For a last bit of “Year in Review”, yet more “Facts are Stupid Things”. Patrick R. Sullivan asserts that the economy boomed once the government reduced its spending in the wake of World War II. I am going to take a “boom” as a rapid increase in economic activity. Here is a time series depiction of real GDP’s evolution, using the Valerie Ramey (UCSD) series from her 2011 QJE paper (ungated working paper version here).
The Year in Review: Even More Fantastical Pseudo Economics
To heck with facts… and the scientific method.
Supply, demand and the price of oil
A few weeks ago I offered some calculations suggesting that lower demand for oil might account for about $20/barrel of the dramatic decline in the price of oil since last summer. Here I point to some other evidence consistent with that conclusion.
A Quick Note on Different Views of Potential GDP
Reader Steven Kopits writes “potential GDP model is also a binding constraint model”, so GDP “…is subject to some sort of natural speed limit which cannot be exceeded”. This assertion is so amazingly absolutist in nature, and represents such a misunderstanding of how macroeconomists typically think of potential, that I am moved to observe that if this were so, output would never exceed potential GDP in our frameworks. Now, let’s consider the relevant depiction implied by the CBO estimates (using a production function approach [1]).
Growth Rates and Levels, Again
The Boom Forecasted
A year ago, Jeff Frieden and I forecast (along with others) in Politico Magazine a boom in output. In light of today’s third release for 2014Q3 real GDP, clocking in at 5% SAAR [1], it’s reasonable to ask, are we there yet?
Do falling oil prices raise the threat of deflation?
The spectacular drop in oil prices means that inflation is going to fall even further below the Fed’s 2% target. Does that raise any new risks for the economy? I say no, and here’s why.
Guest Contribution: “Why Are So Many Commodity Prices Down in the US… Yet Up in Europe?”
Today we are fortunate to have a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99.
Russia: Seems Like Old Times
As I watch the financial meltdown in Russia (and work on a chapter on financial crises), I am pervaded by a sense of déjà vu.
Guest Contribution: “Transparency and the Global Transmission of Financial Shocks”
Today we are fortunate to have a guest contribution written by Luis Brandão-Marques, Senior Economist, Gaston Gelos, Chief of the Global Financial Stability Analysis Division, and Natalia Melgar, Economist, all at the IMF. The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.
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