This must be the period of soul searching, with the Economist engaging upon multi-article exegeses on where mainstream macro went wrong [1], [2], [3]. Alternatively, I think this is a happy time for some economists outside the (perceived) mainstream, who can now chortle “I told you so”. One recent example is by Mario Rizzo.
Yearly Archives: 2009
Natural gas and oil prices
Since the start of the year, the price of crude oil has risen about 40% while the price of natural gas has fallen by about 40%. Can that divergence be maintained?
Links for 2009-07-17
Some quick remarks about the evidence for economic recovery, central bank independence, and Goldman Sachs.
In the news
Casey Mulligan on the Stimulus: Stock-Flow Mismatch, Sectoral Stimulus Mismatch, and Construction Crowding Out
In today’s Economix post, Casey Mulligan argues that the greater than predicted unemployment numbers should not be ascribed to the negative effect of the stimulus, but rather to bigger than anticipated negative shocks.
We cannot blame the Obama administration for failing to predict June’s 9.5 percent unemployment rate. That result just shows the size of the shocks hitting the economy: Even the best forecasters can miss the unemployment rate by almost two percentage points, even when forecasting fewer than six months ahead.
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.
A New Survey of Multipliers
For people who want an impartial survey of multipliers, see Patrick Van Brusselen, “Fiscal Stabilisation Plans and the Outlook for the World Economy”. It’s a useful antidote to the blogposts that cherry-pick multipliers from a given model to make a given point. The survey ranges over US, euro-area, and Japan; and structural macroeconometric models, DSGEs, and VARs.
Pre-ARRA, How Badly Did Macroeconomic Forecasters Overpredict GDP and Employment in 2009Q1?
There’s been a lot of breast beating over the fact that the Administration underestimated the severity of the downturn. From this has come a lot of confused argument — sometimes not internally consistent — over whether this invalidates the usefulness of the stimulus package, whether the stimulus worsened the economic outlook, etc. I’ll dispense with the clearly economically illogical arguments and try to tease out what is the “surprise” element in the 2009Q1 figures, and from that infer how much worse the economy was relative to what private sector forecasters predicted, conditional upon the passage of the ARRA.
Links for 2009-07-12
A very neat interactive graphic from the NYT showing changes in same-store sales for different establishments. (Click on the store name at the left, and tip your hat to Economix).
Keith Hennessey, who used to have Larry Summers’ job in the Bush White House, on the challenges facing the White House in framing discussion of the effectiveness of the existing stimulus package. See Obama’s apparent answer here.
And a hilarious story via Calculated Risk on why Wells Fargo is suing itself.
Ed Lazear on the Stimulus Package
From the WSJ editorial page:
Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.