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. ...
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.
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.
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.
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.
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.
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.
January 20, 2011
The Yuan, the Chinese Trade Balance and the US, Again
...through the Lens of Multiple Regression
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.
January 17, 2011
Cumulative Output Loss
...lest we forget how much the mindless deregulation and irresponsible fiscal policy induced-crisis    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". )
The Financial Crisis, Interpreted
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. ...
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.
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)
- On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals, by Philippe Bacchetta (University of Lausanne), and Eric van Wincoop (University of Virginia). Discussed by Ken Kasa (Simon Fraser University).
- Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set , by Menzie Chinn (University of Wisconsin), and Michael Moore (Queen's University Belfast). Discussed by Pierre-Olivier Gourinchas (University of California-Berkeley)
- Phoenix Taylor Rule Exchange Rate Forecasting During the Financial Crisis, by David Papell (University of Houston), and Tanya Molodtsova (Emory University) . Discussed by Jan Groen (Federal Reserve Bank of New York).
- The Scapegoat Model of Exchange Rates: An Empirical Test, by Marcel Fratzscher (European Central Bank), Lucio Sarno (Cass Business School), and Gabriele Zinna (Bank of England). Discussed by Nelson Mark (University of Notre Dame).
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.
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.
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.
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.
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.
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).   But the refusal to allow the phrase "Wall Street" in the final commission report  impelled me to quantify the attempts by Wall Street to influence financial legislation in the years leading up to the financial crisis.