Ruble down about 7%, sovereign bond yields up 4.7 percentage points in 6 days, stock market down 1/3 in one day.
Predictions – Oil Prices and Recoveries and Recessions
A bit over 12 years ago, one prognosticator Steven Kopits wrote:
With the 9.4% unemployment report WTI oil prices are, I believe, effectively at a post-crash high.
I think the economic news suggests that we are running up the back of the “V”.
This is good news and bad news. The good news: an unexpectedly sharp recovery. The bad news: Our analysis suggests the US falls back into recession above $80 oil, and I think we’ll have a chance to test the hypothesis relatively soon.
Russia EMP Watch
One way to assess external financial stress is to look at exchange market pressure (EMP) – the change in the exchange rate, change in reserves, and change in interest rates, possibly weighted by inverse of standard deviations. or otherwise (see e.g., Patnaik, et al. (2017) for several different versions).
Counterinsurgency Ratios
One rule of thumb is that a successful counterinsurgency requires something on the order of 20-25 troops per 1000 population (Goode, 2010). Ukraine’s population is 44 million. Simple division and multiplication yields 880,000 to 1,100,000.
Would Pumping More Natural Gas in America Have Countered Russian Pressure?
A reader suggests this is the case. Well, if there was an integrated natural gas market, maybe. (To anticipate the answer to the question: Duh, NO).
Interpreting Macroeconomically a War Scenario, Graphically
Most of the discussion of the macro implications of an expanded Russian invasion of Ukraine presumes elevated oil prices (e.g., [1]). This makes sense, certainly for the short run. However, if oil prices rise sufficiently (keeping in mind for Brent have already risen from about $70/bbl to $90/bbl), they will kick the economy into a slowdown. Slowdowns tend to push down oil prices. I think in terms of graphs; this is how I see the short term, and (potentially) medium term.
A Wisconsin Labor Shortage?
I talked briefly on WPR’s Here and Now yesterday, on the Wisconsin “labor shortage”. After making my obligatory comment that economists would not use the term “shortage” to characterize Wisconsin’s situation, as there were (and are) no barriers to private firms to raising wages and benefits (see this post). However, supply could be constrained — either because of the presence of benefits (e.g., enhanced pandemic-related unemployment insurance), accumulated savings from the previous pandemic rescue packages, perceived increased disutility of work, or fear of illness. But higher wages and more flexible working situations could mitigate the high ratio of job openings to employment.
Odds
No prediction markets on an expanded incursion (remember they already have the Crimea and de facto Donbas) into Ukraine, but here’s the market on how many mentions of “Russia” or “Putin” in the State of the Union address – a proxy for prominence of the Ukraine issue.
A Continued Russian Invasion of Ukraine – Six Scenarios in Three Maps
From Seth Jones/CSIS (mid-January):
1. Redeploy some of its ground forces away from the Ukrainian border—at least temporarily—if negotiations are successful but continue to aid pro-Russian rebels in Eastern Ukraine.
2. Send conventional Russian troops into the breakaway regions of Donetsk and Luhansk as unilateral “peacekeepers” and refuse to withdraw them until peace talks end successfully and Kiev agrees to implement the Minsk Accords.
3. Seize Ukrainian territory as far west as the Dnepr River to use as a bargaining chip or incorporate this new territory fully into the Russian Federation. This option is represented in Figure 2a.
4. Seize Ukrainian territory up to the Dnepr River and seize an additional belt of land (to include Odessa) that connects Russian territory with the breakaway Transdniestria Republic and separates Ukraine from any access to the Black Sea. The Kremlin would incorporate these new lands into Russia and ensure that the rump Ukrainian statelet remains economically unviable.
5. Seize only a belt of land between Russia and Transdniestria (including Mariupol, Kherson, and Odessa) to secure freshwater supplies for Crimea and block Ukraine’s access to the sea, while avoiding major combat over Kiev and Kharkiv. This option is represented in Figure 2b.
6. Seize all of Ukraine and, with Belarus, announce the formation of a new tripartite Slavic union of Great, Little, and White Russians (Russians, Ukrainians, and Belarusians). This option would involve operations represented in Figure 2a as “phase one,” with Figure 2c representing “phase two” of this option.
Here are the relevant maps.
Unanchored or Not? (Inflation Expectations)
Paul Krugman notes research out of NY Fed (analysis here) suggesting sensitivity of household inflation expectations to current actual is lower than in the past. As a reminder, here’re household expectations (Michigan, NY Fed) vs. others (economists) at the 1 year horizon.