Over the weekend, I was working on my long delayed manuscript on exchange rate modeling [0], and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
Category Archives: deficits
The Debt to GDP Trajectory in Perspective
There’s been substantial discussion of how the debt-to-GDP ratio evolves under the Obama plan. In part, the House attempts to pare back certain provisions of the Obama budget are a reaction to the projected rise in the debt-to-GDP ratio [0].
How much is a trillion?
A trillion dollars used to be a sum that never naturally came up in normal conversation. Now all of a sudden, it’s the standard unit we seem to be using to talk about our economic problems and what we’re trying to do about them. Fortunately, I think I finally got a handle on what $1 trillion really means.
Projected size of the deficit
It’s interesting that as we discuss the magnitude of the economic problems and proposed solutions, the units everything is quoted in have gone from billions to trillions.
The Treasury’s Financial Stability Plan
Here’s my two cents on the latest two trillion.
The paradox of thrift
Or, how come you used to say that if consumers don’t save more, it will wreck the economy, and now you say, if consumers do save more, it will wreck the economy?
HR 1 and the Fiscal Impulse over the next 20 months (and an instance of deja vu).
The CBO has posted an actual “cost estimate” on HR 1 (not just a partial examination of Division A, as explained in the Director’s Blog, the locus of great disinformation in previous discussions, as recounted by Dean Baker). Here is a graphical depiction of what CBO believes will be the impact on the deficit (once again, recalling that there is an explicit omission of repercussion effects on tax revenues and transfers that would arise from elevated aggregate demand; in other words, this is the estimated impact on the full employment budget balance).
Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition
It’s been frustrating to me that so much virtual ink has been spilled about why the fiscal package will or will not be effective, with so little clarity. Lots and lots of words are being thrown around, [1] [2] when a lot of the arguments can be summarized pretty easily in terms of four cases, and hence four graphs (I won’t deal with the fifth, in detail). There are numerous excellent critiques; here in the interest of specificity, the exposition will be fairly dense.
1. With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
2. With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
3. With prices predetermined, the sensitivity of money demand to wealth is high.
4. Output is at full employment levels.
5. Neo-Ricardian equivalence, as put forward by Barro, holds.
Fiscal stimulus: the case for block grants
A few thoughts on how the federal government might best implement a fiscal stimulus.
Finding the exit
How you think we might get out of our current economic problems has something to do with how you think we got into them in the first place.