The CEA has updated its estimates of the impact of the stimulus plan on output. As I observed in my earlier post on assessing the results on 2009Q3 impact, one could use either a model approach (using multipliers, which can be derived from either neo-Classical synthesis, New Classical, New Keynesian models [0] [1]) or examine the actual versus some counterfactual based upon historical correlations (what CEA calls the “projection approach”).
Links for 2010-01-13
Stuart Staniford, who earlier had been persuaded that global oil production might have already peaked, now comments on the potential for increased production from Iraq to push the peak up to a decade down the road.
King Banaian on disturbing developments in Argentina and Venezuela.
Economists comment on the role of the Fed in the housing bubble. Two in particular worth emphasizing:
Marvin Goodfriend: Interest rate policy was appropriately stimulative in the 2002-3 period. But rates should have been raised less mechanically and more aggressively in 2004-5 on grounds of the usual macroeconomic conditions…. A somewhat tighter stance of interest rate policy then could have cut off the last year or so of the house price appreciation and prevented the worst part of the subsequent adjustment.
Mark Gertler: If we could go back in history and make one policy change, I’d go after sub-prime lending. Absent non-prime lending, the likely outcome of the housing correction of 2007 would have been a mild recession like 2000-2001, and not the debacle we experienced.
Guest Contribution: Bernanke on the Taylor Rule
By David Papell
Today, we’re fortunate to have David Papell, Professor of Economics at the University of Houston, as a Guest Contributor.
Marsh and Pfleiderer on the Financial Crisis
From “Analysis of the 2008-2009 Financial Crisis”, by Terry Marsh and Paul Pfleiderer:
In this Preface, we offer some analysis of the 2008-2009 financial crisis and its implications for financial industry reform and research. We primarily focus on issues relating to transparency and the measurement of risk and how these are affected by management incentives that are often misaligned with the incentives of those who are exposed in various ways to the risk being measured. In the aftermath of the crisis many have called for increased transparency; we suggest that while transparency is no doubt a desirable goal in many ways, enhancing it could prove to be quite difficult.
More of the same
The U.S. economy continues to recover at a painfully slow pace.
Some Aspects of the Employment Report
The net job loss in the December nonfarm payroll (NFP) is unwelcome news, but given the (upward) revision in the November figure, one shouldn’t think of this number as fixed. Figure 1 shows various employment series.
Reserves Are Revised Upward, the Dollar Share Declines
Perhaps the most startling thing about the new COFER data on reserves released by the IMF is not the declining dollar share in total reserves, but rather the fact that reserves have risen relative to where we thought they were [0]. The change is entirely due to the upward revision in unallocated reserves by emerging market and LDC central banks. This point is shown in Figure 1.
Bernanke grades the Fed
Fed Chair Ben Bernanke’s observations on monetary policy and the housing bubble have received a lot of attention. Like many other commentators (e.g., Arnold Kling, Paul Krugman, and Free Exchange), I agree with Bernanke’s conclusions, but only up to a point.
Guest Contribution: Monetary Policy and Asset Bubbles in 2010
By Joseph E. Gagnon
Today, we’re fortunate to have Joe Gagnon, senior fellow at the Peterson Institute for International Economics, as a guest contributor.
In his speech at the American Economic Association yesterday, Ben Bernanke said that monetary policy played at most a small role in the U.S. housing bubble and that financial regulatory policy is the appropriate tool for preventing harmful asset price bubbles in the future. I agree with these conclusions, but I suspect that many do not, even within the world of central banking.
Some International Finance at ASSA
I’m not at the ASSA meetings in Atlanta this year, but my coauthor Hiro Ito is presenting our papers (with Joshua Aizenman) in two very interesting sessions on international finance.