November 20, 2013
JEC Chair Brady and the Inflation Outlook
From a statement by the Joint Economic Committee Chairman, October 9th, 2013:
I fear that the Federal Reserve through current policies of Quantitative Easing and maintaining extraordinary low interest rates may be providing the fuel for igniting high inflation.
November 18, 2013
Apocalyptic Macro: Inflation Edition
From an opinion piece by Sean Fieler in USAToday:
If easy money delivers what it always has throughout history — growing inflation, growing inequality and growing government — a Republican embrace of sound money will offer America a way back to prosperity and the GOP a way back to a governing majority.
October 27, 2013
Why isn't inflation lower?
With so much slack in the economy and so many Americans still looking for jobs, why hasn't inflation been falling further? University of Texas Professor Olivier Coibion and Berkeley Professor Yuriy Gorodnichenko propose an answer in an interesting new research paper.
August 01, 2013
Why Is Inflation So Low?
For some people this is a tough question; that's because they're using the wrong framework
July 15, 2013
What Were They Thinking?
As the Fed sets in place the road map to withdrawing monetary stimulus, I wonder how it is that so many believed the Fed’s implementation of unconventional monetary policy would lead to surging high inflation. Examples include House Budget Committee Chair Paul Ryan, who stated in November 2008:
July 08, 2013
Inflation and Debt
From Debt and Incomplete Financial Markets: A Case for Nominal GDP Targeting, by Kevin Sheedy (LSE), presented at the NBER Summer Institute:
This paper has shown how a monetary policy of nominal GDP targeting facilitates efficient risk sharing in incomplete financial markets where contracts are denominated in terms of money....
June 26, 2013
Just how helpful is inflation?
According to one widely adopted class of economic models, raising the inflation rate would be one of the most helpful things that could happen to economies in the situation currently faced by Japan and the U.S. Here I describe some new research relevant for testing that theory.
April 10, 2013
Who is holding all those U.S. dollars?
If recent trends continue, in a few months there will be $1.2 trillion in Federal Reserve notes (otherwise known as dollar bills) in circulation. Who is holding all these?
April 04, 2013
Guest Contribution: "Should We Care about Sticky Prices?"
Today we are fortunate to have a guest contribution written by Yuriy Gorodnichenko (UC Berkeley) and Michael Weber (UC Berkeley). It is based upon their paper entitled "Are Sticky Prices Costly? Evidence From The Stock Market".
March 14, 2013
Stevenson and Wolfers: “Is Paul Ryan an Inflation Nutter?”
Additional evidence addressing the question asked by Betsey Stevenson and Justin Wolfers.
January 01, 2013
QE3 and beyond
Now that we've closed the books on 2012, I thought it might be useful to take a look at where monetary policy has led us over the last four years.
October 01, 2012
"Lost Decades": Reality versus the Fantasy of Easy Fixes
The paperback edition of Lost Decades is officially released as of today.
September 23, 2012
Fat fingers and the price of oil
Can the wild swings in the price of oil over the last few weeks have anything to do with supply and demand?
September 16, 2012
Effects of QE3
On Thursday the Federal Reserve announced a series of measures that will come to be referred to as a third round of "quantitative easing," or QE3. Here I review what effects this is intended to have and some of the developments so far.
September 01, 2012
Return to the gold standard
Several sources reported that the 2012 Republican Platform would call for a commission to explore the possibility of the U.S. returning to a gold standard. However, the final document makes no mention of gold, and instead seems to have settled on a proposal that is unlikely to do any harm:
President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency. The commission advised against such a move. Now, three decades later, as we face the task of cleaning up the wreckage of the current Administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar.
I thought it would be worthwhile to review some of the reasons why we should be thankful that saner heads seem to have prevailed.
August 26, 2012
U.S. monetary policy since the financial crisis
The Federal Reserve Bank of New York announced on Thursday that it had sold the last remaining securities from its Maiden Lane III portfolio, successfully closing the chapter on its assistance to insurance giant AIG. I thought this would be a good occasion to review the various measures that the Fed implemented over the last 5 years-- what they were attended to accomplish, what they did accomplish, and the significance of Thursday's announcement.
August 20, 2012
Guest Contribution: “Sticky Prices, Store-Switching, and Effective Price Flexibility”
Today, we are fortunate to have a guest contribution written by Olivier Coibion (UT Austin), Yuriy Gorodnichenko (UC Berkeley), and Gee Hee Hong (Bank of Canada); it is based on The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications.
August 15, 2012
Recent developments in oil markets
The price of Brent crude oil fell $35/barrel between April and June. But increases this summer have taken about $25 of that back.
August 13, 2012
Central Bank Balance Sheets and Inflation
Given several prominent policymakers have worried about central bank actions leading to high inflation, (e.g. Representative Ryan) it seems reasonable to see how expansions in central bank balance sheets correlate with inflation.
July 17, 2012
High Inflation at the Gates?
The Federal Reserve needs to raise interest rates to stave off inflation, says Rep. Paul Ryan, R-Wis. "I'm worried they're not going to pre-empt inflation," the House Budget Committee Chairman tells CNBC.
July 15, 2012
Is QE3 coming?
Conditions have changed since January, and we might expect some additional stimulus from the Fed at the next FOMC meeting.
May 15, 2012
The housing market and the case for higher inflation targets
Might more inflation be good for the US and Europe? This column looks at the housing market in the US and argues that, with houses dropping in price, buyers are playing a waiting game. And as buyers keep delaying, the price drops further. Given the importance of property in many economies, the knock-on effects are severe. Yet one way to break this vicious cycle is with inflation.
May 08, 2012
Conditional Inflation Now!
Back in January, Jeffry Frieden and I argued for higher inflation, conditioned on macro conditions, in a Foreign Policy article. The roster of economists in favor expands: Nobel laureates Rob Engle and Paul Krugman join Chicago Fed President Charles Evans, for the US.
May 02, 2012
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.
March 14, 2012
Links for 2012-03-14
Quick links to a few items I found interesting.
February 26, 2012
Factors in the recent oil price increases
Crude oil prices surged last spring following disruptions in oil production from Libya, and had been drifting down during the summer and fall. But since the beginning of October, the price of West Texas Intermediate and Brent crude oil have both risen by over 30%, putting them back up near where they had been last spring. What's changed in the world since the beginning of October?
January 29, 2012
Inflation expectations and the Fed
The Fed has begun implementing its new communication strategy. Here's what the message seems to be.
December 14, 2011
The Federal Reserve still would like to do more, but not right now.
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.   However, I think that other critiques -- namely that food, health, and transportation, are missed -- are misguided.
August 22, 2011
Or, some people continue to defend the view that rapid inflation is just around the corner
An Econbrowser reader writes, in defense of Governor Perry’s assertion that the Fed is debasing the currency: "The CPI is not a valid indicator of 'debasement.'" I think this comment provides a wonderful example of the Alice in Wonderland world in which some people reside -- if the data do not cooperate, redefine the terms!
August 21, 2011
Waiting for the Fed to act
Economic conditions are deteriorating. Here's how and when the Fed might intervene.
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.
May 19, 2011
Are We on the Brink of High Inflation?
Core CPI: Blips or Trends
Here's a plot of three measures of core m/m inflation. I don't see hyper (or even high ) inflation on the horizon, as some do  . Since one observation doesn't make a trend, for good measure I include also 3 month inflation.
March 23, 2011
Commodity prices in pictures
A few graphs I found interesting.
March 20, 2011
A dominant class of economic theories is built on the assumption that prices respond only sluggishly to new economic conditions. It's an interesting challenge to try to reconcile that premise with what we see in the data.
March 13, 2011
Consumers see bad news
The Reuters-Michigan survey of consumer sentiment registered a decline from 77.5 in February to a preliminary reading of 68.2 in March. That's the biggest monthly decline since the financial crisis in October 2008, and wipes out the nice gains of the last four months to put us back where we were in October 2010.
February 20, 2011
New indications of inflation
Where are the inflationary pressures?
February 16, 2011
Money and reserves
I wanted to offer some clarification on stories about all the money that the Federal Reserve is supposedly printing. It depends, I guess, on your definition of "money." And your definition of "printing."
February 10, 2011
Core, and More, Near Zero
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.
December 26, 2010
Changes in the yield curve
The bond market sees an improving economy.
December 21, 2010
Velocity of money
I wanted to follow up on Menzie's recent observations about what's been happening to the supply and demand for money.
December 07, 2010
The Correlation between Money Base Growth and Inflation
I've been reading through undergraduate textbooks, trying to figure out where the idea that money base expansion must necessarily manifest itself in higher inflation. In Stephen Williamson's macro textbook, he argues that fears of inflation are motivated by the view that eventually, money base expansion will feed into money expansion (box on pp. 432), despite the fact that there is no obvious contemporaneous correlation between the two variables.
November 29, 2010
And This Is Going to Lead to High Inflation?
I struggle and struggle to understand the fear of near-term, rapid inflation that is being stoked by the likes of commentators noted here and here. This struggle becomes even more profound when I examine actual data.
November 25, 2010
Core at Zero
At least, month-on-month. Three month annualized inflation -- either PCE or CPI -- both under 0.5%:
November 17, 2010
Billion prices project
November 15, 2010
Jeffrey Frankel on QE2, Inflation Hysteria and Actual Facts
Recalling President Reagan's statement, "Facts are stupid things", it's no surprise that the disinformation campaign arguing that the Fed has been pressured into engineering a bout of high inflation continues. Jeffrey Frankel helps bring some facts to the table. From "The pot again calls the kettle red: Republicans, Democrats, the Fed and QE2".
November 11, 2010
Inflation Fears and Measures of Expected Inflation
Recent news items have noted the fears of several individuals that QE2 will spark rapid inflation, e.g. . For instance, Representative Paul Ryan, expected to become the Chairman of the House Budget Committee in January, stated: "I think it's going to give us a big inflation problem down the road."
Here are what various market-based indicators suggest.
November 10, 2010
I guess now we know that the Fed has the tools to prevent deflation.
November 03, 2010
QE2: Been there, done that
The Federal Open Market Committee announced today that:
the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
October 27, 2010
Negative real interest rates
What message should we take from negative real interest rates?
October 20, 2010
Arguments against QE2
Having earlier reviewed some of the reasons in favor of additional quantitative easing (QE2), I'd like to acknowledge some of the dissenting views.
October 17, 2010
More than one tool for the Fed
One theme that emerged from the monetary policy conference at the Federal Reserve Bank of Boston on Friday and Saturday is that, as I stressed in my discussion of the recent FOMC minutes, the Fed is not thinking of large-scale asset purchases as the only tool available in the current environment.
October 13, 2010
Why is the Fed doing this?
Most observers now seem convinced that the Federal Reserve will shortly implement QE2, a second round of quantitative easing. It's worth taking a look at what QE2 is and is not expected to accomplish.
October 10, 2010
The market moves ahead of the Fed
Over the last month, a consensus seems to have emerged that (1) the Fed has the ability to depress long-term yields further, and (2) the Fed has the intention to implement such measures. That raises the possibility that recent market moves represent a bet already placed by market participants on the basis of the logical implications of (1) and (2).
September 23, 2010
What's the Fed signaling?
There's an aspect of Tuesday's statement from the FOMC that's not being emphasized by many analysts.
August 18, 2010
Will the Fed do more?
If conditions deteriorate further, I believe the answer is yes.
August 12, 2010
Persistent Large Output Gaps, Disinflation and Deflation
Or, what if the Accelerationist hypothesis doesn't hold. I'm sure this question will drive some apoplectic -- but I think it a reasonable question. First, let's look at the empirical evidence on what happens to inflation in the wake of persistent large output gaps. Fortuitously, Andre Meier has just written on this subject, in Still Minding the Gap:
August 11, 2010
Ever so slightly less contractionary
What is the significance of yesterday's statement from the FOMC?
August 09, 2010
From Disinflation to Deflation?
It's a schizophrenic world. On one side, there are lots of people worried about hyperinflation , despite forward looking indicators of inflation signalling quiescence  and actual price indicators going downward.
August 01, 2010
Options for monetary stimulus
The latest economic data have surely warranted a downward revision in the Federal Reserve's assessment of near-term economic performance. It therefore might be a good time to review the steps the Fed could take if it wishes to provide further economic stimulus.
July 18, 2010
The Bureau of Labor Statistics reported Friday that the seasonally adjusted consumer price index declined in June to the lowest level since November. When we start to talk about the level of the CPI rather than its rate of change, you know that deflation could once again become a key concern.
July 07, 2010
Still in Search of Inflationary Expectations
Given concerns about large budget deficits and quantitative easing feeding into inflation even as actual inflation was falling, I wondered what standard measures indicated. This follows up on the same question I posed in May of last year.
June 20, 2010
Inflation or deflation?
For the last year and a half my assessment has been that the near-term pressures on the U.S. economy were deflationary, while long-term fundamentals involve significant inflation risks. It's time for a look at the data that have come in over the last 6 months, and time to say that I still see things exactly the same way.
June 13, 2010
Gold and inflation
Federal Reserve Chair Ben Bernanke last week dismissed the suggestion that the recent surge in gold prices signals some kind of inflationary pressures:
So gold is out there, doing something different from the rest of the commodity group. I don't fully understand the movements in the gold price, but I do think that there is a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.
I think Bernanke has this exactly right.
May 16, 2010
Inflation, taxation, and the underground economy
University of Maryland Professor Boragan Aruoba (of the Aruoba-Diebold-Scotti Business Conditions Index fame) has an interesting new paper that offers another perspective on the challenges facing Europe.
February 07, 2010
Reactions to last week's economic data
Here I offer some thoughts on last week's numbers for employment, auto sales, and commodity prices.
February 02, 2010
Commodity inflation update
The view I have been forming of near-term inflationary pressures is that we're seeing two very different dynamics in play, with the dollar prices of things the Chinese can stockpile and import going up and the dollar prices of everything else (like U.S. wages and rents) under significant downward pressure. The last week seemed to bring some reprieve on the first front.
January 19, 2010
Is it reasonable to worry about inflation in the current environment?
January 03, 2010
Inflation in China
Why hasn't inflation caught up with a monetary-induced boom in China?
December 13, 2009
Should the Fed be the nation's bubble fighter?
That's a question recently taken up by the Wall Street Journal. Here are my thoughts.
December 08, 2009
Commodity prices and the Fed
I've been discussing possible explanations for the recent tendency of the dollar prices of commodities to move together. On Friday we received a very useful data point for distinguishing between the different hypotheses.
November 15, 2009
Why are the prices of so many commodities rising in an economy that seems to remain quite weak?
October 20, 2009
Unemployment and inflation
Does high unemployment mean that there's nothing to worry about in terms of inflation?
July 21, 2009
Looking for an exit
In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.
July 17, 2009
Links for 2009-07-17
Some quick remarks about the evidence for economic recovery, central bank independence, and Goldman Sachs.
July 14, 2009
Concerns about the Fed's New Balance Sheet
That's the title of a chapter I contributed to a new book edited by John Ciorciari and John Taylor entitled The Road Ahead for the Fed. The book grew out of a conference held at Stanford University in March.
July 09, 2009
Guest Contribution: Index Funds and Commodity Prices... Here We Go Again
By Scott Irwin
Econbrowser is pleased to host another contribution from Scott Irwin, who holds the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois, and today offers some insights from his research on the current debate concerning commodity speculation.
June 14, 2009
Do you see what I see?
I'm still looking for, and still not seeing, the economic recovery that everybody is talking about.
May 31, 2009
Supply, demand, and the price of oil
Do recently rising oil prices signal a resurgence of economic growth?
May 19, 2009
In Search of ... Hyperinflationary Expectations
With large budget deficits in place and projected going forward, as well as the expansion of the Fed's balance sheet, there's been some talk of inflationary pressures, and even hyper-inflation  McCain. I wondered if these fears were manifested in survey- and market-based expectations measures.
May 10, 2009
Inflation and relative prices
There are persuasive reasons why we'd be better off today with an inflation rate higher than what we've seen over the last six months. But while a uniform expansion that raised all wages and prices by the same amount would be helpful, what the Fed could actually achieve in the present situation may be something less desirable.
March 29, 2009
The Fed's new balance sheet
My previous post reviewed the profound changes in the balance sheet of the U.S. Federal Reserve over the last 18 months. Here I comment on some of the concerns that the new Fed balance sheet raises for the conduct of monetary policy.
March 27, 2009
Money creation and the Fed
A lot of people have seen this picture of the recent behavior of the monetary base and wondered what it means.
March 22, 2009
The first votes are in
The Federal Reserve can't be entirely pleased with markets' reaction to its announcement on Wednesday of quantitative goals for purchases of long-term assets.
March 19, 2009
The U.S. Federal Reserve yesterday finally took the step many of us had been urging for some time.
February 21, 2009
Deflation risk down but not out
February 10, 2009
The Treasury's Financial Stability Plan
Here's my two cents on the latest two trillion.
December 16, 2008
December 02, 2008
Greg Mankiw notes some odd behavior this week in the values reported by the U.S. Treasury for the yields on constant-maturity Treasury Inflation Protected Securities.
November 24, 2008
Time for a change at the Fed
Plan A didn't work. Plan B didn't work. I suggest the Fed get going on Plan C.
October 29, 2008
There are plenty of things to worry about in the current economic situation. But deflation isn't one of them.
October 12, 2008
Last month I called attention to an analysis by BLS researchers John Greenlees and Robert McClelland of some of the claims by John Williams of Shadowstats about the consequences for reported inflation of assorted technical decisions made by the BLS. Williams asked me to update with a link to his response to the BLS study. I am happy to do so, along with offering some further observations of my own.
September 23, 2008
What happened to oil markets on Monday?
Here's how it was reported, for example, in the Wall Street Journal:
Reaction to the Wall Street bailout and frenzied last-minute trading in the oil market sent crude prices soaring by more than $16 a barrel, the biggest one-day jump ever.
The late-day spike, which shoved oil up 16% to $120.92 a barrel on the New York Mercantile Exchange, offered an illustration of Wall Street's hard-to-predict moves amid broad market turmoil.
And here's what really happened.
September 22, 2008
Brad DeLong on Bernanke and Paulson
Brad DeLong had some insightful and amusing observations on the priorities of Federal Reserve Chair Ben Bernanke and Treasury Secretary Henry Paulson. I can't resist reproducing Brad's comments with some annotations of my own.
September 09, 2008
Taylor Rules, Synchronized Recession and the Potential for Competitive Depreciation
In yesterday's FT, "All in this together" assessed the possibility of a roughly synchronized downturn in the world's major economies, with the United States, ironically enough, suffering the smallest hit. This brings up all sorts of interesting questions regarding exchange rates, if one believes that Taylor rules define monetary policy making to some degree, and that interest differentials affect exchange rates.
September 04, 2008
I've yet to find someone who has been able to reproduce the claims made by Shadow Government Statistics about the extent to which government agencies are grossly misreporting the U.S. inflation rate. Apparently, neither has the Bureau of Labor Statistics, as detailed in an article by BLS economists John Greenlees and Robert McClelland in the latest issue of Monthly Labor Review.
August 21, 2008
Consumer Inflation: What Do Alternate Measures Say, and Why
What to make of the different measures of inflation being faced by consumers?
August 19, 2008
Economic consequences of falling oil prices
I've maintained that rising oil prices put a significant burden on the U.S. economy in recent months. How much will falling oil prices help to alleviate those concerns?
August 15, 2008
The Bureau of Labor Statistics reported yesterday that its primary consumer price index CPI-U rose 5.6% over the last year. That's the highest inflation rate in 17 years, the newspapers all call to our attention. Just how concerned should we be about these numbers?
August 10, 2008
Oil and the dollar
Although movements in the value of the dollar are one factor contributing to recent changes in the dollar price of oil, I do not believe they are the most important factor. Here I review some of the evidence that persuades me of this.
August 05, 2008
What does the GDP deflator measure?
August 03, 2008
Is the GDP deflator for 2008Q2 plausible?
In my previous post, I discussed how the 2008Q2 advance GDP estimate would be revised, and the possibility that the final figure (after annual revisions) could enter in below zero. One reason that might occur is because the GDP deflator could be revised upward. Suspicion that this might occur is heightened by the seemingly implausible 1.1% SAAR inflation rate recorded for the GDP deflator (see the comments to this post, as well as Felix Salmon, and ). One question I want to address is whether this figure is actually so implausible.
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession , and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
July 21, 2008
Why a lot of people think the CPI is not representative of their experience ... and are right. At least partly.
This post focuses on issue separate from the mathematics of the index forumulation, and has to do with what the typical weights at any given instant in time should pertain to. Should one use the expenditure weights that pertain to all the households aggregated in the economy? Or should one use the expenditure weights that pertain to the "typical" household? Kokoski (2003) summarizes the distinction thus:
In the democratic index, the expenditure pattern of each household counts in equal measure in determining the population index; in essence, it is a case of "one household--one vote". In the plutocratic case, the contribution of each household's expenditure pattern is positively related to the total expenditure of that household relative to other households--in essence, "one dollar, one vote".
July 18, 2008
IMF on the Global Macroeconomy, CBO on US-China Trade
The IMF released an update to it's World Economic Outlook yesterday.
- Global economic growth to slow significantly in second half of 2008.
- Rising energy, commodity prices have boosted inflationary pressure
- Need to adapt to shift in purchasing power from commodity users to producers
July 15, 2008
Did Fannie and Freddie cause the mortgage crisis?
Some thoughts about the role played by the GSEs in the run-up in mortgage debt and house prices.
July 09, 2008
The Government's Macroeconomic Series: X-Files, Dilbert, or Resource Constraints?
Or, is the model for explaining why macro data sometimes appear so counter to intuition best explained by willful deception (Iraq and WMDs), incompetence (the FEMA response to Katrina), or prosaic (resource constraints)? The casual reader might think I'm overstating the extreme hypotheses, but there is, after all, a whole website devoted to the proposition of conspiracy:
Have you ever wondered why the CPI, GDP and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.
July 07, 2008
Janet Yellen on risks and prospects for the U.S. economy
This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. Her complete speech is available from the FRB SFO Here are some excerpts.
June 08, 2008
Why did oil breach $138?
June 04, 2008
More on De-Globalization: Oil, Transport Costs and Inflation
The impact of rising transportation costs, driven significantly by high oil prices, is already being seen in capital-intensive manufacturing that carry a high ratio of freight costs to the final sale price. But a new report has determined that higher energy prices are affecting transport costs at such an unprecedented rate that "the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today."
June 01, 2008
From the minutes of the most recent meeting of the Federal Open Market Committee:
May 30, 2008
Commodity futures speculation
More on the possible contribution of index fund investment to recent commodity price moves.
May 29, 2008
The End of a Trend? The Export and Import Price Release in Context
The BLS's Import/Export price release, from May 13th, might seem like old news. And some aspects are. But I think it is useful to think about what the trends in these price indices mean for general inflation and the adjustment process (this is in some sense an update on this post).
May 19, 2008
Reconciling Estimates: Biofuels and Food Prices
The AP describes Lazear's views on the role of biofuels on rising prices thus: "US disputes IMF on food prices".
From the article by Desmond Butler:
WASHINGTON (AP) — The Bush administration is disputing the International Monetary Fund's claim that increased production of biofuels is the biggest factor in rising food prices.
May 14, 2008
Musing on Seasonal Adjustment and the CPI
The latest CPI release provided some much needed relief on the inflation front. What caught my eye was some of the discussion regarding the seasonal adjustment. This inspired me to wonder what seasonal adjustment was doing.
April 24, 2008
The case for 2-1/4
The Federal Open Market Committee's next meeting is scheduled for April 29/30, which the May fed funds futures contract currently anticipates will result in another 25-basis-point reduction in the target fed funds rate down to 2.0%. Here's why I hope the Fed doesn't do that.
April 22, 2008
Commodities and the Fed: answering the skeptics
Judging from some of the reactions across the blogosphere (not to mention any number of our own dear readers), maybe I should take another stab at clarifying why I see the hand of the Federal Reserve in the most recent movements in oil and commodity prices.
April 17, 2008
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
April 16, 2008
Scott Irwin is the Laurence J. Norton Chair of Agricultural Marketing at the University of Illinois. He has been doing some fascinating research on the relation between spot and futures prices in agricultural markets that may shed some light on the role of speculation in recent commodity price movements. We are delighted that Scott agreed to share some of the results of his research with Econbrowser readers.
April 09, 2008
Oil and the Great Moderation
Another interesting paper presented at the Society for Nonlinear Dynamics and Econometrics Symposium that I attended last week was by Anton Nakov of the Bank of Spain and Andrea Pescatori of the Federal Reserve Bank of Cleveland on the role that changes in energy markets may have played in the reduction in GDP and inflation volatility observed since 1984.
April 02, 2008
The Yuan on the Move: An Update
And a bit on the IMF's revised forecast for the US.
March 26, 2008
Would you like anything else with that coffee, Ben?
Last week we received some new data linking commodity prices to the decisions of the U.S. Federal Reserve.
March 19, 2008
How much ammo is left in that fed funds gun?
March 11, 2008
Asking too much of monetary policy
I remember a Federal Reserve economist once recounting a conversation with his young daughter, who asked him, "What do you do at work, Daddy?" He answered, "I help make important decisions." "What kind of decisions, Daddy?" "Oh, things like how much money the government needs to print."
March 10, 2008
Pretty Darn Good...(An Update on "Two Recession Bush Presidency?")
Two months ago, I posed the question "What Are the Prospects for a Two Recession Bush Presidency?" I think the answer is indeed "pretty good", given the recent data.
March 07, 2008
Commodity prices and the Fed
If the Fed thinks that recent commodity price moves have nothing to do with their own actions, perhaps they should think again.
March 02, 2008
Just how badly is the U.S. economy doing?
That's the topic of a piece I wrote for today's San Diego Union-Tribune.
February 28, 2008
Bernanke's tightrope act
Some analysts are saying that Fed Chair Ben Bernanke is walking a tightrope-- if he does not drop interest rates quickly enough, the U.S. will be in recession, but if he goes too far, we'll see a resurgence of inflation. I am increasingly persuaded that's not an accurate description of the situation.
February 27, 2008
Musings on the Dollar: PPP and Thresholds
As the dollar hits a new low against the euro , some thoughts on what arguments make sense, given our knowledge of the statistical properties of real exchange rates.
February 21, 2008
Did somebody say stagflation?
Five weeks ago I asked, Will inflation fears restrain the Fed?, and my answer was that they would not. Certainly inflation fears did not prevent the Fed from lowering its target for the fed funds rate by 125 basis points since I offered that assessment. But I believe that this week's data will force the Fed to be more cautious about the magnitude and pace of subsequent rate cuts.
February 18, 2008
Trade, Exchange Rates and Pass Through
Some thoughts on what to make of the trade and export/import price releases.
January 17, 2008
More Things I Learned at ASSA: Inflation and Labor Cost Measures
One of the AEA sessions I attended (at least in part -- I missed the first paper) was titled (excitingly) "Reconciliation of Seemingly Inconsistent Data Series".
January 16, 2008
Will inflation fears restrain the Fed?
I think not, and here's why.
November 20, 2007
So now you know
As part of its ongoing efforts at helping the public understand exactly what its intentions might be, the Federal Reserve today released more detailed minutes of its October 30-31 meeting that included the Fed's expectations for what comes next.
November 11, 2007
Oil, gold, the dollar, and inflation
Do the ongoing surge in gold and oil prices and slide in the dollar signal a resurgence of inflation?
October 31, 2007
Does Dollar Weakness 'Cause' High Oil Prices?
There's an idea floating around that asserts that the high price of oil is -- at least in part -- due to the weak dollar. Does this make sense?
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
September 23, 2007
Money creation and the Federal Reserve
There seem to be some misconceptions about the monetary consequences of actions that the Federal Reserve has taken to address liquidity needs.
September 20, 2007
Forward rates and inflation expectations
Forward rates on Treasury bonds tell an interesting story about the market's reaction to the Fed's interest rate cut on Tuesday.
September 18, 2007
50 it is
For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday's fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
Four Observations on Import and Export Prices and the Dollar
Some delayed reflections on exchange rates, trade prices, and the messages from the August data.
September 10, 2007
By how much will the Fed cut rates?
Once again we're seeing a big divergence between what the markets expect the Fed to do and what the Fed expects the Fed to do.
July 19, 2007
Bernanke on the economic outlook
In testimony before the U.S. Congress yesterday, Fed Chair Ben Bernanke continued his policy of greater openness and transparency for Federal Reserve policy, trying to lay out clearly what the Fed is most worried about.
July 13, 2007
Import prices surge...
...but mostly due to increasing oil prices.
July 12, 2007
Are your inflation expectations well-anchored?
Fed Chair Ben Bernanke's comments Tuesday about anchors for expected inflation left some analysts unsettled and others mystified. Bernanke was speaking to a group of academic researchers, and I believe his message was intended to provide some insights from practical policy-making to help improve the quality of academic research. So let me offer my interpretation of his message.
June 25, 2007
Inflation: Local or Global?
What does the empirical literature say about the sources of inflation movements in an era of globalization?
June 22, 2007
Econoblog on interest rates
I was pleased to participate in the latest Wall Street Journal Econoblog with Mark Zandi, Chief Economist and co-founder of Moody's Economy.com. Here's a brief preview of what you can find over at the WSJ.
June 17, 2007
More on those rising interest rates
Rising rates look scary, but I still read it as good news.
June 14, 2007
Lessons from the yield curve
The dramatic upward move of long-term interest rates gives me an opportunity to look back on some of the predictions made on the basis of the inversion of the yield curve, and what might be in store next.
June 10, 2007
Musings on Inflation Worries
The selloff in the stock market last week was attributed by some to inflation worries -- namely that persistent inflation means a reduction in the Fed Funds rate is less likely than the market had until recently believed.
April 13, 2007
The Last Throes of PoMo Macro?
That is to say, is Post-Modernist Macroeconomic Policy over?
March 18, 2007
Attaining Internal and External Equilibrium in China
China raises rates again. What will higher rates do?
March 17, 2007
Disappointing numbers on inflation and retail sales
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
March 05, 2007
Globalization and Inflation: Thinking about Identification
Recent news articles (, ) and blog posts (Economists View, Big Picture) have discussed Bernanke's March 2 speech on globalization and inflation.
February 15, 2007
The market reads Bernanke's lips
The Fed Chair speaks, and the market jumps. But why?
February 12, 2007
The 2007 Economic Report of the President on Exchange Rate Determination (and the Renminbi)
The 2007 Economic Report of the President was released Monday afternoon. Chapter 7, entitled "Currency Markets and Exchange Rates," is a laudable exegesis on the determination of exchange rates.
February 11, 2007
How Paul Volcker became a practical monetarist
A bit of history I only recently learned.
January 29, 2007
Macroeconomic Implications of War with Iran
Or, "Oceania has always been at war with Eastasia". The speculation regarding imminent military action rises. What are the fiscal implications of a large scale missile campaign? What would be the repercussions of likely Iranian responses (including closing off the Straits of Hormuz)?
January 25, 2007
Exchange rates, output gaps and inflation rates
Is there any role for the Taylor rule in helping predict exchange rates?
January 23, 2007
What would Milton do?
What with next Monday apparently having been declared Milton Friedman Day, I thought I might try to contribute to the festivities with some thoughts on how recent U.S. monetary policy might be evaluated from a Friedmanesque perspective.
January 01, 2007
What will the Fed do next?
December 29, 2006
WIN buttons and Arthur Burns
I normally find myself agreeing with Dave Altig's high-quality analysis over at Macroblog. But I'm afraid I have to leave Dave all alone in his latest quixotic mission to defend Arthur Burns (Chair of the Federal Reserve during the great inflationary episode from 1970 to 1978) and Gerald Ford's old WIN buttons.
October 19, 2006
One way or the other
Mixed signals this week leave Bernanke still needing to earn his pay.
October 03, 2006
And they all lived happily ever after
Can high-flying stocks be reconciled with an inverted yield curve? David Rosenberg of Merrill Lynch, via Felix Salmon and Business Week thinks "it is highly doubtful that both asset classes can be getting the story right." But here's one scenario under which both markets in fact might be telling the same story.
September 29, 2006
Amaranth hedge fund losses
How in the world did hedge fund Amaranth Advisors manage to lose $6 billion in September on natural gas trading?
August 30, 2006
So where's the surge in inflation expectations, now that the Fed has stopped tightening?
August 11, 2006
Good and not-so-good reasons to disagree with Bernanke
Some of the reasons people have given for why the Fed should keep raising interest rates make sense to me, and some don't.
August 08, 2006
Econbrowser (and hopefully Bernanke) gets it right
July 19, 2006
Bernanke's latest testimony
A more optimistic assessment from the Fed chair than I had been expecting.
July 02, 2006
The Fed speaks and markets listen
Tim Iacono at The Mess That Greenspan Made had some interesting graphs this week.
June 18, 2006
Inflation and the Fed
Certainly the recent inflation data have been-- Dave Altig says insert something negative here, so I'll just say "unwelcome". But when Fed Chair Ben Bernanke declared that's exactly the way he sees it, too, markets stood up and took notice. Let's review some of the dramatic market adjustments that have occurred since Bernanke's June 5 remarks.
June 10, 2006
Hawk or dove?
The pundits continue to be frustrated in their efforts to pigeonhole the Federal Reserve Chair.
May 30, 2006
M3 or not M3?
In response to a post earlier this week on M2 and inflation, one of our readers asks why I looked at M2 rather than M3. Here's the answer.
May 28, 2006
M2 and inflation
High commodity prices and indications of rising inflation have renewed interest in the hypothesis that the U.S. has been increasing the money supply in recent years at an excessive rate.
May 17, 2006
We all understand that the Fed's next move depends on incoming data. But what if the incoming data raise concerns of both higher inflation and slower output growth?
May 16, 2006
Commodity price inflation
Commodity markets have been a little too exciting recently for my quiet tastes.
April 04, 2006
What's moving long-term yields?
Long-term interest rates continue to creep up.
March 19, 2006
The Bureau of Labor Statistics reported that inflation as measured by the seasonally adjusted consumer price index for all urban consumers rose only 0.1% in February (a 1.2% annual rate), down from 0.7% (an 8.4% annual rate) in January. Those who view the monthly CPI as the most important inflation indicator breathed a sigh of relief, perceiving the economy to have lurched from hyperinflation back to price stability within the space of 30 days.
March 08, 2006
Rising long-term yields
The yield on 10-year U.S. Treasuries is up almost 40 basis points so far this year, which means it's been gaining on the fed funds rate and reducing the prospect of full inversion of the yield curve. Why have rates been going up?
February 06, 2006
Gold and inflation
What's behind the ongoing run-up in gold prices? One popular interpretation is that investors fear a resurgence of U.S. inflation. But that story just doesn't square with the facts.
November 17, 2005
Inflation under control
Unlike September's troubling inflation statistics, yesterday's release by the Bureau of Labor Statistics of the October consumer price index is more reassuring.
October 14, 2005
Does today's CPI release indicate that inflation has returned?
October 11, 2005
Do recent energy shocks mean we might see a replay of the 1970's stagflation? I believe not, and here's why.
September 16, 2005
Who cares about core inflation?
This is another one of those months when you could report pretty much any number you like to summarize the current inflation rate, and, as William Polley noted, newspapers did. At times like these, the concept of "core inflation" can be very helpful.
August 19, 2005
It's easy enough to define inflation as a decline in the purchasing power of a dollar. But the power of a dollar to purchase-- exactly what? The devil is in the details.