Impacts, Transmission and Recovery.
This was the topic of a conference I recently attended, sponsored by the Korean Development Institute and the East-West Center, organized by Maurice Obstfeld, Dongchul Cho, Andrew Mason and Sang Hyop Lee. It was a great opportunity to hear diverse views on the progress of the world economy. The papers are here.
I’ve been sharing with readers my recent research with Cynthia Wu, in which we found that the Fed could likely lower long-term interest rates further by buying more long-term securities, even though the short-term rate is essentially zero and even though the newly created reserves would simply sit idle in banks’ accounts with the Fed. Here I’d like to take up the question of whether such a policy would be desirable.
Just some numbers to bring reality into the general discussion:
…According to the CBO
In evaluating the advisability of extending either completely or partially the tax cuts of 2001 and 2003 (aka EGTRRA and JGTRRA), and implementing additional fixes to the AMT, one should consider the impact on the budget.
I thought I’d add a few observations on the latest employment report (other reports here: [NYT], [WSJ RTE/Izzo] [CR], [Economist’s View]). First, by an alternate measure, employment is improving more rapidly than the standard nonfarm employment (NFP) measure. Second, the alternate measure increased faster than nonfarm payroll employment over the period of temporary Census hiring. Third, aggregate hours worked in the private sector continues to rise faster than private sector employment. Fourth, the NFP growth consistent with zero GDP growth is lower in the last decade, versus previous decades, even while the elasticity of NFP growth with respect to GDP growth has risen.
August auto sales worst in 27 years, declared some headlines. While the statement may be true, I don’t think it’s the best way to summarize what we’re seeing.
If one wants to be taken seriously in the world of policy analysis, one should at least use an internally consistent framework. This consideration, apparently, has not troubled Mr. Riedl.
Even though the overnight interest rate has been stuck near zero for 20 months, are there options available to the Federal Reserve or the U.S. Treasury to bring longer-term yields down further? I have been looking into this question with Cynthia Wu, an extremely talented UCSD graduate student. We present our findings in a new research paper, some of whose results I summarize here.
With the consumer in the doldrums, residential investment unlikely to rebound in the near future, and government stimulus constrained by political gridlock, it’s hard to see where the sources of aggregate demand will be. I’m going to extend Jim’s search for silver linings in the latest GDP release.
I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I’ll be relating the conclusions from that research in a few days. But first I’d like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.