In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn’t understand the fears at the time; and I still don’t. Now flash forward eight years, and move across the Pacific.
Author Archives: Menzie Chinn
Guest Blog: Japan’s first trade deficit in 28 years
By Eiji Fujii
Today, we’re fortunate to have Eiji Fujii, Professor of Economics at Tsukuba University as a guest blogger.
Shaken by the world financial crisis, Japan has recorded the first trade deficit (on the April-March fiscal year basis) in 28 years (see Figure 1). The trade balance of the 2008 Japanese fiscal year was about -725 billion yen. The last trade deficit (on the fiscal year basis) was recorded in 1980 when the second oil crisis hit the economy hard.
More Thoughts on Potential GDP and the Output Gap
In several past posts, I’ve been taken to task for using the CBO measure of the output gap (and the associated measure of potential GDP) [0] [1]. Some criticize the false sense of certainty that is provided by the official measures, since they are known to be revised as data comes in. Some criticize the measures on the basis the fact that the statistical methodologies (Hodrick-Prescott, Band-Pass) are divorced from a formal economic model. Some criticize the concept of potential GDP derived from a production function approach (i.e., thinking about the economy as one big production function associated with one big firm…). Arnold Kling‘s recent critique centers upon the idea that output is not homogenous, and we need different types of capital (and by extension labor) when the desired composition of output changes. Yet another — not entirely unrelated — perspective argues that when relative prices change a lot, potential GDP can drop due to technological frictions; Jim provides a cogent discussion of this approach.
House Prices Continue to Slide
House prices continued to tumble in March, according to the Case-Shiller index. Time to see what the futures say (keeping in mind the forecasting capacity of the Case Shiller futures are not well known).
In Search of … Hyperinflationary Expectations
Ready, Shoot, Aim
Or, how ignorance sometimes invalidates a critique.
I am always amazed at how often people jump to the most paranoid interpretations. One case in point is this article by Evan Newmark entitled Mean Street: Obama’s Big Fat Fibbing Budget on WSJ’s Deal Journal:
Additional Reflections on the March Trade Release
My views on the short term prospects for GDP growth at home and abroad were little changed (relative to this post) by the information in the March trade release. Goods imports are collapsing, albeit at a slower but still substantial rate, and goods exports are declining, with high volatility.
The Administration’s Economic Forecast against Updated Alternatives
The Analytical Perspectives of the FY2010 budget have been released. Imbedded in the document are the Administration’s new forecasts placed in the context of newer forecasts from CBO and Blue Chip [text added 12:30] (see the Chapter on Economic Assumptions). They have also provided some insights into the sensitivity of the budget outlook to specific alternate economic scenarios (not something I recall the previous Administration doing, but I might be wrong), as well as coefficients of revenue and expenditure sensitivities (something done in previous Analytical Perspectives).
Three Pictures from the April Employment Situation
Revisions are downward (but getting smaller over time), the growth rate becomes less negative, but hours continue to decline rapidly.
The Emerging Global Financial Architecture
Events, particularly these days, tend to outrun the best laid plans to anticipate research trends. And it might seem that this was true in the case of this conference, sponsored by UCSC’s Santa Cruz Center for International Economics, the Journal of International Money and Finance, and the Federal Reserve Bank of San Francisco. The conference was planned last year, at a time when most academic researchers were aware and concerned about the incipient economic slowdown, and whether the major economies would “de-couple”, and in turn how these factors would impact the constellation of global imbalances.