Author Archives: Menzie Chinn

Guest Contribution: “Market volatility and the length of the Covid-19 recession”

Today, we are pleased to present a guest contribution written by Valerio Ercolani and Filippo Natoli, both of the Directorate General for Economics, Statistics and Research of the Bank of Italy. The views presented in this note represent those of the authors and not necessarily reflect those of the Bank of Italy.

 


After the economic downturn that followed the outbreak of the Covid-19 crisis, private forecasters see a rebound in the third quarter of 2020 both in the US and worldwide. While this appears as the most plausible scenario assuming lockdown and social distancing measures are soon relaxed, a recessive dynamics through the end of the year cannot be ruled out. A simple probit model augmented with market volatility, which reached its maximum last March, forecasts a more prolonged recession in the United States. Historically, turmoil in financial markets informed us that the associated recessions were not close to the end. 

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Worried about Surging Inflation?

Periodically, I get emails from some guy named Tim Congdon of the Institute of International Monetary Research, bewailing the tendency “to shrug off the inflation risks that have in the past arisen from too much monetary financing of large budget deficits.” So…big increases in the Fed’s balance sheet: will they collide with reduced supply over the medium run to produce inflation? TIPS say no…

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What Could’ve Been: Population Adjusted Covid-19 Fatality Rate

Question: Shouldn’t we be doing a lot better than Italy and Spain? Could we have implemented a system of social-distancing combined with testing and tracking that would not have entailed an economic shutdown of the current magnitude (i.e., could we have implemented something closer to  what S. Korea did, had we had a competent administration and leader not-in-denial?).

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When Non-Specialists Predict Outside of Their Expertise

A reader, Ed Hanson, critiques the flagging of the fact that there were three waves of the 1918-20 flu:

You may not be a fortune teller, but you do tend toward being a panic monger.

Case in point, never knew that the Spanish flu was coronavirus. Maybe, that is because it is not.

While not being a doctor, a little research shows that there have been 7 identified coronaviruses causing human disease. 4 associated with the common cold, and 3 known for acute respiratory syndrome. These being MERS, SARS, and the covid-19.

OF the first 6, none shows the the wax and wane you write of in the topic.

That leaves covid-19. certainly the most deadly of the 7. I would rate a Spanish flu like wax and wane, far down as a possibility but still possible. More likely it won’t because the other coronoviruses have not shown that tendency.

Now Mr. Hanson is merely a random commenter; I quote him because he is representative of a group of individuals who are happy to predict with apparently no expertise, and without any apparent reference to mainstream scientific analysis. So, from The Hill:

A potential second wave of the novel coronavirus late in the year would likely be more deadly, as it would overlap with flu season, Centers for Disease Control and Prevention (CDC) head Robert Redfield told The Washington Post on Tuesday.

“There’s a possibility that the assault of the virus on our nation next winter will actually be even more difficult than the one we just went through,” Redfield told the Post. “And when I’ve said this to others, they kind of put their head back, they don’t understand what I mean.”

Mr. Trump has tried to whitewash the statement; from WaPo today:

In a tweet Wednesday, Trump alleged Redfield had been misquoted. But he accused CNN of having done so, even though CNN merely relayed the comments published by The Post.

“CDC Director was totally misquoted by Fake News @CNN on Covid 19,” Trump said. “He will be putting out a statement.”

In yesterday’s press conference, he indicated he’d been correctly quoted by WaPo.

Benefit Cost Analysis with Steve “Kansas is doing just fine” Moore

From ABC News yesterday:

“I think we lean way too much in the direction of keeping the economy shut down to try to save every life, not realizing that we’re causing huge hardship for citizens — again, people at the bottom and businesses — and we’re going to suffer a big loss of living standards because of this,” he said.

While Moore acknowledged that robust testing is essential, he argued the U.S. cannot wait until it becomes more widespread to start reopening the economy.

“I don’t think we can wait two or three or four more weeks for testing….The rate of infection to the economy is very similar to the rate of infection of this disease.”

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Guest Contribution: “Business cycle dynamics after the Great Recession: An Extended Markov-Switching Dynamic Factor Model “

Today, we’re pleased to present a guest contribution written by Catherine Doz (Paris School of Economics), Laurent Ferrara (SKEMA Business School and International Institute of Forecasters) and Pierre-Alain Pionnier. The views presented represent those of the authors, and not necessarily those of the institutions the authors are affilliated with.


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First Virtual IIF Workshop on “Economic Forecasting in Times of Covid-19”

Call For Papers

July 6-7, 2020

The COVID-19 pandemic has triggered a massive spike in concerns and uncertainties and raised challenges in macroeconomic forecasting surrounding almost every aspect. The purpose of this virtual workshop is to bring together researchers working on various aspects of measurement, modelling, evaluation and forecasting of COVID and its impact on the economy.

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Some Business Cycle Indicators, April 15th

Here are some key indicators followed by the NBER’s BCDC as of today:

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Manufacturing and trade sales for February assumed to be at stochastic trend for 2018-2020M01. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (3/26 release), and author’s calculations.