Enrique Martinez-Garcia and Janet Koech at the Dallas Fed present their perspective on the international macro outlook. The first is particularly interesting to me.
Author Archives: Menzie Chinn
Current Account Adjustment Redux? What’s Different this Time Around
Synergies of the unpleasant kind: recessions, credit crunches and housing busts
From the abstract of a new paper by Stijn Claessens, M. Ayhan Kose and Marco E. Terrones, entitled “What Happens During Recessions, Crunches and Busts?” (paper now online here):
We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the 1960-2007 period. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. We document a rich set of stylized facts about the behavior of key macroeconomic and financial variables during these various events. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of a recession. In particular, we show that recessions associated with credit crunches and house price busts are deeper and last longer than other recessions are. In light of our findings, we examine the implications of recent macroeconomic and financial developments in the United States for the future path of its economy.
Is the GDP deflator for 2008Q2 plausible?
In my previous post, I discussed how the 2008Q2 advance GDP estimate would be revised, and the possibility that the final figure (after annual revisions) could enter in below zero. One reason that might occur is because the GDP deflator could be revised upward. Suspicion that this might occur is heightened by the seemingly implausible 1.1% SAAR inflation rate recorded for the GDP deflator (see the comments to this post, as well as Felix Salmon, and [0]). One question I want to address is whether this figure is actually so implausible.
Revisions matter. So do levels
The 1.9% SAAR growth rate in 2008Q2 [BEA] is widely viewed as a positive [0]; and the fact that GDP growth remained, in this advance release, above zero is a positive. However, when taken with the annual revision, one sees some interesting aspects. Not only was growth in 2007Q4 negative, albeit slightly; the revisions put 2008Q2 real GDP below what the final estimate for 2008Q1 GDP was: $11692 versus $11701. Future revisions will definitely occur to the 2008Q2 figure, and indeed the figures back to 2006Q1 will be again revised come next July.
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession [0], and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here’s a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
Implications of adjustment to riskier dollar assets in a portfolio balance framework, illustrated in three steps
Consider a hypothetical world economy with assets denominated in dollars and euros.
Why a lot of people think the CPI is not representative of their experience … and are right. At least partly.
Government statistics, particularly the CPI, have been in the news (e.g., [0]). Following up on my previous posts [1], [2], I want to take a stab at the question posed in the title.
This post focuses on issue separate from the mathematics of the index formulation, and has to do with what the typical weights at any given instant in time should pertain to. Should one use the expenditure weights that pertain to all the households aggregated in the economy? Or should one use the expenditure weights that pertain to the “typical” household? Kokoski (2003) [updated link] summarizes the distinction thus:
In the democratic index, the expenditure pattern of each household counts in equal measure in determining the population index; in essence, it is a case of “one household–one vote”. In the plutocratic case, the contribution of each household’s expenditure pattern is positively related to the total expenditure of that household relative to other households–in essence, “one dollar, one vote”.
IMF on the Global Macroeconomy, CBO on US-China Trade
The IMF released an update to it’s World Economic Outlook yesterday.
IMF Gloomy on Growth, Sees Rising Inflation Threat
- Global economic growth to slow significantly in second half of 2008.
- Rising energy, commodity prices have boosted inflationary pressure
- Need to adapt to shift in purchasing power from commodity users to producers
The Expansion: Retrospect and Prospect, Whine-Free
The President’s press conference yesterday was meant to buttress consumer and investor confidence. I will leave it to others to evaluate whether he was successful in this endeavor [0]. I will also ignore his disingenuous remarks concerning how allowing drilling offshore and in ANWR [1] would somehow affect gasoline prices today in a noticeable manner, and focus instead on his repeated emphasis on the fact that the economy is still growing (although he never mentioned at what pace).