The analytical chapters in the IMF’s semi-annual World Economic Outlook were released today (outlook chapters follow next week). The topics covered were:
- Where Are We Headed? Perspectives on Potential Output This chapter finds that potential output growth across advanced and emerging market economies has declined in recent years. In advanced economies, this decline started as far back as the early 2000s and worsened with the global financial crisis. In emerging market economies, in contrast, it began only after the crisis. The chapter’s analysis suggests that potential output growth in advanced economies is likely to increase slightly from current rates as some crisis-related effects wear off, but to remain below precrisis rates in the medium term. The main reasons are aging populations and the gradual increase in capital growth from current rates as output and investment recover from the crisis. In contrast, in emerging market economies, potential output growth is expected to decline further, owing to aging populations, weaker investment, and lower total factor productivity growth as these economies catch up to the technological frontier.
- Private Investment: What’s the Holdup? Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since. Investment has generally slowed more gradually in the rest of the world. Although housing investment fell especially sharply during the crisis, business investment accounts for the bulk of the slump, and the overriding factor holding it back has been the overall weakness of economic activity. In some countries, other contributing factors include financial constraints and policy uncertainty. These findings suggest that addressing the general weakness in economic activity is crucial for restoring growth in private investment.
Congratulations to Joseph, winner of this year’s Econbrowser NCAA tournament challenge. Even though the championship game has yet to be played, using high-level mathematics I have deduced that no one can catch Joseph’s lead, no matter who wins Monday’s game. Hats off to Joseph, Vivian Darkbloom and many others of you who answered, yes, Wisconsin could beat Kentucky.
Two number one seeds meet in the finals, just as I predicted. Unfortunately, I had the wrong pair!
Ben Bernanke has joined the blogosphere, offering an invaluable resource for anyone wanting to understand recent economic developments. Last week he had a series of articles examining factors behind the very low real interest rates on long-term bonds.
The March establishment series estimate for nonfarm payroll employment clearly fell far short consensus estimates (release). Here are a couple of quick observations.
The events surrounding the signing into law of Indiana’s Religious Freedom Restoration Act provide an interesting test case to see if boycotts, or threats thereof, can successfully induce policy changes. I find this an interesting analogue to the ongoing debate whether Western sanctions, particularly “smart sanctions” imposed on Russia, can have an impact.
In a previous post, Laurent Ferrara, Valérie Mignon, and I examined the nonlinear relationship between employment and output (based on J.Macro (2014)). Using the most recent data, the level of (establishment) employment now matches the output level. Figure 1 shows the actual level, and the predicted level from a nonlinear error correction model that allows short run dynamics to differ between recession and non-recession regimes.
On Friday I visited the University of Alberta in Edmonton, where falling oil prices have brought a record provincial budget deficit despite aggressive tax increases and spending cuts. Here I pass along some of what I learned about how the plunge in oil prices is affecting Alberta’s oil sands operations.
Some people would have you believe the impact of a minimum wage hike on employment is known to be large and negative. A cursory acquaintance with the literature helps in immunizing one (if one believes in vaccines and the like) against falling for such assertions.
Will a minimum wage increase induce an apocalyptic conflagration of small businesses and low wage employment? Here’s one prediction:
This is not the time to force businesses to raise prices by laying-off employees in order to stay in business.
What good is raising the minimum wage if prices go up? What good is raising the minimum wage if there are no jobs available?
Businesses will be forced to raise prices in order to absorb a 26% pay increase. Restaurants will be especially hard hit.
Today, we’re fortunate to have a guest contribution by Jeffry Frieden, Stanfield Professor of International Peace at Harvard University, and author of the newly published Currency Politics: The Political Economy of Exchange Rate Policy (Princeton University Press, 2015). This post is based upon a portion of that book.