KnowNOW!

Global Economic Watch

Syndication

Recent Posts

Tags

View more

Other Useful Blogs

Archives

  • Chinn and Frieden on Conditional Inflation Targeting

    In the latest Foreign Policy , Menzie Chinn and Jeffry Frieden argue on behalf of conditional inflation targeting. A little inflation would be welcome, they say, in that it would "reduce the debt burden to more manageable levels." They write: Today our highest priority should be to stimulate investment, growth, and employment. Raising the expected inflation rate will lower real interest rates and spur investment and consumption. It will also make it difficult for the de facto dollar peggers, such as China, to sustain their policies. The resulting real depreciation of the dollar would stimulate production of U.S. exports and domestic goods that compete with imports, boosting American production. The United States would get faster growth, an accelerated process of deleveraging, a quicker recovery, and a firmer foundation upon which to address long-term fiscal problems. To back up his assertion that a little inflation is not a threat, Chinn adds this graph of implied inflation at the Econbrowser blog. Do you agree with Chinn that fear of inflation is "unwarranted"? Read A Call for Action: Conditional Inflation Targetting here .

  • Mark Zandi, Menzie Chinn, Analyze 'American Jobs Act'

    It is a bit trying to separate the economic anaylsis of President Obama's jobs speech and the proposed American Jobs Act , but some economists worked overnight to cut through the talk and look into the details. Mark Zandi , chief economist of Moody's , has come out with the headline worthy number of 1.9 million. That's how many jobs he says the jobs plan would add. He also projects GDP growth of an additional 2 points next year if the act is passed. You can read the analysis here (subscription required), or Politico's coverage of the report here . Menzie Chinn took a stab at textbook analysis of the president's proposals. At Econbrowser , Chinn writes that, following "textbook" thinking, the president was right to focus on the short run output gap, as demonstrated in the below figure: Using the CBO's measure of potential, the lost output has been $2.8 trillion (Ch.2005$) through 2011Q2. Using the WSJ mean forecast, another $1.4 trillion will be lost by 2012Q4. The CBO-implied output gap as of 2011Q2 is 7.1% (log terms). Using a cubic in time trendline, the gap is still 3.4% (and then one has to believe that output was above potential 3.3% in 2007Q3). Extended unemployment insurance, extension of the payroll tax holiday [CBPP], and infrastructure spending are all means by which aggregate demand can be sustained. To the extent that extended UI and payroll tax holiday benefit lower income/liquidity constrained individuals, the marginal propensity to consume is relatively high and hence the multiplier fairly large. Investment in infrastructure also makes a lot sense given the multiplier is fairly large for direct spending. Read Recovery, or Replaying 1937 (and 2008)? here .

  • Graph: Unemployment and Unemployment By Income

    At Econbrowser , Menzie Chinn breaks out some recent research on how unemployment during the recession and the "jobless recovery" is affecting Americans in the lower income brackets. From the work of Andrew Sum , Ishwar Khatiwada , and Sheila Palma , of Center for Labor Market Studies at Northeastern University , Chinn has created this graph. It shows the unemployment and underemployment rates for the first eight months of 2010, by income. And, it is important to note, the income here is 2008 household income: Read The Incidence of Unemployment and Underemployment, by Income here .

  • Menzie Chinn Takes a Macro Look at Doubling Exports

    Commerce Secretary Gary Locke introduced the National Export Initiative yesterday. The new plan calls for increasing the amount of export financing available to small and mid-sized businesses to $6 billion in the next year--up from $4 billion. The goal is to double exports over the next five years. Sounds like quite a task, but as Menzie Chinn points out, it is not without historical precedent. And he shows us this graph at Econbrowser: Chinn shows us that nominal exports have doubled twice in the last forty years, and almost doubled twice more (1990 and 2008). He writes that the key factors, "from a macro perspective," are "(i) the price level of exports, (ii) the quantity of exports." Chinn analyzes these factors further in his Econbrowser post. Read it here .

  • Closer Look at GDP Numbers, Stimulus Effect, and Consumption Details

    The rise in GDP during the third quarter prompted the Room for Debate blog of the New York Times to ask whether the Obama Administration's $787 billion stimulus plan worked. MIT and Baseline Scenario 's Simon Johnson says the stimulus package worked on both an economic front and a political front (which then led to larger stimulus effects globally). Harvard University Economist Jeffrey Miron says no, look to monetary policy. Russell Roberts , economist at George Mason University, is sekptical of the stimulus plans power and suggests the growth might have occurred without it. And Mark Thoma says that "the stimulus programs in place now are probably too small." Read the full "debate" here . Meanwhile, James Hamilton had one of the most instructive pieces on the GDP numbers at the Econbrowser blog. Hamilton feels very positive about the GDP growth, and he neatly breaks down, and illustrates, the various contributors to the growth: Consumption spending is the biggest component of GDP and the main contributor to third quarter growth, accounting by itself for 2.4 percentage points out of the 3.5% total, and with consumer purchases of motor vehicles and parts alone 3/5 of the contribution of consumption. Next in importance was inventory rebuilding, which added 0.9 percentage points to the total and could make a significant further contribution in the quarters ahead. Housing is finally making a positive rather than a negative contribution, and nonresidential fixed investment was a smaller drag than I had been expecting. Imports grew faster than exports, though I'm relieved that trade overall is coming back. The government sector made a smaller contribution than one might have thought given the fiscal stimulus, in part because lower state and local spending offset some of the increased federal spending. For a healthier long-run growth path I'd prefer to see business fixed investment and net exports adding rather than subtracting. But, compared with what we've been seeing recently, this overall is a quite welcome report. Hamilton and Menzie Chin n track recessions through their Econbrowser Recession Indicator Index --a pattern recognition algorithm for identifying recessions that waits one quarter for data revisions and clear trend identification before making an assessment. With the third quarter GDP numbers out they looked at the revised second quarter figures. And they conclude that the recession did not end during the second quarter. Read the full GDP analysis here .

  • Chinn and Frieden: A Flood of Foreign Capital and a Sinking Economy

    Menzie Chinn and Jeffrey Frieden tackle the Sixty-four- thousand million billion dollar question in the LaFollette Policy Report : What caused the crisis? De-regulation and the "1990s era amendments to the 1977 U.S. Community Reinvestment Act? Greed? "Overly loose monetary policy"? East Asian oil-rich nations building up a "savings glut"? Some, or maybe even all, of these factors might have exacerbated the crisis. But Chinn and Frieden say the cause is fairly straightforward for those who have looked at some past international economic crises, like those of East Asia in 1997-98, Germany in the 1930s, and the US in the 1890s. This is an example of a "capital flow cycle," and it all comes down to the US debt problem, they write. By 2004, the federal budget deficit was more than $400 billion, the largest in history. As shown in Figure 1 (below), this deficit rivaled those of the Reagan deficits of the early and middle 1980s. The government ran these deficits with ease, for it could borrow just about as much as it wanted internationally. This ready access to capital funds was the new reality of globally integrated financial markets. The result was a continual rise in America’s foreign debt, expressed as a share of GDP. This is most clearly seen in the size of the country’s current account deficit, the amount the country needs to borrow from the rest of the world to pay for the excess of its imports over its exports. In other words, a current account deficit means that the country is not covering its current expenses out of current earnings, so that it must borrow the difference from abroad. Between 2001 and 2007, the American current account deficit averaged between $500 billion and $1 trillion every year, resulting in a current account deficit equal to an unprecedented 6 percent of GDP in 2006, as Figure 2 shows. For a while, this borrowing failed to manifest itself in a corresponding degree of indebtedness to the rest of the world—largely because the dollar’s value fell over this period (and most of America’s assets abroad are denominated in foreign currency). However, that string of good luck ended in 2008, when America’s net indebtedness to the rest of the world deteriorated substantially (about $1.3 trillion). This episode demonstrates that, in fact, there is no such thing as a free lunch, no matter how much things appear to change. Read Reflections on the Causes and Consequences of the Debt Crisis of 2008 here .