Archive for the ‘Macroeconomics’ Category

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.

economic ignorance and trade wars

Sunday, April 23rd, 2017

It is sad (and dangerous) that policymakers in the current US government display an ignorance of basic economics. A column like this, written by Columbia University economist Jeffrey Sachs, would not be necessary if Mr Trump and his advisors had even a minimal understanding of economic principles taught in economics 101. (more…)

US trade follies

Tuesday, April 18th, 2017

FT columnist Martin Wolf worries that “US policymakers talk nonsense” and, for this reason, “could demolish the open trading system”. (more…)

unemployment rates and participation rates

Thursday, March 30th, 2017

Unemployment rates are useful for describing the health of the economy, but they do have an important flaw. They ignore those who are not in the labour force, those who are not actively seeking employment. Often, this is correct. Students and housewives, for example, may not desire wage employment. But, when the economy is really depressed, many of the involuntarily unemployed become so discouraged that they no longer seek work. By failing to account for these discouraged workers, the unemployment underestimates the true amount of unemployment (slack) in the economy.

President Trump, for all his shortcomings, does have the intuition that the unemployment rate is not a flawless indicator of the health of the economy. Participation rates, as Bloomberg journalist Justin Fox explains, can be more revealing.

President Donald Trump says lots of nutty, made-up things that invariably generate lots of appalled reactions from the news media and the wonkocracy. His statements about the unemployment rate have generated lots of appalled reactions, too. But, as I’ve written before, they’re not entirely nutty or made-up. In fact, they address — albeit in exaggerated Trumpian fashion — a real measurement problem.

Here, for example, is the president in his much-discussed (and yes, in parts quite nutty) interview last week with Time’s Michael Scherer:

I inherited a mess with jobs, despite the statistics, you know, my statistics are even better, but they are not the real statistics because you have millions of people that can’t get a job, OK.

OK! Although I wouldn’t put it exactly that way. Here’s what Trump should have said if he wanted to do more to court the crucial econowonk demographic:

Yes, the unemployment rate is low — and going lower! But the job market still isn’t in great shape, which the unemployment rate misses because it fails to count the millions of people who have given up looking for work. A better measure to focus on would be the prime-age employment-to-population ratio ….

I think it’s fair to characterize this as “a mess with jobs” — although it’s a mess that’s been many decades in the making, and I doubt President Trump really knows what to do about it.

Justin Fox, “The Jobs Statistics Trump Should Be Worried About“, Bloomberg View, 29 March 2017.

Click on the link above for much more analysis and charts. Mr Fox is author of Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (Harper Business, 2009).


fiscal austerity in the eurozone

Wednesday, December 7th, 2016

The eurozone’s pursuit of austerity, when fiscal stimulus is needed, continues to worry Martin Wolf. Here are the concluding two paragraphs of his exceptionally informative Wednesday column.

What the eurozone needs most is a shift away from the politics of austerity. In its most recent Economic Outlook, the OECD, a club of mostly rich nations, makes a cogent (albeit belated) plea for a combination of growth-supporting fiscal expansion with relevant structural reforms. This is most relevant to the eurozone because that is where demand has been weakest and the fetish over fiscal deficits most exaggerated. In the big eurozone economies, net public investment is near zero. This is folly.

Alas, little chance of change exists. Those who matter — the German government, above all — view public borrowing as a sin, regardless of its cost. The political and economic impact of breaking up the eurozone is so great that the single currency may well soldier on forever. But it has by now become identified with prolonged stagnation. Those member countries with the power to change this approach should ask themselves whether it really makes sense. It is time for the eurozone to stop living dangerously and start living sensibly, instead.

Martin Wolf, “More perils lie in wait for the eurozone“, Financial Times, 7 December 2016 (metered paywall).