The stock market booms while GDP staggers along. Why?
Author Archives: Menzie Chinn
Wisconsin Employment Decline Continues
DWD data indicates nonfarm payroll employment declines in November, as does private nonfarm employment. Government employment also declines, while manufacturing versus accommodation/food services experience diverging fortunes.
Treasury’s FX Report – Currency Manipulation versus Currency Misalignment
The Treasury’s semi-annual report designated Switzerland and Vietnam as currency manipulators. Without taking a definitive stand on currency manipulation, I do want to highlight where Vietnam (and Switzerland) stand if evaluated by the Big Mac Parity/Penn Effect:
Figure 1: Log Big Mac dollar price in July 2020 plotted against log 2020 per capita income in 2017 I$. Penn Effect line estimated using regression (red) and 60% prediction interval (gray). Source: Economist, IMF World Economic Outlook October 2020 database, author’s calculations.
Treasury’s Semi-annual Foreign Exchange Report
Debasing the Dollar? (Or Inflation Looming, Again?)
Worried about currency debasement? Do we find out anything from the nominal exchange rate? In a flexible price monetary model (sometimes called the monetarist model of the exchange rate), changes in the money supply should be immediately reflected in the exchange rate.
Inflation Looming? Phillips Curve vs. Quantity Theory
Look at this:
Figure 1: Ratio of M1 to real GDP (blue), of M2 to real GDP (brown), of M3 to real GDP (green), 1959Q1-2020Q3. Quarterly money data average of end of month data. Source: Federal Reserve via FRED, and BEA, 2020Q3 2nd release, and author’s calculations.
MV = PQ?
Tautologically, yes; maybe not so much if V (velocity) is constant.
Inflation Looming?
The Economist says unlikely. Surveys and market expectations concur.
The Economic Outlook – WSJ December Survey
No acceleration in growth rates, and short term growth prospects dim, but GDP level higher relative to October — but not November — survey.
Wisconsin Economic Outlook, November 2020
The Wisconsin Department of Revenue has released its Economic Outlook, dated November 22nd. The forecasts incorporate assumptions that include: “November IHS Markit forecast shows a slowing down of the economic recovery in the last quarter of 2020 and beginning of 2021. Several high-frequency indicators point to a further deceleration in October, but the forecast does not include a double dip. ….Wisconsin personal income growth accelerated in 2020 pushed by the federal stimulus funds, but it’s expected to decline 1.9% in 2021, as the fiscal stimulus fades. …The current forecast assumes no further fiscal stimulus and that a vaccine will be available by mid2021.”