Last week the U.S. Federal Reserve closed a chapter on the experiment with quantitative easing, just as the Bank of Japan opened a new one. Seems like a good time to comment on some of what we’ve learned so far.
Mind the (Output) Gap
Yesterday’s advance GDP release for 2014Q3, covered by Jim, was welcome news, and was something Jeff Frieden and I predicted at the beginning of the year [1]. However, while growth seems to be firming, it is far too soon to take away stimulus. Figure 1 shows that the degree of economic slack remains large. [edits 11/6 to accommodate reader Tom’s critique]
Solid GDP report
The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 3.5% annual rate in the third quarter. That combines with a 4.6% annual growth rate now reported for the second quarter, giving us an average growth rate for the last six months that is solidly above the postwar average.
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Philadelphia Fed: Wisconsin and Kansas Growth Gaps Forecasted to Increase
And California and Minnesota surge ahead of the US. I know this sounds like a broken record, but the numbers are the numbers. And reader Patrick R. Sullivan suggests I move to Kansas, based on a Tax Foundation analysis (the same Patrick R. Sullivan who refuses to admit that his assertion that the depth of the downturn in Canada was less than that in the US during the Great Depression is wrong.) Here’s at least one reason why I don’t plan to. From today’s release of leading indices by the Philadelphia Fed, combined with last week’s release of coincident indices.
Ed Lazear Comments on Government Forecasts
Or, the self-rehabilitation effort continues. In a WSJ op-ed entitled “Government Forecasters Might as Well Use a Ouija Board”, he writes:
My analysis of 1999-2013 reveals that the CBO’s real GDP growth forecasts for the next year were off, on average, by 1.7 percentage points, either too high or low. Administration forecasts were similarly off by a slightly larger 1.8 percentage points on average, also to high or too low. Given that the average growth rate during this period was only 2.1%, errors of this magnitude are substantial.
Conference in San Francisco
I’m a little late in mentioning a wonderful conference in San Francisco last month. Thanks so much to Oscar Jorda and Francisco Ruge-Murcia for organizing the event and to all those who participated to help make this a truly exceptional gathering. Here’s a link to some photos from the event.
Guest Contribution: Is the US Current Account Deficit Problem Over?
Today we are fortunate to have a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99.
Philadelphia Fed Coincident Indices: Kansas and Wisconsin Continue to Lag Nation
Low ranked by ALEC-Laffer, California and Minnesota continue to power along, as shown in data released today by the Philadelphia Fed.
Has Wisconsin Employment Growth Really Been Normal over the Last Four Years?
Integration, cointegration and the evaluation of time series data for public policy analysis. As my first economics teacher said, “ya gotta be careful”.
Competitiveness, Exchange Rates, Spillovers, the End of Original Sin, and More
Those are the topics covered in the West Coast Workshop on International Finance and Open Economy Macroeconomics, held October 17, 2014, and co-organized by Helen Popper (University of Santa Clara) and Michael Hutchison (UC Santa Cruz). The agenda is here (co-sponsored by SCU, UCSC, Federal Reserve Bank of San Francisco).