regard John Tierney's claims of energy cornucopia to be persuasive.

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Posted by James Hamilton at 06:53 AM permalink | Comments (29)