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September 30, 2011

"International Policy Implications and Lessons From the Global Financial Crisis"

Last Friday and Saturday, the JIMF 4th Annual Conference at UC Santa Cruz took place, organized by Joshua Aizenman (UCSC & NBER), Robert Dekle (USC) & James Lothian (Fordham University & JIMF) and sponsored by JIMF, SCCIE-UCSC, and the FRBs of Atlanta and San Francisco. I didn't get a chance to go, which was unfortunate as the papers were relevant to thinking about how the international financial system is linked to the events of 2008.

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Posted by Menzie Chinn at 06:44 AM permalink | Comments (11)

September 28, 2011

Links for 2011-09-28

Social anthropologist David Graeber claims that barter economies never operate the way that economists assume.

James Kahn and Robert Rich worry that the U.S. has entered a phase of weak productivity growth.

Matt O'Brien (hat tip: Mark Thoma) wonders why Republicans have become so hostile towards the Federal Reserve.

Hal Cole and Lee Ohanian debate Paul Krugman on the recovery from the Great Depression.

Posted by James Hamilton at 07:50 AM permalink | Comments (11)

September 26, 2011

Lost Decades: The Lost Graphs

In our book Lost Decades, Jeffry Frieden and I tried to be as comprehensive as possible in documenting the history we described, the analytical results we reported, and the data we used. We had intended to rely to a greater degree on graphical depictions, but for a variety of reasons, not all the proposed graphs made it in. Hence, we present the graphs that didn't make it into Lost Decades. (And, by virtue of the just-in-time nature of the web, updated!). The graphs are organized by chapters:

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Posted by Menzie Chinn at 07:00 PM permalink | Comments (43)

September 25, 2011

The Trillion Dollar War of Choice, and the Constraints on Macro Policy

Or at least $805.6 billion as of the end of September, not including debt service and additional reset costs; around $940 billion including interest payments.

As the US economy faces the prospects of stagnant growth or recession, it is of interest to see why the scope for fiscal policy is so circumscribed -- that is why is the debt level so high given that in the last year of the Clinton Administration, we were paying down debt? Figure 1 depicts part of the answer (other parts, here).

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Posted by Menzie Chinn at 09:20 PM permalink | Comments (65)

"What Predicts a Credit Boom Bust?"

From Chapter 1 of the IMF’s recent World Economic Outlook (Box 1.2), a set of findings by Jörg Decressin and Marco Terrones:

The econometric results confirm that net capital inflows, financial sector reform, and total factor productivity are good predictors of a credit boom. Net capital inflows appear to have an important predictive edge over the other two factors.

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Posted by Menzie Chinn at 08:27 AM permalink | Comments (30)

September 23, 2011

Effects of operation twist

The Federal Reserve announced on Wednesday ([1], [2]) that it will sell some of its shorter-term assets in order to buy more longer-term assets. Here I assess some of the possible consequences of this move.

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Posted by James Hamilton at 08:06 AM permalink | Comments (20)

September 21, 2011

Changing behavior of crude oil futures prices

I've just finished a new research paper with my former student (and now University of Chicago Professor) Cynthia Wu. In our new paper, we study how increased purchases of crude oil futures contracts by financial investors may have affected the prices on those contracts.

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Posted by James Hamilton at 06:11 AM permalink | Comments (15)

September 20, 2011

More thoughts on peak oil

In Saturday's Wall Street Journal, Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, gave his explanation of what's wrong with peak oil. Here's why I don't find his analysis altogether convincing.

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Posted by James Hamilton at 07:37 AM permalink | Comments (94)

September 19, 2011

Lost Decades: The Making of America's Debt Crisis and the Long Recovery

From the preface to Lost Decades, published today (9/19) by W.W. Norton:

The United States ... lost the first decade of the twenty-first century to an ill-conceived boom and a subsequent bust. It is in danger of losing another decade to an incomplete recovery and economic stagnation.

In order to not lose the decade to come, the United States will have to bring order to financial disarray, gain control of a burgeoning burden of debt, and re-create the conditions for sound economic growth and social progress. None of this will be easy. The tasks are made more difficult by the fact, which we have learned to our alarm, that all too many policymakers and observers cling to the failed notions that got the country into such trouble in the first place. If Americans do not learn from this painful episode, and from others like it, they will condemn the nation to another lost decade.. (p. xvi).

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Posted by Menzie Chinn at 04:55 AM permalink | Comments (55)

September 17, 2011

Guest Contribution: "Europe's Lehman Moment"

Today, we're fortunate to have a guest contribution by Jeffry Frieden, Stanfield Professor of International Peace at Harvard University, and coauthor of Lost Decades: The Making of America's Debt Crisis and the Long Recovery. This article first appeared on Reuter's Opinion.

Europe's Lehman Moment

By Jeffry Frieden

Europe is in the midst of its variant of the great debt crisis that hit the United States in 2008. Fears abound that if things go wrong, the continent will face its own "Lehman moment" -- a recurrence of the sheer panic that hit American and world markets after the collapse of Lehman Brothers in October 2008. How did Europe arrive at this dire strait? What are its options? What is likely to happen?

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Posted by Menzie Chinn at 07:32 AM permalink | Comments (9)

September 16, 2011

The Wrong Track, in Figures

Mike Rosenberg (Bloomberg) notes that, when viewing the policy mix from the perspective of fiscal and financial conditions, we are on the following path, even as there is a large amount of slack in the economy [0]:

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Posted by Menzie Chinn at 11:30 AM permalink | Comments (26)

The Fall 2011 World Economic Outlook

The analytic chapters were released yesterday.

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Posted by Menzie Chinn at 07:19 AM permalink | Comments (14)

September 15, 2011

What could America be good at?

A vision of what American economic growth over the next decade could look like might also help us address our immediate economic problems.

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Posted by James Hamilton at 07:14 AM permalink | Comments (70)

September 13, 2011

Investment Behavior and Policy Implications

Over the weekend, both Professors Barro and Mankiw wrote on investment in the New York Times. As Modeled Behavior observed, the focus on business fixed investment (BFI) or nonresidential investment was somewhat odd because BFI behavior had not been particularly anomalous in the recovery. Here, I extend upon that analysis, and draw some policy implications.

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Posted by Menzie Chinn at 03:45 PM permalink | Comments (27)

September 11, 2011

What do low government bond yields signify?

Brad DeLong and Tyler Cowen point to an interesting exchange in the Financial Times.

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Posted by James Hamilton at 11:59 AM permalink | Comments (47)

September 09, 2011

We Can All Be Like Texas!

From Fort Worth Star Telegram:

As the Texas Forest Service battles what may be the state's most destructive wildfire outbreak ever, state lawmakers are facing criticism that they have has taken a penny-wise-pound-foolish approach to funding the agency.

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Posted by Menzie Chinn at 04:25 PM permalink | Comments (48)

September 08, 2011

Recovery, or Replaying 1937 (and 2008)?

The President laid out a series of policy measures in today’s speech which are, by textbook standards, entirely reasonable. And yet, many have been declared by the pundits to be DOA. I’ll leave the assessment of political feasibility to others, but the very fact that these specific measures [0] are so reasonable by textbook standards makes me wonder if we have in fact experienced technological regress in our politico-economic discourse. Maybe those shocks in RBC models are just the fact that so many individuals with influence never took an intermediate macro course, let alone an economics course [1] (I highly recommend Robert Hall and John Taylor’s Macroeconomics, or the later editions, by Hall and David Papell).

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Posted by Menzie Chinn at 07:25 PM permalink | Comments (56)

September 07, 2011

Following the Swiss lead

Today Econbrowser is pleased to feature a guest post from Johns Hopkins University Professor Jonathan Wright, in which he proposes an option for economic stimulus by the Federal Reserve.

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Posted by James Hamilton at 05:08 PM permalink | Comments (24)

Double Dip or Not? The Data and Policy Implications

We know that in the aftermath of combined housing busts, financial crises, and recessions, recoveries are typically modest if not halting, even if the recession is deep. [0] This characterization appears to have held true, with the question now whether we will enter into a new recession, or merely plug along with growth that technically constitutes a recovery, but is not sufficient to close the output gap with appreciable speed.

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Posted by Menzie Chinn at 07:35 AM permalink | Comments (18)

September 06, 2011

Links for 2011-09-06

Swiss National Bank announces it will buy foreign currency in unlimited quantities to achieve a target exchange rate. That's quantitative easing with real meat on it.

Jim Brown on the importance of immediately opening up Alaska to more oil exploration and development.

Felix Salmon on why it's depressing to see S&P giving AAA rating to a new security structured from subprime loans.

Felix Salmon again on how to solve the problems with the U.S. Post Office.

K.W. Regan on IBM's Jeopardy champion (hat tip: Tyler Cowen).

Justin Wolfers reflects on his time in Washington DC (hat tip again to Tyler Cowen).

Journal of Statistical Software on estimating state-space models.

Posted by James Hamilton at 07:33 AM permalink | Comments (19)

September 02, 2011

Current economic conditions

The economic data arriving during the last week have been deeply discouraging, though are slightly less grim than some may have been concluding.

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Posted by James Hamilton at 02:35 PM permalink | Comments (24)

September 01, 2011

The CPI, and Some Key Components

A perennial topic of discussion is the deficiencies of the CPI in measuring the things that are important to “real people”. I actually believe that there is a point to some of these critiques. In particular, we know the CPI is “plutocratic” in that the weights associated with the CPI bundle are consistent with the expenditure shares of a household somewhere in the 4th income quintile. [1] [2] However, I think that other critiques -- namely that food, health, and transportation, are missed -- are misguided.

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Posted by Menzie Chinn at 05:21 AM permalink | Comments (20)