In an Economix post today, titled “The Panic of ’08: Recession Cause or Effect?” Professor Mulligan writes:
…recent research questions the claim that the financial panics themselves contributed to their contemporaneous and severe employment downturns.
By Willem Thorbecke
Today, we’re fortunate to have Willem Thorbecke, Senior Research Fellow at Asian Development Bank Institute and a Consulting Fellow at Japan’s Research Institute of Economy, Trade and Industry, as a guest contributor.
Asia’s role in the propagation of the global recession has been a subject of study, but relatively little attention has been devoted to the interaction of exchange rates and production chains. The structure of East Asian production networks and the severity of the recession places a premium on policy coordination in the region.
I thought it of interest to see what surveys of forecasters indicate about two questions being asked: Is a dollar collapse imminent — Martin Wolf is skeptical, while others [0] are convinced the end is nigh — and is a double dip recession likely? I take a look at the messages conveyed by FX4casts.com and the WSJ October survey of forecasters.
From the abstract to Why are we in a recession? The Financial Crisis is the Symptom not the Disease!, by Ravi Jagannathan, Mudit Kapoor, and Ernst Schaumburg:
…We argue that the large increase in the developed world’s labor supply, triggered by geo-political
events and technological innovations, is the major underlying cause of the global macro economic
imbalances that led to the great recession. …
Paul Krugman recently characterized the current pace of trade activity as worse than that during the Great Depression. And indeed, Barry Eichengreen and Kevin O’Rourke have been diligent in illustrating how this is the case, most recently in this September VoxEU post. Caroline Freund ([pdf] here) as well as the IMF in its most recent World Economic Outlook (Box 1.1) attribute the sharp drop-off in world trade to high income elasticities, in part associated with the high degree of vertical integration that characterizes the globalized world economy. Below, I want to examine that explanation from the perspective of the US data. This follows up on several of my recent posts on the subject. [0] [1] [2] [3]
By Morris A. Davis
Today, we’re fortunate to have Morris A. Davis, Assistant Professor of Real Estate and Urban Land Economics at University of Wisconsin School of Business, as a guest contributor.
Research by economists inside the Federal Reserve system have shown that two events typically lead homeowners to default on their mortgage (see here). First, the value of the house must be less than the value of the mortgage (“under water”). This is necessary but not sufficient (see here). Second, homeowners must experience a significant disruption and loss of income. The available data suggest there might be a big increase in foreclosures in the immediate future. Zillow estimates that 22 percent of the 50 million homeowners with mortgages are currently under water; unemployment rates are high and are expected to remain high for the next two years.
In the wake of some recent economic reports, most prominently the employment report, there’s some discussion of how the recovery is in doubt [1], possibly leading to a “W”, or double dip, [2]. Anxieties focus on 2010 or possibly 2011. I think, in retrospect, such worries cast the criticisms of the stimulus bill in a different light than just a few months ago.
I’ve found it puzzling that there’s all this talk about the prospects for the dollar, in the wake of the G-20 meetings, and more recently World Bank President Zoellick’s comments about the primacy of the dollar as a reserve currency. My puzzlement arises from the fact that many of the concerns now being voiced have been voiced before.
Mark Thoma has assembled a set of useful discussions of multipliers. Econbrowser has added a handy new category “multipliers”, that compiles entries on the topic. In addition, Ethan Ilzetzki, Enrique G. Mendoza and Carlos A. Vegh provide a very useful cross-country (including emerging market economy) survey here and here [pdf].
By David Papell
Today, we’re fortunate to have David Papell, Professor of Economics at University of Houston, as a guest contributor.
The Federal Open Market Committee voted last Wednesday to keep the federal funds target rate at a record low of between zero and 0.25 percent. If it was not constrained by the zero lower bound, should the federal funds rate be negative? If the answer is yes, this suggests that the rate should remain at its record low for a considerable period and provides a justification for continued increases in the Fed’s balance sheet. If the answer is no, then the Fed may need to raise its interest rate target sooner rather than later.