With talk of a second stimulus package circulating, it’s of interest to see what the current forecasts are indicating about the depth of the recession, as well as the “bounceback”. Jim has presented some of his views here. In this post, I examine the implications of the consensus coming from the March WSJ survey article, which indicates continued deterioration in the outlook, but a recovery beginning in 2009Q3.
Category Archives: recession
What will recovery look like?
When good news comes, what should we expect to see?
Trend Stationarity/Difference Stationarity over the (Very) Long Run
The Great Multiplier Debate, New Keynesian Edition
Greg Mankiw cites a study by Cogan, Cwik, Taylor, and Wieland to buttress his arguments that fiscal multipliers are small, especially when considering New Keynesian models. He also provides a startling graphic showing the dynamic multipliers from Romer-Bernstein versus the Taylor (1993) model, incorporating model consistent expectations; this graphic motivates Wieland et al. to remark:
We first show that the assumptions made by Romer and Bernstein about monetary
policy — essentially an interest rate peg for the Federal Reserve — are highly questionable
according to new Keynesian models. We therefore modify that assumption and look at the
impacts of a permanent increase in government purchases of goods and services in the
alternative model. According to the alternative model the impacts are much smaller than
those reported by Romer and Bernstein.
Cogan et al. use a New Keynesian dynamic stochastic general equilibrium (DSGE) model, specifically the Smets-Wouter model (Working Paper version of AER paper here).
Update on the auto sector
Detroit is still down, and the count begins on whether that means out.
The February Employment Situation
Interesting Econometric Result of the Day: And the Prospects for a Growth Bounceback
The exchange between Brad Delong and Greg Mankiw ([1] [2], followed up by [3] [4]) reminded me of some earlier work I’d done with Yin-Wong Cheung on the time series properties of real GDP, back in the “unit root” wars. Briefly, Mankiw was alluding to work with Campbell indicating GDP was well approximated as an ARIMA process, while Delong is arguing that using unemployment, which is trend stationary, indicates that indeed sharper increases in unemployment presage more rapid GDP growth. The former characterization is univariate in nature and the latter is bivariate. Of course, we’ve moved on since those days — the entire VAR and SVAR literature expands the set of variables, but at the cost of greater complexity — but simple characterizations can still be useful.
Is the Administration’s GDP Forecast Too Rosy?
Q4 Preliminary Release and Re-thinking That “Massive” Stimulus
The BEA released its preliminary numbers for 2008Q4 GDP. There was little good news in it, as many have observed. [0], [1], [2], [3] Consumption fell even further than first estimated. In an accounting sense, support from exports collapsed. Even the downward revision in inventories, which might have suggested a production rebound in this quarter, seems to incorporate more of a signal of further anticipated declines in demand, at least given the high inventory to sales ratios. And while declining imports add, in a mechanical sense, to output, it certainly hints at a sustained decrease in anticipated economic activity. Figure 1 shows these GDP components.
The Output Gap: Neoclassical Synthesis, New Classical and New Keynesian
It has been interesting to me how much excited commentary has been elicited by my posts on output gaps. [0],
[1], [2], [3] I had thought the subject fairly uncontroversial, especially my reliance upon the CBO measure, which is calculated in a conventional manner, and is an object well-understood in mainstream macroeconomics (take your pick — from Hall and Papell to Mankiw). However, it’s clear that there is no such agreement in the blogosphere (which can be taken as an indicator of how dispersed beliefs are in that world). In any case, the reaction tells me that one’s belief in what determines potential GDP defines in large part how one thinks about the workings of the economy, and so I thought it useful to discuss alternative measures coming out of current academic work.