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.
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 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).
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:
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 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).
Revisions are downward (but getting smaller over time), the growth rate becomes less negative, but hours continue to decline rapidly.
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.
The Collapse in Relation to GDP
In an earlier post, I discussed the startling decline in US imports [0]. Brad Setser has also reported on this phenomenon. This decline is not restricted to the United States, as noted in an OECD report released last week (h/t Torsten Slok):