Origins and Challenges of a Strong Dollar

That’s the title of an op-ed appearing in Nikkei newspaper (日本経済新聞):

Chinn, as translated, in The Nihon Keizai Shinbun.

Over the past four years, the US dollar has exhibited noticeable strength. The dollar appreciated 17% in inflation adjusted terms from mid-2014 to the eve of the election; upon the election of Donald J. Trump, the dollar again jumped another 5% in anticipation of fiscal stimulus and the Fed’s interest rate response. Throughout 2017, as the Trump Administration struggled to deliver on tax cuts and an infrastructure program, the dollar faded – only to surge with the passage of the tax plan, and the Fed’s stated intent to raise interest rates. The dollar now stands 20% stronger than it began its ascent.

The sustained appreciation of the dollar, combined higher interest rates, has placed tremendous stress on the global economy. And even more stress on the emerging market economies. Is there hope for relief in the near future? It’s hard to see how. Should the US economy slow, the dollar will depreciate, but it’s a race – between the US slowdown and the rest of the world. And should the world go into recession, the US dollar will likely serve as the safe haven currency, appreciating rather than depreciating further.

What could avert a continued strong dollar? It’s important to realize that the collision of fiscal and monetary policy is not inevitable. Had the Republican coalition not unleashed a supremely irresponsible fiscal program comprising massive tax corporate tax cuts and loosening budget constraints, the Fed would not have had to embark on such a vigorous program of monetary tightening. Almost as damaging, if not more, was the heightened policy uncertainty engendered by Mr. Trump’s erratic pronouncements regarding tariffs and other trade policies. The chain of events and consequences follows.

1. The Dollar’s Ascent

The dollar began its rise in mid-2014. It is hard to understand this event in the context of conventional economic measures, as the most reliable determinant of the dollar’s value is the interest differential. With the Fed funds rate stuck at the zero lower bound from the end of 2008 to the end of 2015, it is hard to discern this effect. However, using the shadow Fed funds rate, which is inferred from the from longer maturity bond rates, there is a more pronounced positive relationship between US interest rates and the dollar’s value (Figure 1).

Figure 1: Nominal value of US dollar against a broad basket of currencies (blue, left scale), and Fed funds rate, % (red/pink, right scale). Shaded area denote post-election period. Source: Federal Reserve, Jin Cynthia Wu and Fan Dora Xia.

The dollar’s more recent uptick corresponded with Mr. Trump’s election in November of 2016. Anticipation of a large tax cut, elevated military expenditures, and implementation of a large infrastructure spending program naturally led to expectations of a stronger dollar as anticipation of a boom in domestic spending and tightening monetary policy developed.

Contrary to Mr. Trump’s assertions, Fed policy has not been “crazy”, nor has it been “too cute’. In fact, an utterly conventional Taylor rule suggests pretty much exactly the observed increase in the Fed funds rate. For instance, assuming a variable real natural rate, and the Fed’s estimate of the output gap, the implied Fed funds rate looks a lot like the actual, as shown in Figure 2. And, if anything, other specifications would suggest an even faster pace of tightening.

Figure 2: Actual Fed funds rate (dark blue) and implied (green), using Taylor rule with PCE deflator target of 2%, one-sided Laubach-Williams estimate of real natural rate, Board of Governors one-sided estimate of potential GDP. Source: Federal Reserve Bank of Atlanta.

It goes without saying that continued economic growth will almost assuredly prompt further interest rate increases – a point verified by the FOMC dot plots, and hence corresponding strength in the dollar.

2. The Dollar as a Safe Asset

Is there any possibility of a respite from dollar appreciation? As soon as the US economy starts to slow, the Fed will relent, and the dollar will weaken. However, a full-fledged recession in the world economy could stymie that depreciation; as risk appetite declines, dollar assets – particularly US Treasurys – become more attractive. This happened in the 2008 financial crisis, even though the United States was the epicenter of the financial crisis; capital flowed to the US because Treasurys were viewed as the safest asset.

The likelihood of a US, let alone global, recession seems low given the recent reports of rapid growth – 3.6% annualized in the third quarter. But the tax cut has set up the conditions for a more marked deceleration – albeit from a higher level – than would have been the case without stimulus. Slowing business fixed investment, a forward looking variable, is suggestive of an imminent slowdown.

3. Emerging Market Economies under Stress

There are a confluence of events driving the incipient crises in the emerging markets. The end of the commodity supercycle is signaling tougher times ahead for commodity exporters. That was also true in 2014, when the “taper tantrum” roiled emerging markets. What makes the current situation so difficult is that the dollar is strengthening at the same time that interest rates are rising. Recent work by Joshua Aizenman, Menzie Chinn and Hiro Ito demonstrates that emerging market pressure, as measured by declines in foreign exchange reserves, currency weakening, interest rate increases or combinations thereof, is strongly affected by these two phenomena. And of them, dollar strengthening is the more stressful.

While countries experiencing political turmoil are most obviously suffering (e.g., Turkey), other emerging market economies will inevitably experience similar challenges the longer high interest rates and a strong dollar persist. How well they will fare will depend on the policy choices they have, and are, making regarding exchange rate regimes, capital controls, and macroprudential measures. The greater reserves, the less foreign currency denominated debt, the more resilient.

4. What Can Be Done?
Given the fact the tax cut is in place, and the path of monetary tightening seemingly set, is there an opportunity to mitigate the effects of the dollar’s appreciation? The Fed is constrained from relenting by the fiscal authority’s recklessness. However, the administration could eschew further spending programs, as in a new infrastructure program; political realities and political incompetence in any case makes that outcome unrealistic.

A part of emerging market stress is entirely avoidable: reducing induced policy uncertainty. The greatest influence comes from US trade policy uncertainty. As shown in Figure 3, Global uncertainty is driven by US trade policy uncertainty, a seemingly deliberate outcome of Mr. Trump’s helter skelter approach to negotiating the multilateral trade regime.

How much of the current emerging market stress is due to policy uncertainty? That’s hard to quantify, but uncertainty regarding US trade policy certainly seems correlated with measured global uncertainty (see Figure 3). Policy uncertainty in the emerging market economies should depress business fixed investment activity, and worsen their balance of payments positions. If the effect is sufficiently large, the uncertainty US policymakers are inflicting on the world will rebound upon the US, in depressed exports.

Figure 3: US trade policy uncertainty index (blue, left scale), and global economic policy uncertainty index (red, right scale). Shaded area denote post-election period. Source: Baker, Bloom and Davis, at

Should emerging market countries be forced to allow their currencies to depreciate en masse, the dollar would tend to rise even further, exacerbating the stresses on emerging market economies, particularly those burdened by high levels of dollar denominated debt (Argentina, Brazil, Turkey).

It’s unlikely the Fed, let alone the administration, will take into account the travails of emerging markets in formulating policy. Hence, hopes that macroeconomic policies will be moderated should be restrained. On the other hand, lots of unnecessary distress can be avoided by simply pursuing a less confrontational trade policy.

72 thoughts on “Origins and Challenges of a Strong Dollar

  1. pgl

    “That’s the title of an op-ed appearing in Nikkei newspaper”.

    It is interesting that a Japanese newspaper is commenting on the woes created by the stronger dollar. Go back 25 years and all the talk in Japan was the woes created for Japanese manufacturers by the stronger yen.

  2. Moses Herzog

    Am I understanding it correctly you were published in a major Japanese publication?? I think that’s pretty cool. For more reasons than one. I know there has been some pretty strong “tension” (to put it mildly) between Chinese and Japanese (certainly the governments). I have had multiple and lengthy conversations with mainland Chinese about their feeling to Japanese. It might not shock Menzie the type conversations I had (not the venomous comments, but that I had gotten many Chinese to say in exact details their feelings in English to my face even though they knew overall I had no issues with Japan). I bet it would surprise some other regulars here, the amount and depth of anger still held. Some of it very legitimate anger, other “portions” of the anger fanned and fed with gas fumes by the Xinhua, CCTV (etc) propaganda machine. Anyways I always think it’s cool to see Chinese interact with Japanese as I think they often share more in common (no I am not talking about looks/appearances) than they think.

    I’ll try to make more substantive comments directly related to the blog post after I have time to digest it.

  3. joseph

    “What Can Be Done?”

    1. The Fed could stop their vicious campaign to stamp out the first worker wage gains in a couple decades by not raising interest rates.

    2. China could sell off $1 trillion of U.S. debt, but I doubt they are inclined to do this while Trump continues his trade war. The strong dollar pretty much offsets the effect of the tariffs for China.

  4. KIen Choong

    Hi, why don’t emerging countries diversify the currency of borrowed funds? The Central Bank could cap the amounts (or percentages) borrowed in each currency. The cap could be lower for currencies that are safe havens, and higher for currencies that also fall in a recession.

    The caps could be relaxed during a recession, and tightened when times are good (ie bias borrowings towards domestic vs foreign debt).

    Apologies if this is a dumb question!

    1. Moses Herzog

      Menzie, Professor Hamilton and I’m sure many others can answer this better than me. I’m certain many emerging countries have “unofficial targets” on how much they have of any currency. Most mainland Chinese (certainly not government officials) have no affection towards the USA, yet hold (at least as recently as 2016) $3 Trillion in US currency reserves. Why would they hold that much of a currency from a country they are either apathetic to, or tend to even dislike?? Because they can use them to modulate the value of their own currency, and because they view it as a safe store of value.

      In more direct answer to your question, related to China is, the reserves of US currency have dropped relatively dramatically recently. Is that China’s response to Trump?? Maybe like 2% of that change is a retaliation to Trump. But my guess is 98% of that drop in US Currency reserves by the Chinese government is related to the FISCAL situation in China—spending the reserves on FISCAL issues. Where I’m wrong here, I welcome knowledgeable people to correct me.

  5. Moses Herzog

    Off-topic Was I the “last one to know”?? I have discussed on here before that Elizabeth Warren could shut up her critics if she simply published her DNA test. Apparently, FINALLY, she has done it. Roughly 3 weeks ago and somehow I had missed it in the news cycle:

    The average white American has 0.18% Native American genetic makeup. In other words, if you “randomly” picked any white person off the streets, did the DNA analysis (maybe say a pool of 10,000 white people?? I don’t know, pick a large number, probably larger I guess), the average white person has 0.18%. Elizabeth Warren has HALF of that. 0.09% Native American. And now Warren is claiming a non-existant “victory lap”. This is straight out of the HIllaryClinton/RichardNixon playbook. Get caught in a lie—->>tell another lie. Get caught in a lie on a lie—->>tell a 3rd lie on a lie on a lie**

    ** double asterisk indicate from Hillary Clinton’s playbook, continue to infinity, and make certain they are the kind of lies idiot urban housewives can relate to, as they hear similar type lies on the believability scale from their 6 year old.

    That’s not “transparency”. It is VERY Trumpian in the sense of trying to normalize a lie (“I am Native American”) and if you repeat it enough times “the sky is red” “the sky is red” “the sky is red” “the sky is red” “the sky is red”, that then it becomes “fact”. No Lizzy Dear, No Dear Sweetie Lizzy Dear, it does NOT. The sky is in fact blue. But you keep screaming “the sky is red” like Hillary did and watch how that playbook works in 2020. Go ahead and act like HIllary didn’t try that long and over-tread road before. Or, as Jack Nicholson once said, Lizzy,, “Go Check It Out”

    1. Barkley Rosser


      Aside from being off-topic, your comment on this betrays a lack of knowledge about the probability distribution involved here. It is not normal. It is most decidedly not the case that if you picked the “average white person” off the street they would have 0.18% Native American ancestry. They would probably have zero. The distribution is highly skewed, with a small number of whites having a lot more than 0.18%. This is like income distribution, one needs to look at the median, and the median for whites for Native ancestry is zero.

      Remember that Trump and his allies declared she had zero and challenged her to provide her DNA test. Her claim all along had been that a great great great grandmother had some Native ancestry. The DNA test is completely consistent with that. Trump was wrong, and has not paid up the money he promised to give to a charity if he was shown to be wrong.

      That said, it was always probably unwise of Warren to make too much of a fuss about her ancestry, given how miniscule she herself claimed it to be, and at certain points along the way she did some really foolish things, such as contributing recipes to a supposed Cherokee cookbook that she got from House and Gardens. But she had pretty much stopped talking about it or making claims about it, including removing herself from that law school list of minorities prior to running for office. It was her opponents who dredged up these old claims she was not talking about when she ran and made such a whoop about them, including repeatedly calling her “Pocahontas,” a clearly racist insult. in the end, her claims were vindicated, and your comment looks very out to lunch and shamefully ignorant.

      1. Moses Herzog

        @ Barkley Rosser
        The answer to Elizabeth Warren’s problem would have been very simple. Take the DNA test (done), Make the DNA analysis public (done), “Come clean” to both her supporters and detractors (FAIL). All it required of her was saying something to the effect of the following “In my younger years, I made a regrettable mistake. A poor use of judgement due to my immaturity and and my pragmatic view of the dog eat dog world of academic career advancement, I claimed to be a minority in order to cynically take advantage of quotas. This was wrong on my part. It was a poor decision I made which I regret, take full responsibility of, and now I am willing to face the political consequences for my own actions. I hope voters can see I am human as anyone, not infallible to sometimes selfish goals, and voters are willing to take a look at the big picture of my career advancing the causes of the poor and middle class, and view me in general and in the voting booth through the lens of my lifework as a whole.”

        Which she can still do, though it’s very very late now. Late is better than never. I am tilt to the left politically. But I am not viewing this as an “us vs them” thing. You are turning this into a “Trump is a bigger liar than Senator Warren, therefor it means she is not a liar, because he is a bigger liar”. This is exactlyhow Hillary’s whole 2016 campaign can be summarized “OK, I am a big ass liar, but Trump is a bigger liar than me, so you should swallow my lies as ‘ok’, because he is a worse liar”. It’s not a very inspirational way to run a political campaign, and you saw the results. I am offering (as a Democrat myself, and someone who would LIKE to see her succeed) Senator Warren an inoculation shot for her prior LIE.

        1) Admit/confess it was a LIE.
        2) Make a public apology (In person on the DC capitol steps in a pre-announced press conference, and/or the same in a Native American cultural location.
        3) Take responsibility and face short term consequences for telling the lie.
        4) Move on.

        Instead Senator Warren is choosing a route which is going to drag on for the next 20 years—just THE SAME as Hillary’s lies have followed her for 20+ years. Tell the lie on top of the lie, on top of another lie, on top of that lie, lie about the 4th lie, and add on to infinitum. How did that work in 2016?? Did you wanna tell me Barkley how well that little stratagem worked in 2016?? Why don’t you refresh me the chronology on that, because according to your outlook, I seem to be remembering that all wrong.

        1. Barkley Rosser

          Sorry, Moses, but the evidence is strong that she did not do it to take advantage of minority quotas. You have been watching too much Fox News or something. Go check it out. Those who hired her at Harvard have repeatedly made it clear this had nothing to do with it. It was about the time she stopped listing herself in the directory that the Harvard Crimson printed a piece about how she was adding to Harvard by being a minority. There is no evidence she got any professional advancement from this, although this is exactly what her opponents claimed when they dredged all this up and started calling her “Pocahontas>’ You are falling for a bunch of racist propaganda, frankly, and you should go check it out before you further repeat this drivel.

          For the record gsI am not arguing this because I am some big fan of hers or support her for president. Frankly, I hope she does not run, and one reason is precisely that even though this stuff is all blown bs, it has damaged her as a candidate for better or worse. Let her stay in the Senate where she can do some good things.

          1. Moses Herzog

            @ Barkley Rosser
            It’s too bad you can’t read Barkley. The “evidence” for your argument is not strong, as Harvard was bragging about hiring her as a minority in their own university publications at that time. You provide zero links to support yourself, and then think that spitting out basics level statistics terminology, “skewed distribution curve”, is going to make me run for the hills. Yet you provide no such “skewed distribution curve” related to the said data on genetic makeup. You discuss FOX news, but not providing links for your assertions is right out of “PeakIgnorance’s” playbook. I have provided a link from a woman who is a former student of Warren’s, and was attending the University around the same time that Senator Warren used the checking of the box “Native American” to provide herself with an advantage in the hiring process:

            You say the following: “Those who hired her at Harvard have repeatedly made it clear this had nothing to do with it.” It’s an asinine argument to make that the individuals hiring her said “minority status had nothing to do with her hiring”. Apparently, Mr. Rosser, you are too obtuse to figure out that there is no University on planet Earth (certainly not Harvard), and no individuals in the hierarchy of academia, who is going to say “Yes. We hired ‘professor candidate X’ in large part because she was a minority”. And, sorry, there’s no other word but asinine to describe you thinking that they would ( especially I might add, if you have worked in academia—which indeed would make it worse looking for you in the painfully obtuse department.

          2. baffling

            moses, as i reacall prof warren was hired at harvard as a full professor, after a distinguished career as a full professor (chaired professor) at both u of texas and upenn. to assume that “Senator Warren used the checking of the box “Native American” to provide herself with an advantage in the hiring process” in this situation would actually be asinine. in academia, nobody would hire a full professor, and the relevant cost to salary and startup, simply because the candidate fulfilled the “minority” status. it is simply too expensive. today, in many fields of academia (especially stem), there is a push for diversity through hiring of minorities, but this is typically done at the assistant professor level. you can buy two or three assistant professors for the same cost of recruiting a full professor, and check off many more minority boxes, if that is your goal. i think it is safe to say prof warren achieved her position through merit only. it is symptomatic of the problems we have in this country today when successful women and minorities are credited with their success due to skin color or gender, not their high achievements. i know, moses, this is not what you meant, but on this topic the conservative talking points have gotten through your filter and influenced you in a way that is not representative of your typical judgement on things.

            on a related matter, i also claim irish heritage from stories of my family. its great, st patty’s day means even more to me as a i down a green beer with my brethren. had an uncle who did some geneology research on our family. sure, there appears to be irish blood in the family-from three hundred years ago! prof warren probably has a stronger native indian profile than i (and many other americans) have of their “ancestral heritage”, yet we do not condemn those folks as “fakers”. i stand behind my irish roots (among MANY other roots i might add), because i am proud of my heritage. from what i understand, professor warren also stood behind her roots because she was PROUD to have native american ancestry. unfortunately, not all americans would be proud of their “minority” status. think all of those white supremacists in the south are pure without contamination from the “slave race”? oh the horror!!!! we should be enthused that a civic leader is standing proud for her minority heritage-and i wish more would do the same.

          3. Moses Herzog

            @ Baffling
            Baffling, I don’t take serious issue with anything you say. All of it is well-intentioned. It doesn’t even bother me what you said about me, my “filter” etc. As I feel certain you believe that and it wasn’t said in ill-will. But here is the deal. Senator Warren lied to get herself a job. And there’s no working around that fact. And after lying, she continues on with the lie, and in fact, made the lie worse. And a (D) by her name, in her TV interview lower screen identification caption or on a ballot, does not change the fact she lied, anymore than it did when Hillary told her thousands of lies. How many people here would have voted for Mondale?? Show of hands. How many people here can say they voted for Jerry Brown with their first ever cast presidential vote?? Show of hands. OK, so who is really not being objective on this?? Ask yourself: “If Paul Ryan, Newt Gingrich, Rand Paul, or James Lankford had pulled THIS SAME STUNT what would my attitude have been on that??” In your case and Barkley’s case I think I know the answer. You wouldn’t be on a blog taking time typing very shallow and poorly-supported defenses of them, I’m pretty certain of that much.

          4. baffling

            “Senator Warren lied to get herself a job.”
            moses, false. discussion stops there. such an accusation requires significant proof, not innuendo or somebody’s personal opinion. and i have seen absolutely zero proof that your statement is true. zilch. nada. but you are conflating two items incorrectly-minority status and getting a job. first, she has a native american background. you may disagree with the level at which one could call themselves a minority, but you cannot deny that native american background in her genetic makeup. in fact, i would think a child born in the 1940’s in oklahoma is more likely than not to have a native american history. but the bigger flaw in your argument is that she claimed native american in order to get herself a job. both herself and the institutions who hired her deny this-but you want to take second hand statements over theirs in this case. and this is where the lack of significant proof comes into play. that is a pretty strong allegation. if you want to make it, you need stronger proof. i just don’t see that it exists.

      2. Moses Herzog

        @ Barkley Rosser
        Let’s look at the pictures of Elizabeth Warren’s “Momma” (which I feel certain is how she referred to her pre-politcal campaign times, as her “Momma”) and see if we can rate this on the realism scale. Maybe you can fit that on a skewed distribution curve for us Barkley, I’m in a ripe mood to be entertained tonight by very stretched arguments, please do.

        Here’s a video of Elizabeth Warren that was at least pre–August 2012.

        Barkley, I’m sure your skewed distribution curve can explain to us how exactly the ratio of Senator Warren’s mother’s blood works into this joke of a Montague vs Capulets story Senator Warren has concocted and contrived to create a really “moving” melodrama, tailor-made for a Hallmark or Lifetime channel B-movie. Again, Barkley, I hope you’ll create such a skewed distribution curve to explain how believable that is. I missed all of the most recent “SNL” show, and I have a feeling your skewed distribution curve explaining THAT, is going to have me rolling down on the floor in laughter better than any “SNL” episode I have ever watched.

      3. Moses Herzog

        @ Barkley Rosser
        I’d like to add one last thing here. This lady, who is a former student of Elizabeth Warren’s, frames “the issue”—i.e. THE LIE better than any public personage I have seen frame the issue. Her name is Jennifer Braceras and I tried to situate the link so the video starts where she is making the point that many people are missing. (BTW, it’s rare I quote a WSJ columnist, so, I would probably have a damn good reason for doing so)

        1. Barkley Rosser

          Wow, Mosesd you are completely wacko on this sideshow issue. This is all I am going to do in reply. For starters, this conservative columnist you linkied to made several factually incorrect remarks. I am not even going to bother linking to the fact that the probability distribution is skewed. If you do not know that, you are an ignorant idiot.

          I suggest you google “hiring of Warren at Harvard Law.” Of the top ten hits, one is your semi-inaccurate conservative columntist, and one other a story from the Boston Herald claiming Harvard needs to answer questions. The other 8 all support what I said. So, this is all I am going to say on this ridiculous sideshow issue where you have made an utter fool of yourself. As it is, you are making yourself look as silly and wacked out as Peak Trader. Outtahere on this nonsense.

          1. Moses Herzog

            @ Barkley Rosser
            You don’t say which statements Braceras made that are “factually incorrect”. Because nothing she said as related to Elizabeth Warren’s lying about her ethnicity was “factually incorrect”. Great way to make an argument, or should I call it your “sideshow”??

            Barkley, If you are reticent and afraid to provide your sources/links for your arguments, I “get it”. Anyone making an argument on such thin ice as you are would be ashamed to quote the sources of their garbage collection as well—especially if they were a former teacher or researcher—that would be doubly shameful for such a person Barkley. Thank goodness I am not that person.

            There is NO “skewed” probability distribution provided by you, Barkley,—because there is NONE you can provide that supports your argument. The genetic make-up of whites with Native American blood is most likely NOT skewed. In fact over multiple generations of time that whites have procreated with Native Americans, the distribution is highly highly highly apt to be a normal distribution (or certainly closer to a normal distribution, than skewed). I have a “shocker” for you Barkley, whites intermingling with Native Americans didn’t just start happening when you went to watch John Wayne’s “The Searchers” back in 1956, as that is what your dreamland skewed distribution curve would imply.

          2. Moses Herzog

            @Barkley Rosser
            You give a link that doesn’t even work, with a statement that says “would have” that we have no idea what the “would have” refers to. Good job. And your quotation Barkley, if we can call it a quotation, does NOTHING to support your contention of a “skewed” distribution curve. Were you really a teacher at one time or has senility set in for you?? That’s an earnest question there, you better be asking yourself before you make more comments in threads about relatively complex topics. Barkley, are you and Peter Navarro drinking from the same tap water source?? I think the cuckoo juice has seeped into the cells of your cerebrum.

            I may look at the article you posted, in something I think is referred to as “the Wayback Machine” where I am guessing it does nothing to support your argument about a “skewed” distribution curve as it relates to whites with Native American genetic makeup. You better hope the link doesn’t work Barkley, because if it does I’m going to use your own link to demolish you in this same thread.

          3. Moses Herzog

            @ Barkley Rosser
            I just looked up what I am 98% certain is the website you reference. Do you even know what Quora is Barkley?? It’s a social networking site. Barkley, I WISH I was being facetious when I say I really feel sympathy for your former students if this is how you source your information. Quora….. wow man. But thanks for the Quora Barkley—if I’m desperately looking for a job someday, I’ll get on Quora and see if any of the people pretending to know something about the posted topic have any leads. Maybe I can do some self-promotion while I’m on Quora, just to “fit in” with the group.

            Barkley, ever think about working at the George Mason Economics Department?? How about the “Mercatus Center”?? I don’t think you have to support what you say too much there.
   <<—-That link works Barkley.

          4. Barkley Rosser


            Do you think that Jewish ancestry is evenly distributed among the non-Jewish poipulation of the US? I think you know better. It is also a skewed distribution, just like that for Native ancestry and that for African ancestry.

            The real problem here, Moses, is your increasing propensity to post stuff here that has nothing to do with the topic posted originally. You simply should not be doing that. It is offensive, so as far as I am concerned Menzie and Jim would be justified in simply banning you from this site. Most of this stuff you post is not totally idiotic and offensive, but this one most definitely is. In any case, you should cut out this posting of sideshows, no matter how reasonable. If you want to post random stuff, start your own blog and do it there and stop highjacking Econbrowser for your sometimes utterly worthless shit.

            BTW, if you want to dump on me professionally, I suggest you google me. For starters, I have not retired, and furthermore, in 2011 I was awarded an Outstanding Faculty Member by the State Council on Higher Education in Virginia, but I am sure they had no idea what they were doing, and expert on probability distributions that you are knows better.

            Agsin, just stop posting sideshows here, no matter how important you think they are. You are making yourself look like a total jerk.

          5. Moses Herzog

            @ Barkley Rosser
            Based on your quoting of “Quora”, maybe you should retire. And using the Jewish ethnic group as a measuring bar, once again shows how unbelievably uneducated you are for someone who claims to be a teacher or researcher.

            You’re either being very disingenuous by comparing something you know to be comparing apples to oranges, or you are very ignorant on Jewish culture vs Native American culture. On top of it, after your “Quora” link that didn’t work, you still haven’t presented your fictional “skewed” distribution curve for whites with Native American ancestry. I’ve asked you like 5 times for this fictional “skewed” distribution curve and you can’t present one—because it doesn’t exist




            Barkley, You “so happen” to have chosen for your example, the single most strict culture/ethnicity on planet Earth as regards marriage outside of said ethnicity and/or religious faith. Which is a very convenient way to make your argument, but is ridiculous on its face.

            But, I say again Barkley—if the way you source your information for this thread’s argument is the same way you source information for your students’ learning, I feel deep sympathy for them.

  6. Moses Herzog

    I like this article written by Menzie very much (really it’s hard for me to think of anything Menzie writes I don’t like and find edifying, although in the “like” department I suppose if I was very hard-pressed I could find one. Sure as hell can’t think of it now). It really helps sometimes to pan the camera back, take a wider overview of things can present a clear picture—which this article does.

    Certain parts of the text jumped out at me:
    “Should the US economy slow, the dollar will depreciate, but it’s a race – between the US slowdown and the rest of the world.”
    “Had the Republican coalition not unleashed a supremely irresponsible fiscal program comprising massive tax corporate tax cuts and loosening budget constraints, the Fed would not have had to embark on such a vigorous program of monetary tightening.”
    “…..using the shadow Fed funds rate, which is inferred from the from longer maturity bond rates, there is a more pronounced positive relationship between US interest rates and the dollar’s value”
    “The greater reserves, the less foreign currency denominated debt, the more resilient.”
    “However, the administration could eschew further spending programs, as in a new infrastructure program; political realities and political incompetence in any case makes that outcome unrealistic.”
    “Policy uncertainty in the emerging market economies should depress business fixed investment activity, and worsen their balance of payments positions. If the effect is sufficiently large, the uncertainty US policymakers are inflicting on the world will rebound upon the US, in depressed exports.”
    “Should emerging market countries be forced to allow their currencies to depreciate en masse, the dollar would tend to rise even further, exacerbating the stresses on emerging market economies”
    “But the tax cut has set up the conditions for a more marked deceleration – albeit from a higher level – than would have been the case without stimulus. Slowing business fixed investment, a forward looking variable, is suggestive of an imminent slowdown.”

    For the record, I still do not agree with the 3.5% GDP or the recent quoted numbers of the BEA (talking strictly USA here). Now sometimes, I even cannot believe I am typing that, as I said it before. I am afraid Menzie will view me as less intelligent a person for expressing my view on the GDP not being above 3.5% as it is quoted. It’s very rare for me to go against Economic experts or the Economics “doctrine” (??) or Economics “articles of faith” (??), I forgot the term, there’s a term for it, but it means well accepted among the academic community. Or to go against Fed numbers for example. It’s very rare for me. The only thing I can think of as an analogy at the moment is as a person who does not believe in ghosts, is not superstitious, but feels certain just this morning they had an experience with a dead spirit or dead relative. Count these recent GDP numbers going above 3.5% as my first experience seeing a ghost—if that makes sense. I just feel strongly about it not being that high.

      1. AS

        Professor Chinn,
        Some help needed.
        Just looking at the Y/Y percent change in real PCE and real GDP from 1974Q4 to 2018Q3, it looks like real GDP was on average about 1.03 times real PCE (both time series appear to be stationary for this time period). Again, using the Y/Y percent change, from 2014Q2 to 2017Q4, real PCE Y/Y percent change was greater than real GDP Y/Y percent change. For 2018Q1 and 2018Q2, the Y/Y real PCE percent change fell below the real GDP Y/Y percent change. For 2018Q3, the Y/Y percent change for real PCE is about 3.05% and the Y/Y percent change for real GDP is about 3.04%. Thus, for 2018Q3, the relationship between real PCE and real GDP Y/Y percent change is about equal to the long-term average from 1974Q4. The question is whether this analysis helps to lend some credibility to the GDP shown by the BEA for 2018Q3. Real PCE averaged about 66% of real GDP for this time period from 1974Q4 to 2018Q3.

      2. AS

        Professor Chinn,
        More Help Needed
        I notice that if I use a regression model to try to determine the relationship of the Y/Y percent change of real PCE and real GDP, I find the 1.03 factor previously mentioned, however, the model has autocorrelation issues. If the autocorrelation issues are considered, the relationship changes to a much lower value, however a forecast model with both models show about the same forecasted real GDP Y/Y percent change. If I merely average the relationship of Y/Y percent change in real PCE and real GDP, this calculation shows a value of about 1.0.

  7. Moses Herzog

    I am just as angry as anyone is about Orange Excrement being in the White House. (I guarantee you, and if I put that anger into action, which I will not, anyone would believe me) But one thing many people are missing is—the great inheritor donald trump is NOT “creating” these cultural issues we have in our country. The Steve Bannons, David Dukes, the white supremacists targeting colleges for new recruits etc have been around a long time. And a type of “target audience” of people who can be “sold a bill of goods” has existed long before Trump, going back to at least the early ’80s and “Reaganism”. Promising uneducated groups the moon has been around for a long time. It disseminates itself and propagates itself in many ways and forms. So, as you read this story, if you so choose this adventure/link, I want you to ask yourself a question “What is the difference between this woman, Rachel Hollis, and a red hat that says “MAGA”, and what is the difference between those people attending MAGA rallies and Rachel Hollis’s adulating fans??”. May I postulate the idea to you, however wild sounding, that there is no difference at all???

  8. PeakTrader

    “Republicans…unleashed a supremely irresponsible fiscal program.”

    Quite the opposite.

    Trump deserves credit attracting foreign businesses and keeping American businesses in the U.S. by reducing the corporate tax rate, repatriation tax, other business taxes, and regulations.

    And, Trump accelerated American businesses leaving China for other Asian countries.

    The U.S. is not at full employment. Otherwise, we would be creating 100,000 jobs per month instead of 200,000 per month on average. The Fed should pause after three more hikes by mid-2019, and then may have to ease the money supply in 2020. The irresponsibility is in entitlement spending. The loss of the House in the election will increase, not decrease, wasteful spending.

    1. pgl

      “Trump deserves credit attracting foreign businesses and keeping American businesses in the U.S. by reducing the corporate tax rate, repatriation tax, other business taxes, and regulations.”

      Either you are lying or dumber than rocks. American multinationals will continue to move offshore, abuse transfer pricing, etc. After all our tax rate is now average and nowhere as low as the tax havens. How many corporate inversions have been undone so far? You forgot to note one. Of course the correct answer is none.

    2. Moses Herzog

      @PeakIgnorance, Have you checked with your Grandma to see if The Great Inheritor donald trump has lowered the cost of prescription drugs yet?? I’ll give you a week to phone her and then you get back to me on that, ok??

      1. pgl

        When Peaky says we should eliminate entitlements I trust he does know that means his Grandma will lose Medicare. Talk about Throw (grand)Ma from the Train! Who knew Peaky hated his granny!

    3. Barkley Rosser

      Peak Trader,

      I just checked. Direct foreign investment into the US has plunged 65% since Trump was elected. It fell by over 30% in 2017 and has continued to fall.

      Where in heck did you get this fantasy from, Lou Dobbs? Maybe you still believe in the birther conspiracy or have moved on to believing that the earth is flat, or maybe just that the budget and trade deficits have fallen since Trump took over.

      1. PeakTrader

        And, Barkley, what’s with your anger?

        FDI in the U.S. has been declining, since 2015, and it’s very volatile.

        The article I posted shows the Trump pro-business policies will increase FDI, all else equal.

        Maybe, you believe pro-business policies aren’t good for business.

        1. pgl

          Lord – you made a claim that is proven false by the actual data. And you claim the person who rebutted your usual BS with FACTS with an accusation that he is angry? We have a word for your MO – TROLL.

          1. pgl

            November 12, 2018 at 4:33 pm
            Pgl, your simple and wrong explanations is why people believe you’re incompetent.”

            Explanation? C’mon PeakStupidity. Barkley and I were just noting a fact. A fact you LIED about. Do you dispute this fact? Oh wait – check out Menzie’s next post. Yes you got this terribly wrong as usual. But insult away as it is all you got.

          1. Moses Herzog

            @ Barkley Rosser
            Oh!!!! The extreme feelings of guilt are plaguing me Barkley. It’s really tough to sleep at night. I toss-and-turn in bed like you wouldn’t believe Barkley. Now, imagine how remorseful I’d feel if I told people I was Native American in order to take a job from other candidates (a black person who was hyper-educated for example), when I only had 0.09% Native American genetic makeup, and had suffered none of the hardships that minority people often do. Well, then I would have multiples more “shame” than I do now Barkley.

            “I” COULD say what “I” did though. Say that it was wrong. Publicly do the old “mea culpa” and say in sincere/genuine tones “I” was sorry for lying. Some people, like Hillary Clinton in 2015–2016, don’t do that. Hillary Clinton “doesn’t do windows” and Hillary Clinton doesn’t say she’s sorry. And, apparently, neither does Elizabeth Warren. She’s a Senator now, a real VIP, and saying “I did something wrong, and I am sorry for my actions” is just too much for her constitution to handle.

        2. Barkley Rosser


          You did not link to any article that I could see. Maybe you did, but if it claimed that Trump’s policy has actually succeeded in attracting foreign businesses rather than just repeating Trumpist propaganda that it will do so, it is lying.

          Again, the hard facts are that fdi has fallen sharply into the US since Trump came in and even more since his tax bill passed. This is certainly not evidence that it is not “irresponsible.” Those who supported it have made a lot of claims for it, but many of those have not come to pass, and this is one of them. You just make yourself look foolish by repeating the lie.

      2. pgl

        “Where in heck did you get this fantasy from, Lou Dobbs?”

        Nah – Lou Dobbs is a bozo but don’t blame him. Peaky gets his feeds directly from Putin’s aide in the White House.

  9. baffling

    “The irresponsibility is in entitlement spending.”
    peakloser, do you think you are collecting an irresponsible amount from entitlements? or do you believe you have earned your entitlements, it is the OTHER people that are irresponsibly collecting entitlements?

    1. pgl

      I have paid a lot to the Social Security Trust Fund but PeakDeadbeat thinks I should not any back from my retirement. But hey Uncle Sam is the only one who is going to be for his rent after all!

      1. baffling

        if you notice, all the losers offer up a solution to medicare and social security that entails OTHER people taking a benefits cut sometime in the future. but i never hear about how it is possible for those collecting TODAY to also see a reduction in their benefits, right now. after all, if you are going to reduce my standard of living in 20 years, why can’t we reduce your standard of living today? why is it that these critters create solutions that always impact OTHER people down the road, but leave the solution creators unscathed? if we are paying out too much in entitlements TODAY, then lets address that TODAY. not impose a fix TODAY that will takes place TOMORROW by a group that will have no skin in the game TOMORROW, because they are six feet under.

        1. pgl

          Good point. Easy explanation. They cannot afford to tick off the older racist and they know they are losing the youth vote big time.

  10. Moses Herzog

    Veterans’s Day is a day we remember guys/girls who sacrifice a lot for us. And because we often absent-mindedly forget the risks to life and limb they take for us, it makes those 3-4 days a year specially set aside to remember our Veterans all the more significant. We have a lot of guys like The Great Inheritor donald trump who bathe themselves in the flag and guns and macho talk who chicken-shitted out 5 times, the 5th time with “bone spurs” in his heel. I guess the only way don “The Great Inheritor trump can show respect to Veterans is by surrounding himself with people who steal veterans’ bank savings:

    But even better, not only does donald trump admire and rain compliments on thieves who steal U.S. Veterans bank savings (Matthew Whitaker), trump goes to the Naval Academy and lies directly to graduates’ faces (Lifted verbatim from an AP fact check report, dated May 28, 2018):
    TRUMP, to U.S. Naval Academy graduates: “Going to have new equipment and well-deserved pay raises. We just got you a big pay raise. First time in 10 years. We got you a big pay increase. First time in over 10 years. I fought for you. That was the hardest one to get, but you never had a chance of losing.”

    “We got you a big pay increase. First time in over 10 years. I fought for you.”
    THE FACTS: That’s not right. U.S. military members have gotten a pay raise every year for the past 10 years and several have been larger than this year’s 2.6 percent increase. Pay increases in 2008, 2009 and 2010, for example, were all 3.4 percent or more.

    TRUMP: “We have now the lowest number of ships that we’ve had since World War I, and very soon you’re going to get to 355 beautiful ships. 355. That’s almost a couple of hundred more ships.” — speech to academy graduates Friday.

    THE FACTS: No it isn’t. The Navy now has 283 ships.

    From an AP Fact Check Report:

    What do you think a draft dodger like donald “Cadet Bone Spurs” trump will do in war time, if he happily tells multiple lies to Naval Academy graduates in peacetime?? Will trump tell military parents how their son died in war crossfire, if it embarrasses donald “Cadet Bone Spurs” trump??

    I know Cadet Bone Spurs has strong affection to Russians that he launders money for and who have hotel video tapes on him, so I’m going to invite veterans and all readers to click on the following song. It was music Shostakovich wrote. He called it one of his more serious works “for the desk drawer”. Why would Shostakovich say he writes great pieces of art “for the desk drawer”?? See, Stalin thought things he disagreed with or didn’t like should never see the light of day—similar to donald “Cadet Bone Spurs” trump. So Shostakovich wrote this piece with Jewish culture in mind, knowing Stalin wouldn’t like a music piece recognizing the greatness and depth of Jewish culture. It is called “From jewish Folk Poetry” (opus 79). I am not sure if trump’s former Director of NEC, Gary Cohn, has ever heard this, or if Stevie Mnuchin, trump’s Treasury Secretary has ever heard this, as both of these men were standing a few feet to donald trump’s right when trump was telling America that Nazis are really just one of “many sides”.

    1. pgl

      “We have now the lowest number of ships that we’ve had since World War I, and very soon you’re going to get to 355 beautiful ships. 355. That’s almost a couple of hundred more ships.” — speech to academy graduates Friday.

      THE FACTS: No it isn’t. The Navy now has 283 ships.

      Yes and these 283 ships are a lot more powerful that those ships we had 100 years ago. If Trump does not know this – how the heck is he qualified to be Commander in Chief?

        1. ilsm

          The founders read history, and considered how the Athenian demos was moved by the demigod, etc. It also included the sovereignty of the individual states, federalism post Civil War not foreseen.

          Although US has already gone below and beyond Athens after Syragusa.

    2. 2slugbaits

      I was an ORSA guy with the Army, so Navy stuff was never my thing. That said, my Navy friends are probably pulling their hair out with Trump’s call for 355 ships. Apparently Trump doesn’t know that you need a lot of sailors to run a modern warship. And there is simply no way that the Navy can recruit enough sailors to support a fleet of 355 ships. I remember when Reagan pushed his 600 ship wet dream. It was a disaster. The Navy begged to mothball half the fleet.

      As to Trump supporting the veterans, maybe PeakTrader would like to comment on how the VA is falling down on the job with respect to veterans education benefits:

      Of course, I’m sure those benefits would be coming through for any vets enrolled in Trump University “courses” if Trump University hadn’t folded.

      1. ilsm

        Seems US needs a lot more admirals per ship than during WW II!

        256 admirals for 6084 ship in WW II They may have counted the Army’s ships as navy during War Two.

        359 admirals per 280 ships today………

        I guess you need a lot of top cover to keep doing Alfred Thayer Mahan’s 1887 maritime strategy up in the air.

        Being Air Force I am sure we have the same need to cover all our “gold plated toilet seats” and [B-1] ejection systems that cause crews to land rather than tempt eject.

        1. 2slugbaits

          ilsm Yes, that 6084 number includes Army ships. And to this day the Army has more ships (actually, primarily boats) than the Navy. Army sea vessels are managed by the US Army Tank-Automotive & Armaments Command in the north Detroit metro area.

  11. Barkley Rosser

    Congrats to Menzie on his piece in Japanese. I fully agree with it. Unfortunately, the hands of the Dems in the House will be tied against undoing the unwise Trump tax cuts. Even if they had the political guts to try to undo it, the Senate would block any such effort, even thought by all poll reports, the Trump tax cuts are quite unpopular, and GOP candidates in the midterms generally did not run on them, or run on them very hard. But any effort to undo them will bring about all kinds of screaming and howling out of all the GOP, which seems to have tax cuts after tax cuts (almost always largely for the rich) to be what unites them the most, especially now that they have lost opposing Obamacare for that.

  12. thomas michl

    I don’t understand why the shadow fed funds rate would drive dollar appreciation. From a UIP perspective, an actual interest rate spread would be required to induce arbitrage; the dollar leg would have to be invested in an actual security, not a virtual security with a shadow price.

    I’m planning on using this in my macro course so an answer would certainly be welcome.

    1. Menzie Chinn Post author

      thomas michl: The way to think about it would be (in an informal sense) that the entire yield curve determines the exchange rate, rather than a given short rate, as in the conventional approach. Chen and Tsiang have a paper that concludes this (but using observed term structure parameters).

  13. PeakTrader

    Regarding Barkley’s false assumption:

    “The booming US economy, low taxes and light-touch regulation are attracting record levels of German investment. A new survey from the German Chambers of Commerce Abroad shows that half of German companies currently in the United States plan to boost their investment, with 53 percent also planning to hire more staff.”

    1. pgl

      I see PeakDishonesty is all angry at Barkley for calling out Peaky’s lie about foreign direct investment under Trump. So what does Peaky do? Google until he can fine ONE nation that is still doing FDI here.

      C’mon Peaky – we know you are a serial liar but your level of utter incompetence is off the charts.

    2. Barkley Rosser


      The article is from June. That possible investment has not shown up yet, although maybe it will. The article consisted of scattered quotes from a few people mentioning some specific projects. It also repeated the vacuous claim by the corrupt Wilbur Ross that Trump is out to end all tariffs with the EU, with their being a big fat zero movement in that direction since the article appeared.

      Come back to us with this when this possible investment actually appears, PT. For now the evidence is overwhelmingly going the other way.

  14. Bruce Hall

    Weak dollar or strong dollar… it doesn’t matter. There will be winners and losers either way.

    I don’t mind a strong dollar that suppresses oil prices that suppresses energy inflation and reduces the cost of gasoline. On the other hand, those who have a vested interest in seeing the price of oil rise would probably opt for a weaker dollar.

    I don’t mind a strong dollar that restrains food price increases. On the other hand, those who want to export agricultural products from the U.S. would probably opt for a weaker dollar.

    I don’t mind a strong dollar that make foreign travel cheaper (just went through Canada and pleasantly surprised by the exchange rate). On the other hand, those who have tourism businesses catering to foreign travelers to the U.S. would probably opt for a weaker dollar.

    1. pgl

      “Weak dollar or strong dollar… it doesn’t matter. There will be winners and losers either way.”

      Whether the dollar depreciates or appreciates does not matter as to who the winners and losers are? Damn Bruce – this is so incredibly stupid you almost make PeakStupidty look smart.

      Pick up your game or just don’t comment. Geesh!

      1. Bruce Hall

        pgl, “Pick up your game or just don’t comment. Geesh!”

        What part of my comment did you not understand? I prefer the strong dollar personally and indicated such. It’s a “win” for me. But I understand why others would want a weaker dollar. So, in the larger picture there will be winners and losers either way the dollar moves.

        Now, you may think my position is “stupid” from your perspective, but that would be if you are one of the “losers”.

        1. pgl

          You said weaker the stronger was stronger or weaker does not matter. It does. Bruce – maybe one day you will grow up and take responsibility for your own words. And yes all relative price changes involve losers. HELLO?

          1. Bruce Hall


            Not sure what your comment really was. But, yes, overall it doesn’t matter if the dollar weakens or strengthens; to individuals it does. A strong dollar favors importers; a weak dollar favors exporters. A strong dollar favors U.S. travelers; a weak dollar favors foreign travelers. A strong dollar favors lower income American; a weak dollar makes budgeting harder for low income Americans. The situation flips back and forth over time.

            Why do I have to take “responsibility for my words”? Responsibility for what?

  15. joseph

    Secretary of State Mike Pompeo: “The president’s own public communications themselves function as a deterrence mechanism. The all-caps tweet he directed at Iranian President Hassan Rouhani in July, in which he instructed Iran to stop threatening the United States, was informed by a strategic calculation: the Iranian regime understands and fears the United States’ military might.”

    So it seems that the Commander in Chief is going to defeat his enemies with ALL-CAPs. You can all sleep more soundly tonight. And can we cancel that F-35 boondoggle now as it is obviously unnecessary?

    As a warning, just remember, when Trump uses all-caps, he really, really means it.

  16. pgl

    It seems the White House ordered PeakLiar to claim that Trump’s policy has led to a surge in foreign direct investment. Barkley argued the data showed just the opposite is true. Of course PeakLiar went on a tirade attacking Barkley for suggesting the facts undermined the lies from the White House. I think FRED can settle this one:

    Wow – the decline Barkley noted does appear to be rather severe. Of course we always have known PeakLiar is not only dishonest but incapable of doing any real research. But can this TROLL lay off insulting those who do real research and tell the truth?

  17. joseph

    Today from the Toddler in Chief: “Emmanuel Macron suggests building its own army to protect Europe against the U.S., China and Russia. But it was Germany in World Wars One & Two – How did that work out for France? They were starting to learn German in Paris before the U.S. came along. Pay for NATO or not!”

    These are actual words from President of the United States. If we survive, Republicans will have a lot to answer for putting this psychopath in the White House and bowing to him every single day.

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