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Date: Thursday, 09 Oct 2014 19:08

That’s the title to today’s article in Reuters. I’ve been surprised that the Russian economy has taken as much a hit as it has, partly in response to sanction and spillover effects onto confidence from those sanctions. I think the skeptics of the efficacy of sanctions for hitting the Russian economy will have to re-assess.

From the Reuters article:

Russia’s central bank shifted the ruble’s trading band the most since the incursion into Ukraine started as it burns through almost $2 billion of reserves to stem the world’s worst depreciation since June.

The monetary authority sold $442 million on Oct. 7, data on its website show today. That excludes any interventions yesterday as the ruble slid 0.5 percent versus the target dollar-euro basket. The bank said it moved the upper band by 20 kopeks to 44.85 yesterday, a level the currency has since crossed to trade at 44.9126 by 4:09 p.m. in Moscow today. The ruble closed at 40 per dollar for the first time yesterday.

The boundary shift was the biggest since March 4, when President Vladimir Putin kicked off the incursion into Crimea that triggered a standoff with the U.S. and its allies and sent the nation’s assets tumbling. Central bank Governor Elvira Nabiullina has stepped up her defense after the ruble lost the most among global peers since June, hurt by a drop in oil prices and a domestic dollar and euro shortage stemming from sanctions.

The depletion of reserves through end-September and the ruble depreciation are shown in Figure 1.


Figure 1: Russian Federation international reserves ex.-gold, in billions USD (blue, left scale), and RUB/USD exchange rate, monthly average of daily rates (red, right scale); October observation is for 10/9. Vertical dashed line at shootdown of MH17. Source: IMF, International Financial Statistics, and Central Bank of Russia (for September reserves), Pacific Exchange Services, and author’s calculations.

Reserve depletion occurs when current account plus financial account < 0, so most of the recent run-down in reserves shown in Figure 1 is due to capital flight (as the recent intervention occurred over the last four days).

Interestingly, the counter-arguments to imposing sanctions have morphed over time; originally, assertions were that the sanctions would have little impact on the Russian economy; now, the view is that even with the economy tanking, there will be little impact on Russian foreign policy (e.g., Zachmann/Breugel) (or that the sanctions are too effective!). For a review of the debate, see this survey.

For now, I’ll merely note that the IMF has 2014 q4/q4 growth rate tagged at -0.8%. This is somewhat less than posited in some worst-case scenarios, e.g., IIF, discussed in this post, World Bank in this post. But, as they say, it is still early days. (I’m still waiting for the 225 bp rise in the policy rate to fully percolate throughout the economy, and higher food prices to further depress consumer confidence).

Author: "Menzie Chinn" Tags: "international"
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Date: Wednesday, 08 Oct 2014 23:55

The answer is faster…so contra the arguments of the Wisconsin Restaurant Association, and Wisconsin Manufacturers Association, it seems unlikely that there are large negative employment impacts from minimum wage increases. Oh, also contra Sabia for the Employment Policies Institute (who has still not responded to my repeated requests for his data, after six months).

From the COWS-EPI study, Raise the Floor Wisconsin:

[T]he 13 states that raised the minimum wage at the beginning of 2014 experienced subsequent job growth equal to or better than states that did not.

The entire report documents what is required to “live” in Wisconsin (relevant to this issue).

See here for documentation, and here for an analysis of why employment and/or the low income wage bill might increase in the wake of a minimum wage increase.

Update, 5:50PM Pacific: Reader xo apparently couldn’t be bothered to click on the link to the Hoffman-Shum results, so here are the key results, from their Table 4.


Author: "Menzie Chinn" Tags: "employment, Wisconsin"
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Date: Wednesday, 08 Oct 2014 03:11

From Jason Stein in today’s Milwaukee Journal Sentinel:

The state law requires that Wisconsin’s minimum wage “shall not be less than a living wage.” …

A living wage is defined under the law as “reasonable comfort, reasonable physical well-being, decency and moral well-being.”

…”The department has determined that there is no reasonable cause to believe that the wages paid to the complainants are not a living wage,” Robert Rodriguez, administrator of DWD’s Equal Rights Division, wrote in the denial letter.

The letter, released yesterday, is here. Interestingly, I have not been able to locate this document on the DWD website. In addition, I have not been able to locate any statistical or other quantitative analysis justifying this assessment (as of 10PM Central, on 10/7).

The standard critique — that there would be substantial job loss as a consequence of the a minimum wage hike, as argued by the Wisconsin Restaurant Association [1] — were trotted out. As I have noted before, the theoretical effects can go either way, and there is some evidence that the minimum wage increase effects are either small negative, or even possibly positive, on employment. [2]

Note that the Federal poverty threshold in 2014 for a two person household is $15730/year. If one were to work 40 hours/week for 52 weeks/year at the Wisconsin minimum wage, then gross income would equal $15080.

Update, 10/8 1:40PM Pacific: The irrepressible Rick Stryker observes that the Doyle administration determined $7.25 minimum wage as consistent with a living wage in July 2009. Well, lots has changed since 2009, including the fact that the price level has risen — a fact judiciously omitted by Mr. Stryker. Here is the minimum wage in 2009$ (and keep in mind, the CPI is plutocratic, so that it applies to upper income households). For instance, the CPI for food and beverages, which would be higher weighted for lower income households, has risen 11.9% vs. 10.9% for CPI.


Figure 3: Minimum wage in $/hour (blue) and in 2009$ (red). Deflation uses CPI-All.

Update: Here is the the 2009 Wisconsin Legislative Council Informational Memo regarding how DWD raised the minimum wage:

The Department of Workforce Development (DWD) is authorized by state statute to change the
state minimum wage through the rule promulgation process.

Despite some people’s assertions, the legislature did not pass legislation to effect this change.

You can also read more of the history of DWD’s decisionmaking here.

Author: "Menzie Chinn" Tags: "Uncategorized"
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Date: Tuesday, 07 Oct 2014 15:57

Chapters 1 and 2 of the IMF World Economic Outlook were released today.

Lots of useful data regarding the global economy (Chapter 1), as well as regional prospects (Chapter 2).

One interesting graph pertains to estimates of currency misalignments.


Figure 1.10 IMF WEO October 2014.

See more on the methodology here. The US estimates are of relevance given recent discussion of the dollar’s recent strengthening.

See also material on recent housing price trends (in Chapter 1, by Prakash Loungani), and spillover effects of changes in US yields (at the end of Chapter 2).

Author: "Menzie Chinn" Tags: "international"
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Date: Sunday, 05 Oct 2014 16:34

From the The Courier, “Osborne defends austerity measures”:

George Osborne, who has announced plans for a further £3.2 billion squeeze on welfare bill which will hit 10 million of the unemployed and working poor, warned they would be among the ones who would “suffer the most” if there was another crisis.

In Europe, some nations had “backed off” austerity and “here we are in 2014 with a number of those countries facing economic crisis again”.

I won’t recount in detail how misguided this analysis is — Simon Wren Lewis has ably detailed this in detail, most recently here, and earlier here and here. For now, I’ll just show two pictures — per capita income in the US and UK, normalized to the last peak, and last trough.


Figure 1: Log per capita US GDP, in Ch.09$ (blue) and per capita UK GDP, in Ch.2000£ (red), all 2007Q4=0. Long dashed line at 2010Q2, coalition government. UK population is annual midyear data from IMF WEO, interpolated using quadratic match. Source: BEA, OECD via FRED, IMF WEO database (April), and author’s calculations.


Figure 2: Log per capita US GDP, in Ch.09$ (blue) and per capita UK GDP, in Ch.2000£ (red), all 2009Q2=0. Long dashed line at 2010Q2, coalition government. UK population is annual midyear data from IMF WEO, interpolated using quadratic match. Source: BEA, OECD via FRED, IMF WEO database (April), and author’s calculations.

In other words, while the UK downturn was bigger than the US, in per capita terms, the return of the UK economy to recession follows the implementation of austerity measures. Hence, despite the acceleration in UK GDP, from 2009Q2 to 2014Q2, US per capita income has grown a cumulative 3.5% more in the US than in the UK.

As discussed in this post, divergent fiscal policies account for a large portion of the difference.

Update, 10/8 11:15AM Pacific: Reader Britmous points me out to the latest ONS revision, which includes among other things R&D expenditures and black market activities (the former is in the US series, the latter is not). Here is an updated Figure 2. Note that US per capita is still 1.8% higher than UK, even using this more recent ONS measure.


Figure 2A: Log per capita US GDP, in Ch.09$ (blue) and per capita UK GDP, in Ch.2000£ (red), and methodology revised per capita real GDP (dark red), all 2009Q2=0. Long dashed line at 2010Q2, coalition government. UK population used to calculate per capita UK 2000 pound series is annual midyear data from IMF WEO, interpolated using quadratic match. Source: BEA, OECD via FRED, IMF WEO database (April), and author’s calculations.

Author: "Menzie Chinn" Tags: "budget, international"
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Date: Friday, 03 Oct 2014 20:44

That’s the message from the BLS today.

Figure 1 shows that employment is growing, as measured by a number of indicators.


Figure 1: Log nonfarm payroll employment (blue), household series adjusted to conform to NFP concept (red), private nonfarm payroll employment (green), and aggregate weekly hours in private sector (black), all normalized to 2007M12=0. NBER defined recession dates shaded gray. Source: BLS via FRED, BLS, NBER, and author’s calculations.

Notice further that revisions have typically been to the upside in recent months. August figures were revised upward by 69,000. This is shown in Figure 2.


Figure 2: Level of nonfarm payroll employment from June release (red, right scale), July (green, right scale), August (black, right scale), and September (blue, right scale), and revision from first to second release (gray, left scale), all in thousands, seasonally adjusted. Source: BLS via FRED, and author’s calculations.

One interesting point is that the labor intensity of GDP, as measured by the (log) ratio of NFP employment to real GDP has been growing more rapidly than in the preceding recovery. That is, while the ratio of employment to GDP continues to decline, the rate of decline has decelerated. This observation is illustrated in Figure 3.


Figure 3: Growth rate in employment/GDP ratio, q/q annualized (blue) and y/y (red). NBER defined recession dates shaded gray. Source: BLS and BEA via FRED, NBER and author’s calculations.

Of course, while the pace of employment growth has risen with output growth, the sharp drop in employment in immediate wake of the recession means that employment has caught up with that implied by the long run relationship between employment and output, as discussed in this post (the paper, with Laurent Ferrara and Valerie Mignon, is now published at Journal of Macroeconomics). That is, it’s important to remember the level as well as the growth rate, something that people sometimes forget (they know who they are). Hence, this report should not be taken as carte blanche for a rapid increase in the policy rate.

Using the correlation between log first differences between output and employment over the last eight quarters (R2 = 0.16), the implied growth rate for 2014Q3 is 3.2% (SAAR), slightly higher than Macroeconomic Advisers latest tracking estimate at 2.8% (updated to 3.3% at 7pm Eastern).

For more on the employment release, see Furman/CEA, McBride/CR, Madigan/WSJ RTE, Portlock/WSJ RTE, and Stone/CBPP

Author: "Menzie Chinn" Tags: "employment"
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Date: Thursday, 02 Oct 2014 03:29

With lagging economic growth, and the massive tax cuts, revenues are falling below projection. From The Topeka Capital Journal today:

Tax collections by Kansas state government in September fell a sobering $21 million below projections to mark the fourth time in the past six months revenue failed to match targets, officials said Tuesday.

The state’s individual income tax receipts dropped $42.4 million beneath the estimate set earlier this year by a team of state economists and officials in Gov. Sam Brownback’s administration. Oil and gas tax revenue also failed to keep pace with the tax blueprint.

The revenue crater would have been twice as deep had it not been for a $21.5 million, or 33 percent, surge in corporate income tax receipts. It is unclear why that number moved so much to the positive side.


… the September report released by the Department of Revenue provided evidence the state could burn more rapidly through cash reserves and force the 2015 Legislature to take a scythe to the budget in January. The $21 million shortfall in September was 3.9 percent less than projected.

If the economy doesn’t grow rapidly and lawmakers don’t amend the budget, the Legislature’s nonpartisan research staff predicted the state would be confronted by a $238 million budget shortfall in July 2016. The hole would be larger if the state didn’t meet current tax revenue projections.

According to the article, the Brownback reelection campaign declined to comment on this report.

This account confirms the idea that reductions in tax rates reduce tax revenue, at least for the tax rates originally prevailing in Kansas. Furthermore, cuts in government spending appear to reduce economic activity. See this critique of the New Classical Kansas conjecture.

Author: "Menzie Chinn" Tags: "Uncategorized"
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Date: Wednesday, 01 Oct 2014 17:02

From Chapter 4 of the IMF’s World Economic Outlook, released today:


Global current account (“flow”) imbalances have narrowed significantly since their peak in 2006, and their configuration has changed markedly in the process. The imbalances that used to be the main concern—the large deficit in the United States and surpluses in China and Japan—have more than halved. But some surpluses, especially those in some European economies and oil exporters, remain large, and those in some advanced commodity exporters and major emerging market economies have since moved to deficit.

This chapter argues that the reduction of large flow imbalances has diminished systemic risks to the global economy. Nevertheless, two concerns remain. First, the nature of the flow adjustment—mostly driven by demand compression in deficit economies or growth differentials related to the faster recovery of emerging market economies and commodity exporters after the Great Recession—has meant that in many economies, narrower external imbalances have come at the cost of increased internal imbalances (high unemployment and large output gaps). The contraction in these external imbalances is expected to last as the decrease in output due to lowered demand has likely been matched by a decrease in potential output. However, there is some uncertainty about the latter, and there is the risk that flow imbalances will widen again. Second, since flow imbalances have shrunk but not reversed, net creditor and debtor positions (“stock imbalances”) have widened further. In addition, weak growth has contributed to increases in the ratio of net external liabilities to GDP in some debtor economies. These two factors make some of these economies more vulnerable to changes in market sentiment. To mitigate these risks, debtor economies will ultimately need to improve their current account balances
and strengthen growth performance. Stronger external demand and more expenditure switching (from foreign to domestic goods and services) would help on both accounts. Policy measures to achieve both stronger and more balanced growth in the major economies, including in surplus economies with available policy space, would also be beneficial.

The chapter was coauthored by Aqib Aslam, Samya Beidas-Strom, Marco Terrones (team leader), and Juan Yépez Albornoz, with support from Gavin Asdorian, Mitko Grigorov, and Hong Yang, and with contributions from Vladimir Klyuev and Joong Shik Kang.

For as assessment of global imbalances — causes and prospects — by me and Barry Eichengreen and Hiro Ito, see this post.

Author: "Menzie Chinn" Tags: "deficits, international"
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Date: Tuesday, 30 Sep 2014 15:17

The two neighboring states of Wisconsin and Minnesota share a similar economic structure and size; and yet their fortunes have diverged over the past three years. One correlate of Wisconsin’s growth deficit is state and local government spending.

First, let’s document Wisconsin’s lagging performance along three dimensions — gross state product, a high frequency indicator of economic activity from the Philadelphia Fed, and nonfarm payroll employment.


Figure 1: Minnesota-Wisconsin log gross state product cumulative growth differential (3 quarter centered moving average), in Ch.09$ (blue), log coincident indicators (red), and log nonfarm payroll employment (teal), all 2011Q1=0. 2014Q3 observations based on two months. Source: BEA, Philadelphia Fed, FRED, and author’s calculations.

Figure 1 highlights the fact that the growth gap peaked at between 1.6 ppts to 2.1 ppts in the middle of 2013. Interestingly, the gap has only barely diminished since then.

One of the correlates of the Wisconsin lag relative to Minnesota is government spending. Figure 2 illustrates relative cumulative growth in real government spending. Since 2011Q1, Wisconsin’s cumulative real government growth has been 2 percentage points more negative than Minnesota’s.


Figure 2: Log real government spending in Minnesota (3 quarter centered moving average) (blue), and in Wisconsin (red), both in bn. Ch.09$, 2011Q1=0. Source: BEA and author’s calculations.

This data ends in 2013Q4, so it’s not clear what’s happened recently. We can glean some information regarding more recent trends from state and local government employment.


Figure 3: Log state and local employment in Minnesota (blue), and in Wisconsin (red), 2011M01=0. Source: WI DWD, MN DEED, and author’s calculations.

Two observations: (1) as the gap in cumulative government employment growth has closed, the gap in cumulative nonfarm payroll growth has fallen ever so slightly (so too has the private NFP); (2) Wisconsin fiscal policy has become less contractionary in the last year, as state-local employment has risen and the state has embarked on regressive tax cuts [1] [2].

On this last point, I would be tempted to say something about political business cycles, but I will demur. For now, I’ll merely note that lagging Wisconsin performance over the past three years was entirely predictable given standard theory [3] while supply side factors highlighted by Governor Walker were unlikely to have a noticeable effect at that time horizon, if ever.[4] Also entirely predictable, that the Governor’s August 2013 pledge to create 250,000 net new jobs by the end of his first term would not be met, [5] undershooting by over 100,000 according to forecasts from the Walker administration’s own March 2014 Wisconsin Economic Outlook.

Author: "Menzie Chinn" Tags: "Wisconsin"
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Date: Friday, 26 Sep 2014 21:35

From “Fast trains, supply networks, and firm performance” in VoxEU:

We find that sales and measured productivity rose substantially for firms near the new (high speed rail) stations after the opening. Firms in industries with greater purchased input shares outperformed firms in industries with lower purchased input shares.

So Wisconsin dodged the fate of having higher firm productivity.

The report is authored by Bernard, Moxnes, and Saito.

Update, 10/1 12:26PM Pacific: And here is the IMF’s assessment of the role of infrastructure investment. Not that I expect it to convince all the folks who think we should privatize all roads, airports, harbors, and train service…

Author: "Menzie Chinn" Tags: "Uncategorized"
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Date: Friday, 26 Sep 2014 19:03

From Buoyant Dollar Recovers Its Luster, Underlining Rebound in U.S. Economy in today’s NY Times:

The United States dollar, after one of its most prolonged weak spells ever, has now re-emerged as the preferred currency for global investors. Across trading desks in New York, London and elsewhere, analysts are rushing to raise their dollar forecasts based on the resurgence in the American economy.

This confidence is buttressed by today’s third release of the 2014Q2 GDP report, which revised upward q/q growth to 4.6% (SAAR). [1]

It’s interesting to note where analysts locate the source of the dollar’s strength:

…the increasing push by investors into the dollar can be seen as a favorable report card on the United States economy, highlighting good performance in crucial benchmarks such as growth and fiscal responsibility, and an increasingly competitive position abroad because of a boom in energy exports.

That is the US economy is growing faster, with quantitative/credit easing, forward guidance, a more stimulative fiscal policy (read, less dedicated to government spending cut based austerity measures) — a policy mix many conservatives had decried as leading inexorably to higher inflation (something which has not occurred, and would if anticipated be leading to a weaker dollar).

That being said, it’s not clear that a strengthening dollar is an unambiguous good — particularly in a situation where the output gap is still substantially negative. A higher dollar renders less competitive American goods and services in international markets. Even though the extent of the appreciation is small at the moment, continued appreciation could prove problematic. From Kennedy/Bloomberg:

…this week [Federal Reserve Bank of NY President William Dudley] became the first Fed official to comment on the U.S. dollar since the Bloomberg Dollar Spot Index touched its highest level on a closing basis since June 2010. “If the dollar were to strengthen a lot, it would have consequences for growth,” the 61-year-old Dudley, a former Goldman Sachs Group Inc. economist, said at the Bloomberg Markets Most Influential Summit in New York.

“We would have poorer trade performance, less exports, more imports,” he said. “And if the dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.”

Determinants of the Dollar’s Recent Behavior

So how much of the dollar’s recent strength is attributable to the change in monetary policy, in itself responding to news about relative economic performance? This is a hard question to answer using the conventional models of exchange rates. The simplest real interest differential model, which relies upon uncovered interest parity and sticky prices a la Dornbusch-Frankel, relies at least empirically on stable processes governing interest rates. (Formally, in the Dornbusch model with sticky prices, all gaps in price levels, real money stocks and interest rates close a proportional gaps).

However, recent times have been marked by policy rates at the zero lower bound in the advanced economies. As shown in Figure 1, for instance, the correlation between the euro-dollar exchange rate (EUR per USD) and the observed policy rate differential between the US and the euro area has been pretty low. Given the definition of the variables, the correlation between the blue and gray line should be positive.

Figure 1: Log EUR/USD exchange rate (up is USD appreciation; blue, left scale), and US-euro area policy rate differential (gray, right scale), and Fed funds shadow rate and ECB shadow rate differential (red, right scale). September observation pertains to first three weeks. Dashed vertical line at 2008M09 (Lehman Brothers bankruptcy). Source: St. Louis Fed FRED, and Wu and Xia (2014), and author’s calculations.

In order to get some measure of anticipated future policy rates, I also plot the shadow interest differential for the US-euro area, where the shadow rates are calculated based upon the methodology in Wu and Xia (2014). Notice that the correlation now becomes obvious. Unfortunately, the ECB series has not been calculated out to 2014M08, so we miss out on the most recent months when the dollar has surged against the euro. However, we can guess that the euro shadow rate has likely declined in the wake of the ECB’s moves toward credit easing.

The dollar’s rise has been broader based; the euro accounts for only a share of the trade weighted dollar — 16.2% of the broad index, and 40.4% of the index against major currencies (see [1]). Nonetheless the euro-dollar exchange rate is highly correlated with the broader indices (aside from the period from late 2011 through 2012). A regression of the major currencies index on the EUR/USD exchange rate (in log first differences) over the 2004M01-2014M09 period yields a OLS coefficient of 0.66, adjusted R2 of 0.83.


Figure 2: Log EUR/USD exchange rate (blue, up is USD appreciation), and log trade weighted value of USD against major currencies (dark red), against broad basket of currencies (teal), all series rescaled to 2009M06=0. September observations pertain to first three weeks. Source: St. Louis Fed FRED, and Federal Reserve Board, and author’s calculations.

The foregoing suggests the following first differenced regression (the levels regression specification doesn’t seem to be cointegrated), where I have augmented the “shadow” interest differential with the CBOE VIX [2]:

Δ twxr = -0.001 + 1.173 × Δ (i-i*) + 0.145 × Δ vix

Adj.-R2 = 0.15, SER = 0.015, DW=1.70, smpl 2004M10-14M06, n=117. bold face denotes significance at 5% level. twxr is log nominal trade weighted dollar (vs. major currencies), i-i* is shadow policy rate US-Eurozone interest differential, and vix is CBOE VIX, monthly average of daily data (10%=0.10 latter two variables).

This is a relatively high coefficient of variation for a first differenced exchange rate specification. Hence, I’m relatively confident that the regression captures the fact that changes in real interest differentials, combined with a risk measure, affect the dollar. (I’ll update the regression and Figure 1 when I obtain updated shadow rates for the ECB).

Normative Implications

There’s a bit of triumphalism in some of these reports — see in particular this panegyric by Moore and Kudlow at Heritage, entitled The Return of King Dollar. A stronger dollar induces some expenditure switching away from US goods and toward foreign goods; of course the underlying strength of the US economy will likely swamp these effects, but still output and employment would likely be less than it otherwise would be in the absence of dollar appreciation.

Stehn at Goldman Sachs (not online, 9/23) uses the Fed’s FRB/US model combined with an inertial Taylor rule (1999 version) to simulate the impact of the broad dollar appreciation of 3% since the beginning of July.

…, we find that the recent appreciation (if maintained) would lower real GDP growth by about 0.15 percentage point (pp) in 2015 and 0.1pp in 2016. If the dollar continues to appreciate, these growth effects become more significant at 0.25pp in 2015 and 0.3pp in 2016, as the effect of cumulative appreciation builds in outer years.

Second, the inflation effect of dollar appreciation is negligible. …. The intuition for a very small effect on inflation is that inflation in FRB/US depends primarily on the level of slack in the economy, not the growth rate of output.

Finally, the implications of a stronger dollar for the Fed are limited. Under an inertial Taylor rule, the dollar appreciation observed to date (if maintained) would lower the warranted funds rate by 5 basis points (bp) at the end of 2015 and 15bp at the end of 2016. Continued dollar appreciation would, again, lead to somewhat larger effects.

I’d state this in a slightly different way — the cumulative impact on the level of GDP relative to no appreciation is 0.55 ppts. Whether this is big or not depends on one’s perspective. With the current output gap at approximately -4%, using August 2014 CBO estimates, half a percentage point of GDP is not insubstantial in my mind. Hence, I’d argue that the move toward starting to raise the Fed funds rate and/or other policy rates should be tempered by the impact on the value of the dollar.

For more on evaluating exchange rate behavior at the zero lower bound, see this post and this post. Using Taylor rule fundamentals, here; and a recap on exchange rate models here.

For discussion of the impact of exchange rates on US trade flows, see this post.

Author: "Menzie Chinn" Tags: "exchange rates, Federal Reserve, financi..."
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Date: Tuesday, 23 Sep 2014 18:50

Recently Jim highlighted the odd behavior of the various Treasury term premia. Here are some additional thoughts.
First, from “Debt market goes off script” in the WSJ:

Yields on short-term U.S. Treasury debt maturing in two to five years hit the highest level since 2011, reflecting an investor scramble to place bets on an expected Federal Reserve rate increase as soon as next spring. …

At the same time, yields on government debt maturing in 10 or more years have risen only modestly this week and remain well below their levels at the start of 2014, a year that many analysts forecast would include rising long-term interest rates and falling bond prices. …

The softness of longer-term yields highlights concerns shared by many analysts and policy makers about the uneven growth of the U.S. economy and falling expectations for inflation. Investors broadly expect the Fed to raise the fed funds rate next year for the first time since 2006. But many analysts say that even a small uptick in rates could slow the economy and send already-low inflation further below the Fed’s target.

A competing hypothesis was laid out in “US bonds are tracking ECB policy” in the Financial Times:

The link between US monetary policy and US bond yields has fallen apart this year, showing how fears of deflation in Europe are driving global financial markets.

According to analysis by the Financial Times, the correlation between five- and ten-year Treasury yields has fallen to its lowest level on record, with US bonds appearing to track European monetary policy instead.

Nominal and Real Spreads Are Still Positive, Despite Having Narrowed

Should we worry about imminent recession? There’s been some discussion of the age of the recovery and hence the anxiety. [0] [1] While spreads — both nominal and real — have indeed narrowed, they are still generally positive. As Chinn and Kucko note (blogpost), while spreads do not have extremely high explanatory power for recessions and growth, they do contain some information.


Figure 1: Ten year-three month spreads (blue), ten year-two year spreads (red), and ten year-five year spreads (green). Observations for September are for 9/19. NBER defined recession dates shaded gray. Source: FRED, and author’s calculations.


Figure 2: Ten year TIPS-two year Treasury minus 2 year expected inflation spreads (red), and ten year-five year TIPS spreads (green). Observations for September are for 9/19. NBER defined recession dates shaded gray. Dashed line at 2008M09. Source: FRED, Cleveland Fed and author’s calculations.

Has the Comovement between Ten and Five Year Yields Decreased?

The FT article documents the drastic drop in the 180 day daily correlation between 10 year and 5 year yields. On the other hand, the relatively large 10 year-5 year term premia shown in Figure 1 suggests the decline in yield comovement needs to be placed in context. Figure 3 shows that the one-year-window correlation does indeed drop drastically.


Figure 3: Correlation coefficient (blue), and regression coefficient, ten year on five year (red), one year window, monthly data. NBER defined recession dates shaded gray. Each observation pertains to the sample period encompassing the twelve month period ending in the observation. Source: FRED, NBER, and author’s calculations.

Jim made the same observation regarding correlations in his post. On the other hand, the regression coefficient (∂i10yr/∂i5yr) indicates that this period of low comovement follows a period of extremely high comovement. This casts in a slightly different light the assertion that the behavior of the five year has been abnormal in the past year. In fact, the behavior has been abnormal over the past four years. In that sense, looking back to Figure 1, the five year ten year gap has “normalized”.

Five Year Five Year Forwards

As Jim noted, one can use the information on ten year and five year Treasury yields to infer the five year yield expected five years from now. The calculation is simple if the pure expectations hypothesis of the term structure (EHTS) holds.

(1a)     it10y = (it + Etit+1 + … + Etit+9)/10

(1b)     it5y = (it + Etit+1 + … + Etit+4)/5

(1c)     Etit+55y = (Etit+5 + Etit+6 + … + Etit+9)/5

Which implies:

(2)     Etit+55y = it10y×2 – (it5y)

Since the pure EHTS does not hold, one needs to adjust by the term premia; I use the same adjustment that Jim uses. This yields Figure 4.


Figure 4: Nominal five year five year forward, calculated as 2 × i10yr- i5yr (light gray), Nominal five year five year forward adjusted for premia (dark blue), and TIPS five year five year forward (red). September observations are for 9/19. NBER defined recession dates shaded gray. Source: FRED, NBER, and author’s calculations.

This interpretation (which presumes the EHTS with constant term-specific liquidity/risk premia is correct) suggests low real borrowing rates for the US government for the period 2019-2024.

The International Thesis

The FT article suggests that ECB monetary policy — or anticipation thereof — is driving the decline in the long dated US Treasurys. The movements in the ten year yields are shown in Figure 5.


Figure 5: Nominal ten year constant maturity government bond yield for US (blue), ten year on the run government bond yields for Italy (red), France (green) and Germany (black). NBER dated recessions shaded gray, CEPR dated recessions shaded light blue. Source: FRED, ECB, NBER, and CEPR.

The downturn in US ten year Treasury yields could reasonably be ascribed to the downward movement in Euro area government bond yields; to me, there are two problems with this view. The first is that in the econometric work I have conducted in the past, US rates are typically weakly exogenous for foreign (European) rates (or have unidirectional explanatory power).[2] The second is that the evolution of the US-Germany ten year gap is virtually indistinguishable from the US-Germany five year gap.


Figure 6: Nominal ten year US-Germany government bond yield differential (blue), and five year differential (red). NBER dated recessions shaded gray, CEPR dated recessions shaded light blue. Source: FRED, ECB, NBER, and CEPR.

Given these observations, I am more inclined toward the interpretation that the markets are pricing in a period of lower rates in the period five years hence — both in the US and the euro area — than in ECB policies driving US rates.

Author: "Menzie Chinn" Tags: "Uncategorized"
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Date: Tuesday, 23 Sep 2014 04:58

Here are some economic indicators for Kansas; they indicate rising GDP but stalling real personal income (through 2014Q1), stagnant employment growth, with manufacturing employment deviating from national trends.


Figure 1: Nominal Gross State Product (blue) and personal income (red). NBER recession dates shaded gray; dashed lines at Brownback administration and beginning of tax cuts. Source: BEA, and BEA via FRED.


Figure 2: Real Gross State Product (blue) and real personal income (red). Real personal income deflated using Chained CPI. NBER recession dates shaded gray; dashed lines at Brownback administration and beginning of tax cuts. Source: BEA, and BEA and BLS via FRED.


Figure 3: Log nonfarm payroll employment in United States (blue) and in Kansas (red), both seasonally adjusted, normalized to 2011M01=0. NBER recession dates shaded gray; dashed lines at Brownback administration and beginning of tax cuts. Source: BLS and author’s calculations.


Figure 4: Log private nonfarm payroll employment in United States (blue) and in Kansas (red), both seasonally adjusted, normalized to 2011M01=0. NBER recession dates shaded gray; dashed lines at Brownback administration and beginning of tax cuts. Source: BLS and author’s calculations.


Figure 5: Log manufacturing payroll employment in United States (blue) and in Kansas (red), both seasonally adjusted, normalized to 2011M01=0. NBER recession dates shaded gray; dashed lines at Brownback administration and beginning of tax cuts. Source: BLS and author’s calculations.

Note that the cumulative growth gaps in NFP, private NFP and manufacturing employment since 2011M01 are respectively 2.5%, 2.4% and 4.2% (in log terms). Of the 4.2 percentage point manufacturing employment growth gap between the United States and Kansas, 3.1 percentage points are accounted for by the growth trends since 2013M01, when new tax and spending cuts went into effect.

Note that inspection of civilian employment does not provide a “nicer” picture. The cumulative growth gap since 2011M01 is 5.5%. To place this in perspective, the cumulative growth of US civilian employment relative to Kansas since the last cyclical peak (2007M12) is -1.2%.

One excuse sometimes offered for the state’s poor economic performance is the decline in exports. However, July 2014 year-to-date exports are 1.1% higher than the corresponding period in 2013, according to the Census Bureau. This suggests that much of the deterioration in 2014 economic activity is home grown in source.

For a New Classical interpretation of these trends (along with a critique), see this post.

Update, 9/23 8:50AM Pacific: Reader XO wonders about government employment. Figure 6 presents government employment nationwide (blue) against Kansas (red), both normalized to 2011M01.


Figure 6: Log US government employment – all levels (blue), and Kansas government employment – all levels (red), both s.a., normalized 2011M01=0. Source: BLS and author’s calculations.

Recall that the nationwide statistics include the government cutbacks in Kansas as well as other states embarking upon the expansionary fiscal contraction experiment, so the Kansas government employment reductions are all the more remarkable.

Author: "Menzie Chinn" Tags: "economic indicators, employment"
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Date: Sunday, 21 Sep 2014 14:19

For academic researchers who are readers of this blog (and I know you’re lurking out there), I wanted to call attention to my new paper on Macroeconomic Regimes and Regime Shifts:

Many economic time series exhibit dramatic breaks associated with events such as economic recessions, financial panics, and currency crises. Such changes in regime may arise from tipping points or other nonlinear dynamics and are core to some of the most important questions in macroeconomics. This chapter surveys the literature on regime changes. Section 1 begins with an interpretation of the move of an economy into and out of recession as an example of a change in regime and introduces some of the basic tools for analyzing such phenomena. Section 2 provides a detailed overview of econometric methods that are appropriate for time series that are subject to changes in regime. Section 3 summarizes the ways in which changes in regime can be incorporated into theoretical economic models and briefly reviews applications in a number of areas of macroeconomics.

Author: "James_Hamilton" Tags: "financial markets, here and there, reces..."
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Date: Friday, 19 Sep 2014 22:46

The MacIver Institute, an organization of endlessly imaginative analysis, has highlighted this LFB memo that reports that under the right conditions, the structural budget balance will be +$535 for the 2015-17 biennium.

Those assumptions include a $116 million cut to this FY’s appropriations, revenues in the 2015-17 biennium would rise (annually) at the rate it has during the previous five fiscal years, 2.9%, and net appropriations in each of the years during the biennium would stay at FY2014-15 levels, “adjusted for one time commitments and 2015-17 commitments.”

I am not an expert in the intricacies of budgeting (here’s a start), and the evolution of Wisconsin tax revenues. However, what I can see in graph for Wisconsin here, for the period 2008-12, suggests to me that 2.9% figure is highly sensitive to sample period (gee, wonder why they picked that particular five year period?). If I use the data at the Governing website, I get a little less than 0.5% growth per annum.

In addition, the zero spending growth assumption is highly unrealistic. As Jon Peacock at the Wisconsin Budget Project wrote:

Some people who derided structural deficits in the past are now arguing that this isn’t a big deal because the state can grow its way out of this problem. That’s true in a sense, but also very misleading. Assuming tax collections increase as expected to about $14.4 billion in the current fiscal year, growth of 4% per year in 2015-17 would close the budget hole if total spending is frozen. But keep in mind that the spending needed for a status quo or “cost to continue” budget typically increases almost as fast as revenue – because of inflation and population growth. Thus, freezing spending in 2015-17 at the current level would not be a painless exercise; it would require significant cuts in areas like Medicaid, K-12 and higher education, and the corrections system budget.

It’s also important to keep in mind that the current structural deficit calculations focus only on the General Fund and assume that in 2015-17 the state will stop transferring dollars from the General Fund to the Transportation Fund. In light of the problems in state and federal financing for transportation, there will be significant pressure to continue to make those transfers.

In other words, the LFB tabulated at the direction of State Representative John Nygren what would happen if one let revenues move, but not spending. Mechanically, it must be that the balance looks better — no mystery there. It’s a well known trick, used earlier on a national stage; for more on the national version of the can opener assumption, see these posts on Ryan plan (I) and Ryan plan (II). For more on MacIver Institute analyses, see this post.

So, for me, a more honest appraisal of the situation is presented in Figure 1 below.


Figure 1: (Negative of) General Fund Amounts Necessary to Balance Budget, by Fiscal Year, in millions of dollars (blue bars); and estimate taking into account shortfall of $281 million for FY2013-14 (red square), and adding $380 million to each of the fiscal years in the 2015-17 biennium (green squares). “Structural” denotes ongoing budget balance, assuming no revenue/outlay change associated with economic growth. Source: Legislative Fiscal Bureau (September 8, 2014), Wisconsin Budget Project, “Wisconsin needs $760 million more for Medicaid,” Channel 3000 and author’s calculations.

Author: "Menzie Chinn" Tags: "Wisconsin"
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Date: Thursday, 18 Sep 2014 16:40

DWD released August employment figures today. Attainment of Governor Walker’s 250,000 net new private sector jobs continues to be unlikely.


Figure 1: Private nonfarm payroll employment, s.a., in ‘000s (red), forecast from March 2014 Wisconsin Economic Outlook, interpolated from quarterly, using quadratic match (green), and linear trend consistent with Governor Walker’s pledge to create 250,000 net new private sector jobs by end of first term (gray). Source: Department of Workforce Development, Wisconsin Economic Outlook (March 2014), and author’s calculations.

Total employment did increase, attributable to a large increase in local government employment. Since August is related to the beginning of the school year, the government employment preliminary number is not particularly informative, given the difficulty in seasonal adjustment.

DWD also released Quarterly Census of Employment and Wages data through March; these figures for private employment were no different from figures released earlier, and discussed in this post. At that time, I characterized the outcome thus: “No succor from the QCEW series that the Walker Administration previously touted”.

According to BLS data, based on annual changes, Wisconsin ranked 33rd in terms of private job creation. [2]

Author: "Menzie Chinn" Tags: "Wisconsin"
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Date: Thursday, 18 Sep 2014 04:35

Wisconsin Department of Health Services indicates additional $760 million Medicaid expenditures for FY15-17. [1] This implies a further worsening of the 2015-17 biennium structural budget balance from -$1.8 billion (discussed here) to something like -$2.56 billion.


Figure 1: (Negative of) General Fund Amounts Necessary to Balance Budget, by Fiscal Year, in millions of dollars (blue bars); and estimate taking into account shortfall of $281 million for FY2013-14 (red square), and adding $380 million to each of the fiscal years in the 2015-17 biennium (green squares). “Structural” denotes ongoing budget balance, assuming no revenue/outlay change associated with economic growth. Source: Legislative Fiscal Bureau (September 8, 2014), Wisconsin Budget Project, “Wisconsin needs $760 million more for Medicaid,” Channel 3000 and author’s calculations.

In addition to a deteriorating budget situation, employment and output are lagging [National Journal}. BLS will report Wisconsin August employment on Friday, DWD I am guessing will release figures tomorrow. I do not expect anything to change my view that by January 2015, employment will undershoot Governor Walker’s promise of 250,000 net new private sector jobs by about 120,000.

Author: "Menzie Chinn" Tags: "Wisconsin"
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Date: Tuesday, 16 Sep 2014 18:56

That’s a title from an oped by former GW Bush speechwriter and current AEI scholar Marc Thiessen nearly a year ago. We can now evaluate whether in fact the implementation of individual insurance mandate component of the ACA did implode. From “New Data Show Early Progress in Expanding Coverage, with More Gains to Come,” White House blog today:


Source: “New Data Show Early Progress in Expanding Coverage, with More Gains to Come,” White House blog (9/16/2014).

From the post:

…today’s results from the NCHS’ National Health Interview Survey (NHIS) show that the share of Americans without health insurance averaged 13.1 percent over the first quarter of 2014, down from an average of 14.4 percent during 2013, a reduction corresponding to approximately 4 million people. The 13.1 percent uninsurance rate recorded for the first quarter of 2014 is lower than any annual uninsurance rate recorded by the NHIS since it began using its current design in 1997.

As striking as this reduction is, it dramatically understates the actual gains in insurance coverage so far in 2014. The interviews reflected in today’s results were spread evenly over January, February, and March 2014. As a result, the vast majority of the survey interviews occurred before the surge in Marketplace plan selections that occurred in March; 3.8 million people selected a Marketplace plan after March 1,with many in the last week before the end of open enrollment on March 31. Similarly, these results only partially capture the steady increase in Medicaid enrollment during the first quarter.

For this reason, private surveys from the Urban Institute, Gallup/Healthways, and the Commonwealth Fund in which interviews occurred entirely after the end of open enrollment have consistently shown much larger gains in insurance coverage. An analysis published last month in the New England Journal of Medicine based on the Gallup/Healthways data estimated that coverage gains reached 10.3 million by the middle of 2014.

Some points that will surely annoy some commentators, particularly those who bewailed the early low rates of enrollment of young adults:

  • Increases in coverage were concentrated among non-elderly adults, with the youngest adults seeing the largest gains: Insurance coverage increased among non-elderly adults increased by 2.0 percentage points from 2013 through the first quarter of 2014, while insurance coverage was essentially unchanged for children and individuals over the age of 65. This pattern reflects the fact that children and older adults had much greater access to insurance coverage prior to reform.Young adults ages 18-24 saw their uninsurance rate drop by 5.5 percentage points from 2013 to the first quarter of 2014, a much larger decline than seen by other groups.

    The gains in this report are on top of very large coverage gains among young adults from 2010 through 2013, gains that are largely attributable to a provision of the Affordable Care Act that permits young adults to remain on their parents’ insurance policies until they turn 26. From 2010 through the first quarter of 2014, the insurance rate among young adults ages 19-25 (the full group affected by this earlier Affordable Care Act provision) has increased by a total of 13 percentage points.

  • Blacks and Latinos saw particularly large increases in coverage: Insurance coverage among non-Hispanic blacks increased by 3.8 percentage points from 2013 to the first quarter of 2014, while coverage among Latinos increased by 3.1 percentage points. Both increases were considerably larger than 1.3 percentage point increase in the full population.

Had states like Wisconsin expanded Medicare coverage, the uninsured rate would have declined further.

Returning to Marc Thiessen’s prognostications:

President Obama may have no choice but to delay the individual mandate. As my American Enterprise Institute colleague, Dr. Scott Gottlieb, points out, how can Obama penalize people for not having health insurance if the government’s Web site to provide that insurance doesn’t work?

Without the individual mandate, Obamacare unravels. The only way the law works is if the government forces young, healthy people into it by threatening them with penalties for not carrying health insurance. But if there is no penalty for not signing up, then fewer Americans will sign up.

Even if the administration manages to fix the Web site and finally implement the individual mandate, people still may not join — because the plans being offered are so unattractive. To entice people to join the exchanges, the administration forced insurers to offer low monthly premiums and cover people with preexisting conditions. Insurers have responded by increasing deductibles — the out-of-pocket costs people must pay before insurance benefits kick in — to stratospheric levels.

There must be a special place where people who predict hyperinflation in response to quantitative/credit easing, gold prices always going upward, and the collapse of ACA go to commiserate and convince themselves they are actually right.

Running List of Predictions and Predictors of ACA Collapse (send me your suggestions, so we can be as comprehensive as possible, and induce a little humility into these folks!)

Charles Krauthammer, October 28, 2013

Author: "Menzie Chinn" Tags: "health care"
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Date: Tuesday, 16 Sep 2014 03:53

Bruce Bartlett brought my attention to this article, which Mark Thoma mused was “The Stupidest Article Ever Published”. From The Inflation Debt Scam, by Paul Craig Roberts, Dave Kranzler and John Williams:

To understand how risky the rise of debt is, nominal debt must be compared to real GDP. Spin masters might dismiss this computation as comparing apples to oranges, but such a charge constitutes denial that the ratio of nominal debt to nominal GDP understates the wealth dilution caused by the government’s ability to issue and repay debt in nominal dollars. …

I’m not a spin master, and yet I cannot help but dismiss this calculation as exactly comparing apples to oranges.

Nominal debt divided by nominal GDP is expressed in years — essentially years worth of GDP necessary to pay off the debt. I can understand what this calculation yields. In contrast, nominal debt is in $, real GDP is in Ch.2009$/year, so nominal debt divided by real GDP is a number expressed in years times dollars per Ch.2009$.

The authors present this figure to buttress their case:


Source: Roberts, Kranzler and Williams, “The Inflation Debt Scam,” The International Economy (Summer 2014).

As far as I can tell, the article is merely an excuse for Williams to haul out the fully discredited “Shadowstats” one more time.

By the way, according to Shadowstats, the US economy has been shrinking nonstop since 2004-05, on a year-on-year basis…

So, if this is not the stupidest article ever, it is in the running (along with Don Luskin’s 2008 gem).

Author: "Menzie Chinn" Tags: "economic indicators"
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Date: Sunday, 14 Sep 2014 22:14

A growing number of observers are starting to conclude that we’re never going to see the rebound in growth rates that many people had anticipated as the U.S. recovers from the Great Recession. Here I comment on a new paper in which Northwestern Professor Robert Gordon explains the basis for his pessimism.

A streamlined version of Gordon’s analysis would decompose the growth rate of output as the sum of growth in productivity (output per hour worked), growth in average hours worked per employee, and growth of number of people working. We received a temporary boost to growth from the second factor as a result of a cyclical rebound in the average workweek since 2010. There might be a further modest contribution from this source if hours per worker get all the way back to their average value over 1988-2008. But more than half of any boost we might hope to see has already been realized at this point.

12-month average values for hours per worker, 1949:M1-2014:M8.  Data source: BLS.

12-month average values for hours per worker, 1949:M1-2014:M8. Data source: BLS.

We also have enjoyed a temporary boost in growth from the third term, an increase in the number of people working, as a result of the declining unemployment rate. But with the unemployment rate already back down to 6.1%, it again seems unlikely that further drops in the unemployment rate can make a major contribution to future U.S. growth rates.

Source: FRED.

Source: FRED.

An alternative source of rising total employment would be a recovery in the labor force participation rate. But the decline in this began well before the Great Recession, and seems largely due to demographic factors that are unlikely to be reversed.

Labor force participation rate (solid) and estimated trend component (dashed).  Source: Aaronson, et. al. (2014).

Labor force participation rate (solid) and estimated trend component (dashed). Source: Aaronson, et. al. (2014).

Thus a key factor in any prediction of faster U.S. GDP growth would seem to be based on an improvement in productivity.
Gordon writes:

Forecasters universally predict that actual real GDP growth will increase from the 2.1 percent average of the past five years to between 3.0 and 3.5 percent per year over the next two to three years. For output to grow at that rate without a decline in the unemployment rate to four or even three percent would require some combination of a much slower rate of decline in the labor-force participation rate or even a reversal toward an increasing LFPR, as well as a revival of labor productivity growth well above the 1.2 percent average growth rate of the past decade, not to mention the 0.6 percent average over the past four years.

Economists usually think of long-run productivity growth as primarily determined by technological innovation and capital improvements. But cyclical factors also have an effect on productivity that extends much longer than some might suppose. The graph below plots the average growth in U.S. productivity over 5-year intervals ending at each indicated date. It’s pretty clear that these intermediate-run averages are very strongly affected by the decline in productivity associated with economic recessions and the rebound in productivity usually associated with recoveries.

Average annual growth rate of nonfarm business sector real output per worked over 5-year periods ending at indicated dates, 1952:Q1-2014:Q2.  Data source: FRED.

Average annual growth rate of nonfarm business sector real output per worked over 5-year periods ending at indicated dates, 1952:Q1-2014:Q2. Data source: FRED.

A boost in aggregate demand can lead to higher productivity for reasons of simple accounting. Suppose you are operating a retail store and have the same number of employees today as yesterday. If more customers show up to buy today, your measured productivity (how much you sell divided by the number of hours your employees put in) is necessarily going to increase. If the demand stays high, you might find it necessary to hire more workers to meet the higher volume. But since many tasks (such as security, cleaning, and maintenance) won’t double when sales double, there will still be a gain in measured productivity when demand goes up. Something similar is true for many manufacturing facilities that have significant underutilized capacity.

The strong relation in the data between measured productivity and the strength of demand can be seen by plotting productivity together with other strongly cyclical series such as purchases of consumer durables. When consumers are trying to reduce spending, big-ticket items take the brunt of the cutbacks, and when confidence finally returns, purchases of consumer durables make up an unusually high fraction of total spending. Periods when productivity is growing slower than average correlate pretty strongly with episodes when consumer durables make up a smaller fraction of total spending than average. Durable purchases remain depressed today, and that may be a factor in continuing weak productivity numbers.

Top panel: productivity growth.  Bottom panel: spending on consumer durables as a percentage of GDP.  Horizontal lines represent historical averages.

Top panel: productivity growth. Bottom panel: spending on consumer durables as a percentage of GDP. Horizontal lines represent historical averages.

To be sure, many economists interpret the causation as running in the opposite direction. They argue that if technological improvements have been particularly favorable (so that productivity growth has been strong), consumers may become more optimistic about the future, and therefore devote a higher fraction of their budgets to big-ticket items. But to me, the natural interpretation of the correlation is the traditional Keynesian one that I described above as resulting from the direct effect of higher spending on measured productivity.

For this reason, I am a bit more optimistic than Gordon. At least as far as the next several years are concerned, I side with those who expect above-average growth as consumers’ and firms’ finances continue to recover. But Gordon makes the interesting and I think correct observation that some of the U.S. economic growth since 2010 has already come as a result of factors such as a lengthening workweek and falling unemployment rate, developments that by their nature cannot be projected to continue for much longer. I agree with Gordon that the U.S. should expect a slower growth rate of potential output over the next decade than we saw in most of the twentieth century. But that doesn’t mean that we still couldn’t see better growth numbers for 2014:Q2-2015:Q4 than we’ve experienced on average over the last five years.

Author: "James_Hamilton" Tags: "economic growth, economic indicators, em..."
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