…through the Lens of Multiple Regression
Author Archives: Menzie Chinn
Cumulative Output Loss
…lest we forget how much the mindless deregulation and irresponsible fiscal policy induced-crisis [1] [2] [3] and great recession has cost us in terms of lost output, and how difficult the road to recovery remains. (Very important as certain forces seek to gut financial regulation by way of “defunding”. [4])
The Financial Crisis, Interpreted
And some unanswered questions. From Jeffry Frieden, “A Classic Foreign Debt Crisis,” The Political Economist 12 (2) (Fall 2010) [newsletter of the Political Economy section of APSA, not online]:
Much of the popular, and scholarly, analysis of the crisis has focused
on its financial aspects: the breakdown of financial markets, the malfunction
of financial innovations, the failure of financial regulation. …
Exchange Rate Modelling at AEA
Or, at least one session’s worth of recent thinking on the topic.
Presiding: Philippe Bacchetta (University of Lausanne)
On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals, by Philippe Bacchetta (University of Lausanne), and Eric van Wincoop (University of Virginia). Discussed by Ken Kasa (Simon Fraser University).- Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set , by Menzie Chinn (University of Wisconsin), and Michael Moore (Queen’s University Belfast). Discussed by Pierre-Olivier Gourinchas (University of California-Berkeley)
- Phoenix Taylor Rule Exchange Rate Forecasting During the Financial Crisis, by David Papell (University of Houston), and Tanya Molodtsova (Emory University) . Discussed by Jan Groen (Federal Reserve Bank of New York).
- The Scapegoat Model of Exchange Rates: An Empirical Test, by Marcel Fratzscher (European Central Bank), Lucio Sarno (Cass Business School), and Gabriele Zinna (Bank of England). Discussed by Nelson Mark (University of Notre Dame).
Explaining Recent Trends in Household Saving
From Reuven Glick and Kevin Lansing, Consumers and the Economy: Household Credit and Personal Saving:
In the years since the bursting of the housing bubble, the personal saving rate has trended up from around 1% to around 6%, while the ratio of household debt to disposable income has dropped from 130% to 118%. Changes over time in the availability of credit to households can explain 90% of the variance of the saving rate since the mid-1960s, including the recent uptrend, according to a simple empirical model.
The BIS on Global Forex Trends
The results from the triennial BIS forex survey are out. Unsurprisingly, trading volume continues to rise, the dollar retains its dominance in forex transactions, and the dollar/euro currency pair is the most heavily traded. But, notably, algorithmic trading is on the rise.
On Reading “The Financial Crisis Primer”
The Republican members on the FCIC released a Financial Crisis Primer that has been debunked by a number of observers (since so many of the old canards were hauled out, this was easily accomplished). [0] [1] But the refusal to allow the phrase “Wall Street” in the final commission report [2] impelled me to quantify the attempts by Wall Street to influence financial legislation in the years leading up to the financial crisis.
Hazards in Interpreting Seasonals
Professor Casey Mulligan has an interesting post, in which he observes that while retail sales are about 15-20% higher in December than in the previous three months, retail employment is only about 4% higher in December than October, thus proving that fiscal stimulus cannot be very effective at raising employment.
Petroleum Prices and the International Dimension
Paul Krugman observes that there are many real side factors that should drive oil prices higher (in an article that cites Jim’s 2009 paper). I certainly don’t have much to add in terms of thinking about oil prices and domestic macro implications, but Krugman’s note did impel me to examine more closely the international aspects of the underlying demand factors.
Consumption, Imports and the Prospects for US External Balances
Most forecasts incorporate a resurgence in the US trade and current account deficits. This projection makes sense to the extent that the US is expected to grow faster than Europe and Japan, and the estimated income elasticity of US imports exceeds that of US exports (the Houthakker-Magee finding [0]). Here’s a summary of forecasts for the current account.