Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared on November 9th in Project Syndicate.
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Thank Goodness We Solved that Problem of Elevated Economic Policy Uncertainty Depressing Growth!
As of today, measured economic policy uncertainty hit 468.
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At Long Last, the Feared (Portfolio) Crowding Out Has Materialized
The implication of a (massive) revision to the expected path of government debt relative to baseline is an increase in the slope of the yield curve. Some portion comes from the expectations hypothesis of the term structure, some from an increase in the risk premium. [lecture notes on portfolio crowding out] [lecture notes on expectations hypothesis of term structure]
Figure 1: Yield curve as of 8 November (blue), and 9 November (green). Source: US Treasury.
The Trilemma, Nuanced
I’ve just finished up the Mundell-Fleming model in my int’l finance course, and ended the section with a discussion of the “International Trilemma”, also known as “the Impossible Trinity”, which states that a given country can at any given time fully achieve only two out of three objectives of exchange rate stability, monetary autonomy, and financial integration (full capital mobility) at a time.
Rookie Economist Errors II
Yet more cautionary notes for my students.
Prosaic Observation of the Day: Republican Outreach to Asian Americans Falters
As noted earlier, in the aftermath of the 2012 election, the Republican Party dedicated itself to reaching out to Asian Americans (in addition to other ethnic groups). Thus far, the progress appears to be limited.
Confirmed: Kansas as Leader of the Pack
The Philadelphia Fed today released leading indices for the 50 states and the US. Kansas records the largest projected six-month decline in activity (after recording the largest in the Nation three month decline through August).
Source: Philadelphia Fed leading index page.
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Wisconsin Employment for July
With update 8/23 showing application of same methodology to Doyle administrations.
DWD released data today. Wisconsin private employment in July is estimated to equal what we earlier thought it was in June…
Does the Aerospace Decline Explain the Kansas Collapse?
Ironman at Political Calculations thinks so. Unfortunately, in his calculation of Kansas GDP excluding agriculture and manufacturing, he made an error by simply subtracting (chain weighted) real agricultural output and real manufacturing from real GDP (as discussed in the addendum to this post; note that Ironman has never to my knowledge acknowledged this error). I’ll re-examine the importance of the shocks to the aerospace industry in Kansas to the slow pace of Kansas growth by looking at contributions to GDP growth, and contributions to employment growth.
Does Drought Explain the Kansas Collapse?
Ironman at Political Calculations asserts it does. Unfortunately, he makes a mistake in calculating Kansas GDP ex.-agriculture by simply subtracting chained agriculture from chained state GDP (discussed in the addendum to this post). Here in Figure 1 is properly calculated GDP ex.-agriculture plotted against a drought index (lower values is a more severe drought).