July 31, 2011
Tales from the GDP revisions
Or things got a lot worse in 2008Q4 than we thought
The 2011Q2 advance release and revised estimates  contained many unpleasant surprises (see Jim’s assessment; also [CR1] and [CR2] [John Taylor] [Izzo/WSJ RTE]). The below consensus growth rate, and downward revision in Q1 growth, have been discussed elsewhere. I want to focus on the implications of the revisions to the data going back to 2003 (with particular emphasis on data back to 2007).
July 29, 2011
Yet another discouraging GDP report
The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 1.3% during the second quarter of 2011, and revised down its estimate of first-quarter growth to an even more anemic 0.4%. We knew the first half of the year was disappointing, but this is even weaker than most of us were anticipating.
July 28, 2011
Graphic of the Day: Who Borrowed? Who Loaned?
A picture says a thousand words. From the NYT today:
"Sex Ratios and Exchange Rates"
China and several other economies in Asia are experiencing an increasingly more severe relative surplus of men in the pre-marital age cohort. While the existing literature on the sex ratio has examined its social impact such as crime, we aim to explore neglected implications of the sex ratio imbalance for the real exchange rate. ...
July 27, 2011
University of Oregon economics professor Mark Thoma has an interesting article on the direction economics should be taking.
July 26, 2011
The Bonds of August
An Historical Analogy applied to today's debt ceiling crisis, with apologies to Barbara Tuchman
July 25, 2011
More Data: Debt, and the Origins of Debt
I thought it of interest to see the evolution of Federal debt held by the public, and exactly what Administrations were the most spendthrift.
Data: Spending and Tax Receipts, 1967-2011
I keep on hearing we have a spending problem, but no revenue problem, from you know whom. I decided to appeal to actual data. Below is a time series plot of Federal current expenditures and tax receipts plus contributions to Federal social programs, as a share of GDP, over the 1967Q1-2011Q1 period. The data are based upon the data definitions in the BEA’s national income and product accounts (NIPA), as of June 2011. Outlays are declining, and as of 2011Q1 are at 0.25, which exceeds the previous peak, during the Reagan era, at 0.241 (1982Q4). Federal tax receipts plus social program contributions are at 0.158.
July 24, 2011
Effects of the Fed's large-scale asset purchases
Some Federal Reserve officials apparently have a rule of thumb for thinking about the impact of the Fed's large-scale asset purchases. I was curious to compare those estimates with the numbers that would come out of my own research.
July 22, 2011
DSGEs, Detrending, and Forecasting
With some implications for the debate over assessing fiscal and monetary policies
Reader Brian writes:
DSGE's aren't the answer to everything, but I still find the microfoundations, careful treatment of expectations, etc. still attractive and, in my opinion, the best we have at the moment.
July 21, 2011
Dividing integrals by integrals versus other calculation
With an application to accurately counting stimulus effects, for the benefit of the numerically challenged
Here I try to explain why dividing a number at a point in time by a cumulative number does not make sense (Warning: some understanding of calculus helpful). Reader Manfred defends the Weekly Standard’s calculation of dividing net jobs created at an instant in time by cumulative spending to obtain a dollars/job figure. Specifically:
July 20, 2011
Assessing the Stimulus and Its Aftermath
Or, on reading those who can do math, and those who can’t (i.e., yet more from Heritage)
July 18, 2011
Ending the debt ceiling stand-off
Here's how I'm hoping this might work out.
July 16, 2011
Consumers get more worried
Reuters reported yesterday that the preliminary July reading for the Thomson Reuters/University of Michigan's index of consumer sentiment fell to 63.8, the lowest level in more than two years. In fact, that's about as low as this measure ever got in the recessions of 1981-82 or 1990-91, and is well below values for the recession of 2001.
July 14, 2011
The Moral Imperative for the Continuation of Low Tax Rates for the Top Income Fractiles
Or lack thereof
Reports indicate that one of the reasons the "grand bargain" failed was the refusal of one party to accede to an increase in tax rates on households with AGI above $250,000. . I can understand this reluctance, given that the share of total income going to the top 5% of households fell from 38.7% to 36.5%, going from 2007 to 2008 (just ignore the increase of 17.6 percentage points in the previous 30 years). Below is an updated graph from our forthcoming book Lost Decades by myself and Jeffry Frieden, illustrating the grievous harm that these households have endured.
July 13, 2011
Evaluating quantitative easing using event studies
Event studies are one method that has been used to try to assess the potential effects on markets of nonstandard monetary policy measures such as QE2. The Federal Reserve Bank of St. Louis recently hosted a conference whose objective was to evaluate evidence on the effects of these policies. Here I relate remarks I made at the conference on some of the challenges from trying to use event studies to answer this question.
July 12, 2011
Jeff Frankel: "The Federal Government Races to the Cliff"
At the NBER meetings, I have been asking around what will happen if the Federal government defaults, and Treasurys go down a notch in ratings. Keep in mind pension funds and financial institutions are constrained to hold at least some AAA rated securities. What happens if those securities are downgraded; should we expect a smooth, re-balancing of portfolios worldwide?
Jeff Frankel dissects why we are in this situation, using fable (well, a movie fable):
July 11, 2011
Multiplier estimates, across countries, across states, across time
Today's two sessions -- one in the NBER's International Finance and Macro group and one in Monetary Economics -- included papers that tackled multipliers from a variety of directions. The general results indicated to me that, while multipliers are sometimes below unity, for conditions prevailing in the United States in 2011, they are typically above.
July 09, 2011
Debt ceiling options
As Congress and the President continue to wrangle over raising the debt ceiling, more of us are wondering, what would happen if the debt ceiling isn't raised? To paraphrase Sherlock Holmes, when you have eliminated the impossible, whatever remains, however improbable, must be Plan A.
July 08, 2011
The Employment Report, and the Need for Maintaining Stimulus
The Employment Report in Brief
The WSJ RTE post title says it pretty clearly: Economists React: Jobs Report an 'Unmitigated Disaster'. My two observations are:
- Overall employment is being reduced by continuous reductions in government (primarily state and local) employment. Private sector employment growth was 57,000.
- Hours continue to rise faster than employment in the private sector.
July 07, 2011
Recent reports ([WSJ RTE] [Bloomberg] [The Hill]) indicate that under consideration as one approach to curtailing entitlement spending growth is to resort to Chained CPI, as opposed to the current official CPI series, which is based on a quasi-Laspeyres formula.
July 06, 2011
Ron Paul's debt default proposal
Congressman Ron Paul (R-TX) is apparently proposing that the U.S. Treasury simply refuse to pay interest and principal on the $1.6 trillion in Treasury securities currently owned by the Federal Reserve. Dean Baker, Greg Mankiw, Steve Williamson, and Stephen Gandel all seem to think it's not a totally crazy idea. Here's what I think they're missing.
July 05, 2011
Will a Tax Repatration Holiday Spur Investment?
If you ask a person prefers to ignore data, the answer might be yes. If you ask a person who looks at the data, the answer is likely no. There are apparently a lot of the former . Anyway, to some analysis. From the abstract of a paper by Dharmapala, Foley and Forbes entitled Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act:
This paper analyzes the impact on firm behavior of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings by U.S. multinationals. ...
"Effects of Abandoning Fixed Exchange Rates for Greater Flexibility"
At the recent NBER ISOM conference, Andy Rose presented a paper entitled Flexing Your Muscles: Effects of Abandoning Fixed Exchange Rates for Greater Flexibility, coauthored with Barry Eichengreen, following up on this 2010 paper, evaluating the effects of flexing (VoxEU post here).
For purposes of this short paper we examine a comprehensive data set covering over 200 countries and territories since 1957. ...
July 04, 2011
Hanging in there
Higher oil prices slowed the economy in the first half of this year. But I don't expect things to get a whole lot worse.
July 02, 2011
The effectiveness of quantitative easing
This week I attended a conference hosted by the Federal Reserve Bank of St. Louis on quantitative easing. The purpose of the conference, as explained by Bank President James Bullard in his opening remarks, was to answer Stanford Professor John Taylor's challenge to provide research of real-time usefulness to policy makers. The conference featured analyses by 5 different research teams of the effects of recent quantitative easing measures adopted in the United States and United Kingdom.