Archive for the ‘Macroeconomics’ Category

global effects of the Trump stimulus

Friday, April 20th, 2018

In its latest World Economic Outlook, the International Monetary Fund (IMF) predicts global growth of 3.9% this year and next – the best performance since 2011. Its prediction is based largely an expectation of stimulus from Donald Trump’s tax cuts, which will bring an inevitable increase in US imports and the country’s current account deficit.

But what response might we expect from a president who dislikes trade deficits? The answer is predictable, as FT columnist Robin Harding explains. (more…)

the real cause of trade deficits

Wednesday, April 4th, 2018

In an FT column, Megan Greene provides an excellent, concise explanation of why the US has a large trade deficit, and why tariffs on trade will not reduce it. President Trump should read this before his trade war harms the US and its trading partners. This is Economics 101, understood by nearly all trained economists but difficult for non-economists to understand. (more…)

Donald Trump IS a protectionist

Tuesday, March 6th, 2018

Martin Wolf, in another great FT column, explains that there is no justification (even on protectionist grounds) for the 25% tariffs on steel and 10% on aluminum, and they will likely spur further protectionist tariffs, since industries using steel and aluminum as inputs will face rising costs. The solution? More tariffs! (more…)

chart of the day

Tuesday, February 27th, 2018

Portugal, Finland, Italy and (especially) Greece have not yet regained the levels of GDP they registered prior to onset of the Great Recession in 2008. (more…)

what is wrong with macroeconomics?

Thursday, February 1st, 2018

The Oxford Review of Economic Policy has devoted an entire double issue to the topic “Rebuilding macroeconomic theory”, and offers free, ungated access to all the articles, but only until February 7th.

Here is the abstract of the first, introductory article: (more…)

the bitcoin bubble

Thursday, December 7th, 2017

The value of Bitcoin cryptocurrency, worth US$1,000 at the beginning of the year, has soared to more than US$16,000. Would its crash hurt the global economy? Not in the opinion of the Financial Times. But there are other reasons to control bitcoin trade. Here are two paragraphs from an editorial in tomorrow’s newspaper. (more…)

chart of the day

Wednesday, August 16th, 2017

We are living in a period of ultra-easy monetary policy, with extremely low interest rates, yet inflation remains persistently low. What does this mean? FT columnist Martin Wolf writes that nobody knows.

The Bank of England was founded just over 323 years ago, in July 1694, at the instigation of King William III. It is the second oldest continuously-functioning central bank in the world, after Sweden’s Sveriges Riksbank, founded in 1668. ….

Prior to January 2009, the Bank had never lowered its lending rate below 2 per cent. But it was then lowered to 1.5 per cent, on its way to 0.5 per cent in March 2009 and 0.25 per cent in August 2016. ….

Throughout this prolonged recent period of ultra-easy monetary policy, the concern has never been one of runaway inflation, but rather of the opposite. This time really has been different. What does it mean for the future? Nobody knows.

Martin Wolf, “Nothing like this has happened in 323 years“, Financial Times, 16 August 2017 (gated paywall).

Shiller on housing bubbles

Friday, May 19th, 2017

Yale economist Robert Shiller worries that a housing bubble could form in the USA, creating conditions for another financial crisis. (more…)

tax holidays and US offshore cash

Sunday, April 30th, 2017

US treasury secretary Steven Mnuchin expects his tax holiday for offshore earnings to encourage repatriation of trillions of dollars, spurring investment in plants and equipment. He ignores, however, the fact that about half of this money is already in the USA, often invested in US treasury bills.  (more…)

official statistics and China’s GDP growth

Monday, April 24th, 2017

China’s official GDP estimates are distrusted by many, who think that the government is overstating the country’s true rate of economic growth. Columbia University’s Xavier Sala-i-Martin teamed up with two economists from the New York Fed (Hunter Clark and Maxim Pinkovskiy) to examine satellite data on variation over time of nighttime light emissions – a proxy for GDP growth. They find that the official statistics on average do not overstate China’s growth rate; in fact, in recent years they understate it.

For analysts of the Chinese economy, questions about the accuracy of the country’s official GDP data are a frequent source of angst, leading many to seek guidance from alternative indicators. These nonofficial gauges often suggest Beijing’s growth figures are exaggerated, but that conclusion is not supported by our analysis, which draws upon satellite measurements of the intensity of China’s nighttime light emissions—a good proxy for GDP growth that is presumably not subject to whatever measurement errors may affect the country’s official economic statistics. ….

The chart below presents the path of official Chinese GDP growth alongside our modified Li Keqiang Index (with the weights determined by the nighttime lights regression). We place a 95 percent confidence interval around our prediction.

Is Chinese Growth Overstated?

Hunter Clark, Maxim Pinkovskiy, and Xavier Sala-i-Martin, “Is Chinese Growth Overstated?“, Liberty Street Economics, 19 April 2017.

The authors’ full working paper on which this article is based, “China’s GDP Growth May be Understated” (NBER No. 23323, issued in April 2017), can be downloaded here.