One of the economic indicators to which we frequently call attention is the Aruoba-Diebold-Scotti Business Conditions Index that is maintained by the Federal Reserve Bank of Philadelphia. This uses a number of important economic indicators immediately upon release to get an updated view of the overall level of economic activity. One question that arises in using this index is that the raw data from which the index is constructed can be subject to considerable revision in subsequent data releases. A new analysis by the authors takes a look at this issue.
The Fed’s new policy tools
We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I’d like to discuss three new papers that have come out since then.
The Yuan, the Chinese Trade Balance and the US, Again
…through the Lens of Multiple Regression
How much are gasoline prices weighing on consumers?
On Friday Reuters reported:
Rising gasoline prices beat down U.S. consumer sentiment in early January, overshadowing an improved job outlook and passage of temporary federal tax breaks, a survey released on Friday showed. A year-end surge in gasoline prices ratcheted up consumer inflation expectations to their highest in more than two years, according to the latest data from Thomson Reuters and the University of Michigan. The surveys’ preliminary January reading on the overall consumer sentiment slipped to 72.7, below 74.5 in December. It fell short of a 75.4 reading predicted by economists polled recently by Reuters.
Cumulative Output Loss
…lest we forget how much the mindless deregulation and irresponsible fiscal policy induced-crisis [1] [2] [3] and great recession has cost us in terms of lost output, and how difficult the road to recovery remains. (Very important as certain forces seek to gut financial regulation by way of “defunding”. [4])
The Financial Crisis, Interpreted
And some unanswered questions. From Jeffry Frieden, “A Classic Foreign Debt Crisis,” The Political Economist 12 (2) (Fall 2010) [newsletter of the Political Economy section of APSA, not online]:
Much of the popular, and scholarly, analysis of the crisis has focused
on its financial aspects: the breakdown of financial markets, the malfunction
of financial innovations, the failure of financial regulation. …
Oil shocks and economic recessions
I’ve just completed a new research paper that surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Here I report the paper’s summary of oil market disruptions and economic downturns since the Second World War. Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.
Exchange Rate Modelling at AEA
Or, at least one session’s worth of recent thinking on the topic.
Presiding: Philippe Bacchetta (University of Lausanne)
On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals, by Philippe Bacchetta (University of Lausanne), and Eric van Wincoop (University of Virginia). Discussed by Ken Kasa (Simon Fraser University).- Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set , by Menzie Chinn (University of Wisconsin), and Michael Moore (Queen’s University Belfast). Discussed by Pierre-Olivier Gourinchas (University of California-Berkeley)
- Phoenix Taylor Rule Exchange Rate Forecasting During the Financial Crisis, by David Papell (University of Houston), and Tanya Molodtsova (Emory University) . Discussed by Jan Groen (Federal Reserve Bank of New York).
- The Scapegoat Model of Exchange Rates: An Empirical Test, by Marcel Fratzscher (European Central Bank), Lucio Sarno (Cass Business School), and Gabriele Zinna (Bank of England). Discussed by Nelson Mark (University of Notre Dame).
The first oil shock
A research paper by Eyal Dvir of Boston College and Ken Rogoff of Harvard suggests some interesting parallels between the recent behavior of oil prices and what was observed at the very beginning of the industry. I’ve been doing some related research on the history of the oil industry that looks into the events behind historical oil price shocks. Here I describe the first oil shock, which occurred a century and a half ago.
Explaining Recent Trends in Household Saving
From Reuven Glick and Kevin Lansing, Consumers and the Economy: Household Credit and Personal Saving:
In the years since the bursting of the housing bubble, the personal saving rate has trended up from around 1% to around 6%, while the ratio of household debt to disposable income has dropped from 130% to 118%. Changes over time in the availability of credit to households can explain 90% of the variance of the saving rate since the mid-1960s, including the recent uptrend, according to a simple empirical model.