Author Archives: James_Hamilton

Measuring the consequences of the zero lower bound constraint

In a period of deleveraging such as the U.S. has been going through, it is possible for the natural rate of interest to become negative. Since cash is always an option for earning at least a yield of zero, no asset should ever pay less than zero. This lower bound of zero on nominal interest rates can put a constraint on the ability of the economy to self-correct or the Fed to provide stimulus in such a situation.

The Fed still has some tools to try to reduce longer-term yields, namely large-scale asset purchases and
signaling the Fed’s future intentions. A new research paper by Federal Reserve Bank of San Francisco President John Williams and Senior Research Advisor Eric Swanson proposes a creative new approach to measuring when and to what extent the zero lower bound is a relevant constraint on interest rates of any maturity.

Continue reading →

Send a valentine to the Fed

Have a Valentine’s message you want to send to the Fed? Justin Wolfers and Binyamin Applebaum collect some of the proposals from Twitter:

NPR’s Planet Money: You had me at QE1.

Michael McKee: The sight of you fills me with irrational exuberance.

Annalyn Censky: Our love isn’t transitory baby, it’s gonna be exceptional for an extended period.

NPR’s Planet Money: I’ll be your lover of last resort.

Why not abolish the Fed and return to the gold standard?

Via Mike Shedlock, this item from MarketWatch caught my eye:

Newt Gingrich said that if elected president, he’d name [James] Grant to help run a commission looking at a possible return to the gold standard. And Ron Paul said, if elected president, he’d go all-in and name Grant– one of Wall Street’s best-known gold bugs– as the new chairman of the Federal Reserve….

“Unfortunately, I haven’t heard from Mr. Romney yet,” joked Grant when I called on him in his offices down on Wall Street. “I’m sitting by the phone, I’m ready.”

I presume that Grant would be advising any would-be policy-makers who listen to him the sort of thing that he wrote in 2010:

The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.

I thought it would be worthwhile reviewing some of the reasons why I disagree with Grant on this point.

Continue reading →

U.S. GDP: not a recession, but still not very encouraging

The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 2.8% during the fourth quarter of 2011. That’s better than any of the previous 5 quarters, which tells you more about how disappointing the previous year and a half has been than it does about how great the fourth quarter was. The average historical growth rate for the U.S. economy over the last 60 years has been about 3.2%.

Continue reading →

Links for 2012-01-18

FT Alphaville on crude oil and the eurozone crisis.

“http://oldprof.typepad.com/a_dash_of_insight/2012/01/evaluating-recession-forecasts.html”>Jeff Miller does not buy into recent forecasts of a U.S. recession. On a related note, Bonddad deconstructs the ECRI Weekly Leading Index.

VoxEu notes the systematic international tendency for official deficit figures to understate the magnitude of the change in public debt.

Liberty Street Economics on forecasting with internet search data.