I’ve been emphasizing that the U.S. Federal Reserve has not been printing money in the conventional sense of creating new dollar bills that have ended up in anybody’s wallets. Instead, the Fed has been creating new reserves by crediting the accounts that banks maintain with the Fed. Today I’d like to offer some further observations on how those reserve balances mattered for the economy historically, how they matter in the current setting, and how they may matter in the future.
Dispatches (VII): WWBD?
Or, “What Would Bob (La Follette) Do?”
Since I teach in the Robert M. La Follette School of Public Affairs, this WSJ article “‘Fighting Bob’ Fights Right On” caught my eye. From the article:
Protesters’ signs and online discussions have repeatedly invoked La Follette, a turn-of-the-20th century Wisconsin governor and U.S. senator. His bust has become a locus of the protest, with demonstrators draping flowers around its neck and festooning its pedestal with signs saying “Long Live La Follette” and “What Would Bob Do?”
Good news from autos– for now
The price of oil rose from $80 a barrel in September 2007 to average $134 in June 2008. The toll this took on the U.S. auto industry was in my mind an important factor that contributed to the first year of the Great Recession in 2007:Q4-2008:Q3. Given the recent concerns about oil supplies in North Africa and the Middle East, it’s useful to review what happened three years ago and relate it to where we stand at the moment based on the February auto sales data that were just released.
Crowding Out Watch, Updated
I’m teaching the concept of portfolio crowding out in my intermediate macro course (handout with algebra here) now, and as I was going through the notes, I observed that last I had checked, there was (still!) little evidence of crowding out. Here’s the graph, updated with data through 2/25 (that is, pretty much the same story as last time I discussed this, despite the hysterics).
Dispatches (VI): Where Do Those Budget Numbers Come From?
Wisconsin Governor Walker has been stating that if his “budget repair bill” is not passed, then the state will lose $165 million dollars. It is unclear what exactly would be “lost” if the bill is not passed. From the New York Times:
“One day left to save the state $165 million,” said the governor’s office on Monday, announcing the latest deadline.
If Democrats do not return by Tuesday, taxpayers would lose an option to save that money through a “refinancing,” the governor’s office said, citing the Wisconsin Legislative Fiscal Bureau, a nonpartisan agency that conducts budget analysis.
Dispatches (V): Wisconsin – Open for Business or For Sale?
In light of the provision to sell off power plants in Wisconsin under no-bid contracts, this photo caught my eye:
Source: Capital Times
The Economic Report of the President
The Economic Report of the President, 2011 is out. The topical chapters are:
CBO on the Stimulus Package, and Still No Expansionary Fiscal Contraction in UK
Two Items Regarding Fiscal Policy
US GDP and the Stimulus Package
The 2nd release for US GDP revealed a downward revision BEA; CR reports the breakdown. What is interesting is that the downward revision is due in part to a greater than previously estimated decline in the state and local government spending contribution. Something useful to keep in mind as state and local governments move to rely solely upon spending cuts instead of revenue increases as means to reduce budget deficits (e.g., as in Wisconsin).
Exchange Rates: Two Stylized Facts and Yet Another (Consequent) Puzzle
My colleague, Charles Engel, has a new paper entitled The Real Exchange Rate, Real Interest Rates, and the Risk Premium, in which he tries to identify what characteristics an exchange rate model must possess in order to explain two stylized facts.
…The well-known interest parity puzzle in foreign exchange markets finds … the high interest rate country tends to have the higher expected return in the short run. The second stylized fact concerns evidence that when a country’s relative real interest rate rises above its average, its currency tends to be stronger than average in real terms.
Libya, oil prices, and the economic outlook
What will be the economic effects of this week’s developments in Libya? We have a fair amount of historical experience from which to try to answer that question.