March 28, 2013
Guest Contribution: "Is the Federal Reserve Breeding the Next Financial Crisis?"
Today, we are fortunate to have a guest contribution by Ambrogio Cesa-Bianchi and Alessandro Rebucci. It is based upon Does Easing Monetary Policy Increase Financial Instability?. The views expressed in this column are the authors' and not necessarily those of the institutions with which they are affiliated.
March 27, 2013
Understanding the housing bubble
A key reason that I was insufficiently worried in 2005 about bad mortgage loans being made at the time was that the people who funded the loans-- most importantly, the packagers and buyers of private-label mortgage-backed securities-- had more motivation and resources to evaluate the risks accurately than I did. That they made an incredibly costly mistake is now indisputable. But the question remains, why?
March 25, 2013
Reflation and Expenditure Switching in a Two Speed World
Chairman Bernanke says it all
March 24, 2013
Declining U.S. carbon dioxide emissions
Emissions of carbon dioxide from fossil fuel consumption in the United States have fallen remarkably since 2008, with recent levels the lowest since 1995. Here I comment on some of the factors behind this.
March 22, 2013
Wisconsin Employment: Still Lagging despite Upward Revisions
Earlier this week, the BLS released new estimates of state employment, based upon Quarterly Census of Employment and Wages (QCEW) data through September 2012. The figures for Wisconsin have been substantially revised upward. As indicated in previous posts   , census data had indicated substantially higher nonfarm payroll employment than that derived from surveys.
March 21, 2013
Heritage on Seasonal Adjustment
Is February employment growth overstated due to statistical problems?
March 19, 2013
Iraq Metrics, Ten Years After
We should not forget what costs we incurred in search of weapons of mass destruction.
"Building U.S. Competitiveness"
The Economic Report of the President, 2013, released last Friday, devotes some attention to global rebalancing, a topic that I’ve addressed on a number of occasions.  ; and this paper. Exchange rate movements are critical, but so too are productivity and wage movements.
March 17, 2013
2013 Econbrowser NCAA tournament challenge
Yes, it's coming! The all new (well, actually it's somewhat similar to last year's) 2013 Econbrowser NCAA tournament challenge. Here we once again invite all Econbrowser readers to test your skill (or luck) at predicting the outcomes of the U.S. college mens' basketball tournament. All you have to do is go to the Econbrowser group at ESPN, do some minor registering to create a free ESPN account if you haven't used that site before, and fill in your bracket with who you think might be the winners of each game. Just be sure you complete your predictions before Thursday, because the Econbrowser group does not allow changes in your bracket after the tournament begins on Thursday. And be forewarned that some of the people who compete in the Econbrowser NCAA challenge really know what they're doing!
What's going to happen to the Fed's balance sheet?
The Federal Reserve has increased its assets from $900 billion in 2007 to over $3,150 billion and still climbing today. On the liabilities side of the Fed's balance sheet, reserve balances held by banks have gone from $10 B in 2007 to $1,750 B and climbing today. My expectation had always been that this would be a temporary situation, with a return to historical norms when economic conditions improved. Recently, three different teams have independently studied what that transition back to normal might look like. One study was carried out by Robert Hall and Ricardo Reis (professors at Stanford and Columbia, respectively) and another by Seth Carpenter, Jane Ihrig, Elizabeth Klee, Alexander Boote, and Daniel Quinn (all economists at the Federal Reserve Board). I participated in a third study with David Greenlaw at Morgan Stanley, Peter Hooper at Deutsche Bank, and Frederic Mishkin at Columbia. Our analysis used a similar methodology to that conducted by the Fed staff, and we reached similar conclusions to theirs, while Hall and Reis took a broader and more theoretical perspective. Here I describe the methods and findings of our study.
March 15, 2013
The Cyclically Adjusted Budget Balance: Shrinking Rapidly
The CBO has just released estimates of the cyclically adjusted budget balance (or, specifically, the budget balance without automatic stabilizers). The cyclically adjusted budget balance is a better measure of the fiscal stance. The evolution of this series is interesting.
March 14, 2013
Stevenson and Wolfers: “Is Paul Ryan an Inflation Nutter?”
Additional evidence addressing the question asked by Betsey Stevenson and Justin Wolfers.
March 13, 2013
Why I'm more worried than Paul Krugman about the U.S. debt burden
I have been writing recently (, ) about my paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, co-authored with David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). Our paper has generated some interesting discussion by Paul Krugman and Matthew O'Brien, among others, to which I'd like to respond.
March 12, 2013
Assessing the Economics of the Ryan Plan
Revisions and Conditioning, Again
An interesting new working paper, "Quarterly GDP Revisions in G-20 Countries," by Manik Shrestha and Marco Marini, documents the fact that at the end of 2008, statistics understated the true extent of U.S. GDP decline.
March 09, 2013
Does the U.S. risk a fiscal tipping point?
In my previous post I reviewed the recent experience of a number of countries whose sovereign debt levels became sufficiently high that creditors began to have doubts about the government's ability to stabilize debt relative to GDP. When this happens, the government starts to face a higher interest rate, which makes debt stabilization all the more difficult. Is there any danger of the same adverse feedback loop starting to matter for the United States?
March 08, 2013
ECRI’s Lakshman Achuthan: U.S. recession began around the middle of last year
March 07, 2013
Still in Search of Expansionary Fiscal Contraction
The revisions in Euro zone and UK GDP figures have confirmed the lackluster performance in economies where rapid fiscal consolidation has been implemented. In the Euro zone, estimated growth has now been negative for five quarters. And in the UK, revised figures indicate negative growth for 2012Q4. In contrast, the US has exhibited continued, albeit modest, growth.
March 06, 2013
Fiscal tipping points
At the recent U.S. Monetary Policy Forum I presented the paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, along with co-authors David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). One of the goals of our research was to try to understand the events that can lead a country to a tipping point in which it faces rapid increases in the interest rate on its sovereign debt, as a result of which the country finds itself with an unmanageable fiscal burden.
March 05, 2013
Eliminating Energy-Related Tax Expenditures
With domestic oil production soaring, and petroleum and coal sector profits rising at a rapid clip, now seems the right time to cut back on tax expenditures related to oil extraction and processing.
March 03, 2013
Bernanke on long-term interest rates
On Friday I attended a conference at the Federal Reserve Bank of San Francisco, which included a very interesting presentation by Fed Chairman Ben Bernanke on long-term interest rates.