Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate.
Author Archives: Menzie Chinn
Context Is Important: More on MN vs. WI
Reader Jesse Livermore thinks he’s discovered Wisconsin is in actuality doing really well vis a vis Minnesota. He writes:
Wisconsin personal income growth dramatically outperformed Minnesota in Q1.
Well, I’ll just say the level is sometimes just as important as the first derivative. That’s why I plot time series, rather than just quoting a quarter’s worth of growth. Here is a comparison of personal income over the past few years.
Figure 1: Log nominal personal income for Minnesota (blue), Wisconsin (red), and US (black), all normalized to 2011Q1=0. Source: BEA, June 27, 2017, and author’s calculations.
On a per capita basis, cumulative Minnesota personal income growth remains 0.7 percent higher (log terms) than Wisconsin’s. It has been higher since 2011Q1.
My advice to anyone trying to assess relative economic performance: plot the time series.
Wisconsin Nonfarm Payroll Employment Continues to Decline
And lags further behind its neighbor Minnesota. Wisconsin nonfarm payroll (NFP) employment is now below April 2017 peak. Finally, employment lags what would be predicted from the historical correlation of Wisconsin employment with national.
Stephen Moore Is a Liar, Part 2
So You Want to Fix the Trade Deficit?
Well, I don’t think a few tariffs and quotas, plus “tweaking” Nafta, are going to do it. And blowing a hole in the Federal deficit ain’t likely to help.
(Transitory) Revealed Preferences
Here’s the health coverage implications of President Trump’s proposal to repeal Obamacare, as assessed by the CBO:
Figure 1: Effects of H.R. 1628, THE Obamacare Repeal Reconciliation Act of 2017, on health insurance coverage of people under age 65, in millions, by calendar year. Source: CBO, Table 4.
So, at least for part of one day, the President was content to let an additional 32 million be uncovered by 2026.
“Challenges for Global Macroeconomic Stability and the Role of the G7”
At the invitation of the Italian Presidency of the Group of Seven (G7) in 2017, the Istituto Affari Internazionali (IAI) conducted a research project on “Major Challenges for Global Macroeconomic Stability and the Role of the G7” together with a major policy think tank in each of the other G7 member countries:
The Administration Considers Raising Taxes
On imported steel, that is
From Politico today:
STEEL REPORT COULD COME NEXT WEEK: Commerce Secretary Wilbur Ross is expected as early as next week to give President Donald Trump a menu of options for restricting steel imports, senators said after a closed-door meeting with the Cabinet official Thursday afternoon.
The Budget Deficit under Trump, Excluding Unicorn Effects
The CBO has just released an assessment of the President’s budget proposal. Balancing the budget looks unrealistic, even given massively sweeping (and unrealistic) spending cuts.
A New Puzzle à la Fama
In a forthcoming paper (“The New Fama Puzzle”), coauthored with Matthieu Bussière (Banque de France), Laurent Ferrara (Banque de France), Jonas Heipertz (Paris School of Economics), we re-examine uncovered interest parity – the proposition that anticipated exchange rate changes should offset interest rate differentials. This is one of the most central concepts in international finance. At the same time, empirical validation of this concept has proven elusive. In fact, the failure of the joint hypothesis of uncovered interest rate parity (UIP) and rational expectations – sometimes termed the unbiasedness hypothesis – is one of the most robust empirical regularities in the literature. The most commonplace explanations – such as the existence of an exchange risk premium, which drives a wedge between forward rates and expected future spot rates – have little empirical verification.