I’ve been wrapping up some long term projects (not planned as long term — they just took longer than expected) on interest rate parity and term spreads, and that spurred me to look at current patterns in interest rates. Some quick observations: interest rates remain higher in emerging markets than in core industrial countries. So too are real rates are higher despite higher inflation rates. And term spreads are larger in the US than other countries.
Category Archives: inflation
Sovereign debt scares– is the U.S. immune?
Many people are finally coming to a realization that should have been evident long ago: Greece’s debts are not going to be repaid. And as discussion turns to who might be next, it seems a good time to revisit the question of whether the United States could some day find itself in similar trouble. I am substantially more optimistic about this than I was a couple of years ago, and here is why.
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Estimated Potential GDP — What Would Milton Friedman Say?
The CBO has revised downward the estimate of potential GDP, implying a relatively small output gap. I wonder about the downward revision (although I have the highest regard for the estimates CBO has generated.)
Switzerland drops its currency peg
The Swiss National Bank stunned markets on Thursday with an abrupt decision to abandon its commitment since 2011 to hold the Swiss franc at 1.20 francs/euro, as a result of which the franc appreciated almost 20% within the space of a few minutes.
“Inflation’s Looming Shadow”
Paul Ryan in October 2009 writes:
“One of my key concerns is on the inflation front….”
The Year in Review: Even More Fantastical Pseudo Economics
To heck with facts… and the scientific method.
Do falling oil prices raise the threat of deflation?
The spectacular drop in oil prices means that inflation is going to fall even further below the Fed’s 2% target. Does that raise any new risks for the economy? I say no, and here’s why.
Accelerated Employment Growth, Little Inflationary Pressure
Nonfarm payroll employment clocks in substantially above consensus (321,000 vs Bloomberg: mean 230,000, range 140,000 to 275,000), solidifying trend growth. Previous months’ estimates revised upward. Wages continue to rise, but labor costs in productivity adjusted terms are stable.
If Output Is Near Potential, Why Is Inflation so Low?
There is a lot of discussion of how economic slack is fast disappearing, and I expect a lot of push on this view, given continued rapid growth in GDP as reported in today’s second release for 2014Q3. This view seems counter to (1) the CBO estimate of potential GDP and (2) the slow pace of inflation. My suggestion is that there remains a substantial amount of slack out there.
Unanchored
In a recent article, Amity Shlaes asserts official statistics mismeasure how we experience inflation. I’m going to agree, but not for the reasons you might think. It’s not because John Williams’ Shadowstats, which she appeals to, is right (Jim has comprehensively documented why each and every person who cites that source should be drummed out of the society of economists or aspiring economic commentators). Rather it’s because I think people do have biases — i.e., the steady-state rational expectations hypothesis might not be applicable.