There’s been a lot of discussion about how the lack of “shovel-ready” infrastructure projects puts a constraint on government investment spending as a mode for delivering stimulus, since most infrastructure projects take a long time to plan and build. But what if the negative output gap is going to be deep and long-lived? Is this concern so pertinent? I don’t think so.
Author Archives: Menzie Chinn
Employment and Output in December
From Bloomberg:
The U.S. lost more jobs in 2008 than in any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office.
CBO’s Projected Output Gap
The CBO released its Economic Outlook today. Here’s its projection of the output gap, under current law.
Forecasted GDP in the New Year
The description of the consensus that growth will resume around mid-year — while accurate — does not convey much information about what is the consensus regarding the depth of the recession. Nor does it convey the degree of disagreement regarding the timing and strength of the recovery. To provide some insight , here is the mean forecast for GDP into the new year, according to the WSJ’s December survey.
“Trade finance is collapsing”
…said Victor K. Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. “We’ve got orders we can’t ship right now.”
Source: “As Trade Slows, China Rethinks Its Growth Strategy,” NYT Jan 1, 2009.
Aggregate Demand and Finance and the Collapse in Trade
From “Trade-Finance Pinch Hurts the Healthy,” WSJ, 12/22/08:
The global financial crisis is drying up the financing that firms depend on for trade. That’s making the global recession nastier and deeper than it otherwise would be.
As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.
“Stuff Happens”: the Bush Administration’s Economic Stewardship
As we near the end of the year, and the end of eight years of Bush economic policy, I think it’s useful to look back. The White House has recently tangled with the NYT regarding what got us into the current economic crisis [0] (see also [1]). This comes on the heels of the Paulson argument that he would not have done anything different, had he known the full extent of the looming crisis. This leads me to wonder how we should view the Bush Administration’s stewardship of the economy.
ZIRP and the exchange rate…and other macro variables
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals — the output [0], inflation and exchange rate gaps — were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
Credit Crunch or Not
One of the debates regarding the current financial crisis is whether in fact there is a crisis, or whether in fact the financial system is operating normally. I’ve been skeptical myself of the “times are normal view”, but here is some evidence that the credit crunch is real. The findings also reinforces my view that un-nuanced reliance on highly aggregated volume statistics (e.g., Chari et al. 2008) is likely to result in misleading inferences (See the rejoinder from the Boston Fed’s economists). From the conclusion to Tong and Wei (2008) ungated version of Tong and Wei:
High Frequency Estimates and Forecasts of GDP
High frequency estimates are falling, while consensus forecasts are for a turnaround in 2009H2. First, consider two estimates of GDP released today.