Thursday, May 31, 2018


    Posted by on Thursday, May 31, 2018 at 10:10 AM in Economics, Links | Permalink  Comments (293) 

    Tuesday, May 29, 2018

    Is GDP Overstating Economic Activity?

    From an Economic Letter at the FRBSF:

    Is GDP Overstating Economic Activity?, by Zheng Liu, Mark M. Spiegel, and Eric B. Tallman: Two common measures of overall economic output are gross domestic product (GDP) and gross domestic income (GDI). GDP is based on aggregate expenditures, while GDI is based on aggregate income. In principle, the two measures should be identical. However, in practice, they are not. The differences between these two series can arise from differences in source data, errors in measuring their components, and the seasonal adjustment process.
    In this Economic Letter, we evaluate the reliability of GDP relative to two alternatives, GDI and a combination of the two known as GDPplus, for measuring economic output. We test the ability of each to forecast a benchmark measure of economic activity over the past two years. We find that GDP consistently outperforms the other two as a more accurate predictor of aggregate economic activity over this period. This suggests that the relative weakness of GDI growth in recent years does not necessarily indicate weakness in overall economic growth.
    Discrepancies between GDP and GDI
    What drives the discrepancies between GDP and GDI is not well understood. The source data for the components that go into GDP and GDI are measured with errors, which may lead to discrepancies between the two. Further discrepancies can arise because those different components are adjusted for seasonality at different points in time (see, for example, Grimm 2007).
    The differences between these two series can be large. For example, in the last two quarters of 2007, inflation-adjusted or “real” GDI was declining whereas real GDP was still growing. The year-over-year growth rate of GDP exceeded that of GDI by almost 2.6 percentage points. Over long periods, however, final measures of growth in GDP and GDI tend to yield roughly equivalent assessments of economic activity. Since 1985, real GDP grew at an average annual rate of about 3.98%, while real GDI grew at a similar average rate of 4.02%.
    Since late 2015, the two series have diverged, with real GDP growth consistently exceeding real GDI growth (Figure 1). The differences in growth are significant in this period. For example, if we used GDI growth to assess overall economic activity since July 2015, then the size of real aggregate output by the end of 2017 would be $230 billion smaller than if GDP growth were used. This divergence between the two sends mixed signals regarding the strength of recent economic activity.

    Figure 1
    Mixed signals from GDP and GDI growth


    Source: Bureau of Economic Analysis.

    Evaluating GDP, GDI, combination
    Researchers often debate which of these series measures economic activity more accurately. Nalewaik (2012) argues that GDI outperforms GDP in forecasting recessions. GDI does appear to exhibit more cyclical volatility than GDP. One reason may be that GDI is more highly correlated with a number of business cycle indicators, including movements in both employment and unemployment (Nalewaik 2010). On the other hand, the Bureau of Economic Analysis has resisted this conclusion, arguing that GDP is in general based on more reliable source data than GDI is (Landefeld 2010).
    To evaluate the relative reliability of GDP versus GDI for measuring economic output, we compare their abilities to forecast a benchmark measure of economic activity. We focus on the Chicago Fed National Activity Index (CFNAI) as the benchmark, since it is publicly available. The CFNAI is a monthly index of national economic activity, generated as the common component of 85 monthly series in the U.S. economy. These underlying series include a wide variety of data covering production and income, employment and unemployment, personal consumption and housing, and sales and orders. The CFNAI has been shown to help forecast real GDP (Lang and Lansing 2010). We use the CFNAI as a benchmark activity indicator to evaluate the relative forecasting performances of GDP and GDI and their combinations. Since the discrepancy between these two series has persisted for several years, we focus on the final releases of the GDP and GDI series.
    Some have argued that, because the GDP and GDI series contain independent information, it may be preferable to combine the two series into a single more informative activity indicator. One series that uses such a combination is the Philadelphia Fed’s GDPplus series, which is a weighted average of GDP and GDI, with the weights based on the approach described by Aruoba et al. (2016). As a weighted average, GDPplus indicates activity levels between the two individual series. We therefore also consider the forecasting performance of the GDPplus series over this period of extended discrepancy between reported GDP and GDI growth.
    To confirm the accuracy of our approach, we repeated our investigation with two alternative series constructed using methodologies similar to the CFNAI. The first alternative is an aggregate economic activity index (EAI) we constructed by extracting the common components of 90 underlying monthly time series. The EAI covers a broader set of monthly indicators than the CFNAI, since we also include information from goods prices and asset prices.
    The second alternative indicator we considered is an activity index constructed by Barigozzi and Luciani (2018), which we call the BL index. Like our index, the BL index includes price indexes and other measures of labor costs. The authors base their estimates on the portions of GDP and GDI that are driven by common macroeconomic shocks under the assumption that they have equivalent effects on GDP and GDI. This restriction implies that deviations between GDP and GDI are transitory, and that the two series follow each other over time.
    The EAI and the BL index are both highly correlated with the CFNAI and thus yielded similar conclusions. We describe the source data and our methodology for constructing the EAI as well as the analysis using both it and the BL index in an online appendix.
    Empirical results
    To examine the relative performances of GDP, GDI, and GDPplus for forecasting the CFNAI, we first estimate an empirical model in which the CFNAI is related to four lagged values of one of these measures of aggregate output. Ideally, we would have used the full sample of postwar data in our model, but there are some structural breaks in the data related to factors such as changes in the monetary policy regime since the mid-1980s and the Great Moderation that make this challenging. We therefore choose to focus on the sample starting from the first quarter of 1985 in this discussion; our results using the full sample are similar, as we report in the online appendix.
    To examine how well each of the measures of aggregate output are able to forecast the CFNAI, we estimate the model using the sample observations up to the end of 2015, the period before GDP and GDI diverged. Once we determine the estimated coefficients that describe each relationship, we use those values to estimate forecasts for the period when discrepancies developed, from the first quarter of 2016 to the end of 2017. We then calculate the prediction errors, measured by the root mean-squared errors, for each measure of aggregate output. The smaller the prediction error, the better the forecasting performance.
    In addition to examining the forecasting performance of GDP, GDI, and GDPplus for predicting the CFNAI economic activity indicator, we also examined their forecasting performance for the unemployment rate as reported by the Bureau of Labor Statistics.
    Figure 2 displays the prediction errors from 2016 to 2017 for each of the alternative output measures—GDP, GDI, and GDPplus—estimated from our model for CFNAI and unemployment. For ease of comparison, we normalize the prediction errors from the model with GDP to one. The figure shows that the prediction errors over this period based on the GDP series are substantively lower than those based on GDI or GDPplus. This finding holds true not just for these proxies for economic activity but also for our EAI and the BL index (see the online appendix). Moreover, formal statistical tests of forecasting performance indicate that the forecasts based on GDP are significantly better than those based on GDI or GDPplus at the 95% confidence level. This result suggests that, in recent periods, GDP has been a more reliable independent indicator of economic activity than either GDI or GDPplus.

    Figure 2
    GDP outperforms GDI, GDPplus in predicting activity


    Note: Figure shows prediction errors with GDP indexed to 1.

    While GDP and GDI are theoretically identical measures of economic output, they can differ significantly in practice over some periods. The differences between the two series have been particularly pronounced in the past two years, when GDP growth has been consistently stronger than GDI growth. Based on this observation, some analysts have claimed that GDP might be overstating the pace of growth and that GDI, or some combination of GDP and GDI, should be used to evaluate the levels and growth rate of economic activity.
    To evaluate the validity of this claim, we compared the relative performances of GDP, GDI, and a combined measure, GDPplus, for forecasting the CFNAI, which we use as a benchmark measure of economic activity over the past two years. We find that GDP consistently outperforms both GDI and combinations of the two, such as GDPplus, in forecasting aggregate economic activity during the past two years. In this sense, GDP is a more accurate predictor of aggregate economic activity than GDI over this period. Therefore, the relative weakness of GDI growth observed in recent years does not necessarily indicate weakness in overall economic growth.
    Zheng Liu is a senior research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.
    Mark M. Spiegel is a vice president in the Economic Research Department of the Federal Reserve Bank of San Francisco.
    Eric B. Tallman is a research associate in the Economic Research Department of the Federal Reserve Bank of San Francisco.
    Aruoba, S. Boragan, Francis X. Diebold, Jeremy Nalewaik, Frank Schorfheide, and Dongho Song. 2016. “Improving GDP Measurement: A Measurement-Error Perspective.” Journal of Econometrics 191(2), pp. 384–397.
    Barigozzi, Matteo, and Matteo Luciani. 2018. “Do National Account Statistics Underestimate U.S. Real Output Growth?” Board of Governors FEDS Notes, January 9.
    Grimm, Bruce T. 2007. “The Statistical Discrepancy.” Bureau of Economic Analysis Working Paper 2007-01, March 2. 
    Landefeld, J. Steven. 2010. “Comments and Discussion: The Income- and Expenditure-Side Estimates of U.S. Output Growth.” Brookings Papers on Economic Activity, Spring, pp. 112–123.
    Lang, David, and Kevin J. Lansing. 2010. “Forecasting Growth Over the Next Year with a Business Cycle Index.” FRBSF Economic Letter 2010-29 (September 27).
    Nalewaik, Jeremy J. 2010. “The Income- and Expenditure-Side Estimates of U.S. Output Growth.” Brookings Papers on Economic Activity, Spring, pp. 71–106.
    Nalewaik, Jeremy J. 2012. “Estimating Probabilities of Recession in Real Time Using GDP and GDI.” Journal of Money, Credit, and Banking 44, pp. 235–253.

    Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.

      Posted by on Tuesday, May 29, 2018 at 02:42 PM in Economics, Monetary Policy | Permalink  Comments (59) 


        Posted by on Tuesday, May 29, 2018 at 09:36 AM in Economics, Links | Permalink  Comments (282) 

        Sunday, May 27, 2018

        Does Economics Matter?

        Chris Dillow:

        Does economics matter?: Does economics matter? I ask because I suspect I would understand political debate better if I realized that it doesn’t.
        Everybody tends to over-rate the importance of their profession: it’s part of deformation professionelle. Lawyers over-rate the importance of the law, artists of the arts and so on. Maybe economists do the same. Perhaps we should realize that most people who are interested in politics just aren’t interested in economics.
        If we adopt this perspective, a lot falls into place. ...

          Posted by on Sunday, May 27, 2018 at 10:04 AM in Economics, Politics | Permalink  Comments (279) 

          Saturday, May 26, 2018

          Neo- and Other Liberalisms

          David Glasner at Uneasy Money:

          Neo- and Other Liberalisms: Everybody seems to be worked up about “neoliberalism” these days. A review of Quinn Slobodian’s new book on the Austrian (or perhaps the Austro-Hungarian) roots of neoliberalism in the New Republic by Patrick Iber reminded me that the term “neoliberalism” which, in my own faulty recollection, came into somewhat popular usage only in the early 1980s, had actually been coined in the early the late 1930s at the now almost legendary Colloque Walter Lippmann and had actually been used by Hayek in at least one of his political essays in the 1940s. In that usage the point of neoliberalism was to revise and update the classical nineteenth-century liberalism that seemed to have run aground in the Great Depression, when the attempt to resurrect and restore what had been widely – and in my view mistakenly – regarded as an essential pillar of the nineteenth-century liberal order – the international gold standard – collapsed in an epic international catastrophe. The new liberalism was supposed to be a kinder and gentler — less relentlessly laissez-faire – version of the old liberalism, more amenable to interventions to aid the less well-off and to social-insurance programs providing a safety net to cushion individuals against the economic risks of modern capitalism, while preserving the social benefits and efficiencies of a market economy based on private property and voluntary exchange. ...

            Posted by on Saturday, May 26, 2018 at 08:59 AM in Economics | Permalink  Comments (91) 

            Effects of Copyrights on Science

            Barbara Biasi and Petra Moser at VoxEU:

            Effects of copyrights on science: Summary Copyrights grant publishers exclusive rights to content for almost a century. In science, this can involve substantial social costs by limiting who can access existing research. This column uses a unique WWII-era programme in the US, which allowed US publishers to reprint exact copies of German-owned science books, to explore how copyrights affect follow-on science. This artificial removal of copyright barriers led to a 25% decline in prices, and a 67% increase in citations. These results suggest that restrictive copyright policies slow down the progress of science considerably.

              Posted by on Saturday, May 26, 2018 at 08:58 AM in Economics, Market Failure, Productivity, Regulation | Permalink  Comments (6) 

              Friday, May 25, 2018


                Posted by on Friday, May 25, 2018 at 09:23 AM in Economics, Links | Permalink  Comments (328) 

                Wednesday, May 23, 2018


                  Posted by on Wednesday, May 23, 2018 at 08:44 AM in Economics, Links | Permalink  Comments (261) 

                  Monday, May 21, 2018


                    Posted by on Monday, May 21, 2018 at 10:21 AM in Economics, Links | Permalink  Comments (314) 

                    Thursday, May 17, 2018


                      Posted by on Thursday, May 17, 2018 at 10:22 AM in Economics, Links | Permalink  Comments (479) 

                      Wednesday, May 16, 2018


                        Posted by on Wednesday, May 16, 2018 at 10:03 AM in Economics, Links | Permalink  Comments (240) 

                        Monday, May 14, 2018


                          Posted by on Monday, May 14, 2018 at 10:06 AM in Economics, Links | Permalink  Comments (475) 

                          Friday, May 11, 2018


                            Posted by on Friday, May 11, 2018 at 01:40 PM in Economics, Links | Permalink  Comments (231) 

                            Wednesday, May 09, 2018


                              Posted by on Wednesday, May 9, 2018 at 01:25 PM in Economics, Links | Permalink  Comments (240) 

                              Monday, May 07, 2018


                                Posted by on Monday, May 7, 2018 at 12:14 PM in Economics, Links | Permalink  Comments (263) 

                                Friday, May 04, 2018

                                Employer Concentration and Stagnant Wages

                                From the NBER Digest. "Two studies suggest that an increase in employers' monopsony power is associated with lower wages.":

                                Employer Concentration and Stagnant Wages: Stagnant wages and a declining share of labor income in GDP in recent decades have spawned a number of explanations. These include outsourcing, foreign competition, automation, and the decline of unions. Two new studies focus on another factor that may have affected the relative bargaining position of workers and firms: employer domination of local job markets. One shows that wage growth slowed as industrial consolidation increased over the past 40 years; the other shows that in many job markets across the country there is little competition for workers in specific job categories.


                                In Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages? (NBER Working Paper No. 24307), Efraim Benmelech, Nittai Bergman, and Hyunseob Kim analyzed county-level census data for industrial firms for the period 1977 to 2009 to study the impact of employer concentration on wages in local labor markets. By focusing on manufacturing, they were able to control directly for worker productivity. The researchers found that, although there was substantial cross-sectional and time series variation in concentration, average local-level employer concentration increased between 1977-81 and 2002-9, based on the Standard Industrial Classification four-digit code for industry groups. Their measure of concentration is the Herfindahl-Hirschman Index (HHI), which is defined as the sum of the squares of the employment shares for all of the firms in a given industry. The employment-weighted mean value of this index rose from 0.698 to 0.756 during the study period, an increase of 5.8 percent. Forty percent of the plant-year observations were associated with manufacturing facilities in counties dominated by just a few firms. The researchers found a negative relationship between employer concentration and wages; it was twice as strong in the second half of their data sample as in the first half; a one standard deviation increase in the HHI was associated with a wage reduction of between 1 and 2 percent. They estimate that a firm operating in a labor market in which it was the only employer would pay wages 3.1 percent lower than those of a firm that operated in a less concentrated market. Most of the decline in wages appeared to occur as labor markets approached the pure monopsony case, namely the situation in which only one firm is hiring workers. In addition to finding lower wages in monopsony markets, the researchers also found that, over time, firms that dominate their labor markets were less likely to share productivity gains with employees. A one standard deviation decline in the HHI mapped to an increase in the elasticity of wages with respect to productivity of about 25 percent, from 0.38 to 0.47. Over the course of the study period, U.S. imports from China increased. The researchers found that import competition from China, which was associated with the closure or relocation of plants in a number of industries, accelerated the trend toward greater employer concentration in some local labor markets. This finding suggests that import competition not only reduced the demand for workers who previously produced the now-imported products, but that it may also have depressed wages for workers in other industries in affected labor markets as a result of increased labor market concentration. The only employees who did not experience wage stagnation in markets with high plant concentration were those who belonged to unions. About one quarter of the plants studied were unionized; the fraction was lower in the later than in the earlier years. Because this study focuses on workers employed by industrial firms, the fraction of workers who are union members is higher than for the U.S. labor market more broadly. To assess the robustness of their results, the researchers compared plants in the same industry owned by the same company but operating in different locations; they found that "those located in a more concentrated local labor market pay significantly lower wages."


                                In Concentration in U.S. Labor Markets: Evidence from Online Vacancy Data (NBER Working Paper No. 24395), José A. Azar, Ioana Marinescu, Marshall I. Steinbaum, and Bledi Taska found that in most locations employers have substantial monopsony power. The researchers studied job vacancies in the 709 federally delineated commuting zones, which depict the bounds of local economies. Drawing on a database compiled by Burning Glass Technologies from 40,000 employment websites, they calculated the level of labor market concentration by commuting zone, occupation, and quarter for the year 2016. They selected the top 200 occupations as classified by the Bureau of Labor Statistics' six-digit code, capturing 90 percent of the job postings in the database. As a yardstick for labor market concentration, the study calculated the Herfindahl-Hirschman Index measure, similar to the application in Working Paper 24307. The results suggested that the higher the market concentration, the stronger an employer's bargaining position. The average market had the equivalent of 2.5 recruiting employers. Under the standards that federal antitrust officials use when determining whether product markets exhibit excessive levels of concentration, 54 percent of the markets were highly concentrated, meaning they had the equivalent of fewer than four firms recruiting employees. Eleven percent of markets were moderately concentrated, and only 35 percent had low concentration. Nationwide, among the 30 largest occupations, marketing managers, web developers, and financial analysts faced the least favorable job markets; markets were most favorable for registered nurses, tractor-trailer drivers, and customer service representatives. The actual picture for job seekers, however, was brighter than these figures would indicate because commuting zones vary widely in employment levels. Commuting zones encompassing large cities had lower levels of labor market concentration than those around small cities or in rural areas. Accounting for the unequal distribution of employment, the researchers found that 23 percent of the national workforce is in highly or moderately concentrated labor markets. They argue that traditional market concentration thresholds underestimate workers' loss of bargaining power over time. They point out that those thresholds are geared to gauging the impact of mergers on the consumer marketplace, and that while consumers can buy products without the producers' explicit agreement, workers must find employers who agree to hire them.

                                  Posted by on Friday, May 4, 2018 at 10:37 AM in Academic Papers, Economics, Income Distribution, Market Failure | Permalink  Comments (59) 


                                    Posted by on Friday, May 4, 2018 at 10:31 AM in Economics, Links | Permalink  Comments (273) 

                                    Tuesday, May 01, 2018


                                      Posted by on Tuesday, May 1, 2018 at 10:27 AM in Economics, Links | Permalink  Comments (396) 

                                      Friday, April 27, 2018


                                        Posted by on Friday, April 27, 2018 at 07:42 PM in Economics, Links | Permalink  Comments (265) 

                                        Monday, April 23, 2018

                                        Price Level Targeting with Evolving Credibility

                                        This is by Seppo Honkapohja and Kaushik Mitra (very wonkish):

                                        Price Level Targeting with Evolving Credibility, by Seppo Honkapohja and Kaushik Mitra: Abstract We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting. Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920's and 30's.

                                          Posted by on Monday, April 23, 2018 at 12:31 PM in Academic Papers, Monetary Policy | Permalink  Comments (90) 


                                            Posted by on Monday, April 23, 2018 at 12:24 PM in Economics, Links | Permalink  Comments (277) 

                                            Thursday, April 19, 2018


                                              Posted by on Thursday, April 19, 2018 at 12:53 PM in Economics, Links | Permalink  Comments (358) 

                                              Tuesday, April 10, 2018

                                              Links for 04-10-18

                                                Posted by on Tuesday, April 10, 2018 at 10:02 AM in Economics, Links | Permalink  Comments (684) 

                                                Wednesday, April 04, 2018

                                                Links for 04-04-18

                                                  Posted by on Wednesday, April 4, 2018 at 09:54 AM in Economics, Links | Permalink  Comments (369) 

                                                  Monday, April 02, 2018

                                                  Links for 04-02-18

                                                    Posted by on Monday, April 2, 2018 at 10:32 AM in Economics, Links | Permalink  Comments (254) 

                                                    Friday, March 30, 2018

                                                    Links for 03-30-18

                                                      Posted by on Friday, March 30, 2018 at 10:24 AM in Economics, Links | Permalink  Comments (292) 

                                                      Wednesday, March 28, 2018

                                                      Links for 03-28-18

                                                        Posted by on Wednesday, March 28, 2018 at 12:18 PM in Economics, Links | Permalink  Comments (177) 

                                                        Monday, March 26, 2018

                                                        Links for 03-26-18

                                                          Posted by on Monday, March 26, 2018 at 11:53 AM in Economics, Links | Permalink  Comments (337) 

                                                          Friday, March 23, 2018

                                                          Links for 03-23-18

                                                            Posted by on Friday, March 23, 2018 at 11:59 AM in Economics, Links | Permalink  Comments (296) 

                                                            Tuesday, March 20, 2018

                                                            Links for 03-20-18

                                                              Posted by on Tuesday, March 20, 2018 at 11:00 AM in Economics, Links | Permalink  Comments (381) 

                                                              Saturday, March 17, 2018

                                                              Links for 03-17-18

                                                                Posted by on Saturday, March 17, 2018 at 12:07 PM in Economics, Links | Permalink  Comments (369) 

                                                                Tuesday, March 13, 2018

                                                                Links for 03-13-18

                                                                  Posted by on Tuesday, March 13, 2018 at 10:41 AM in Economics, Links | Permalink  Comments (343) 

                                                                  Monday, March 12, 2018

                                                                  Jobs Report Gives Fed Cover To Retain Gradual Rate Path

                                                                  Tim Duy:

                                                                  Jobs Report Gives Fed Cover To Retain Gradual Rate Path: The jobs report gives the Fed cover to retain a gradual rate path. To be sure, the rapid pace of job growth will leave them nervous about an unsustainable pace of growth. But the flat unemployment rate remains consistent with their forecasts. In addition, low wage growth indicates the economy has not pushed past full employment. If inflation remains constrained, the Fed would be pretty much on target for this year. That suggests the three-hike scenario should remain in play. But increased confidence in the outlook and risk management concerns will push up enough “dots” in the next Summary of Economic projections toward four hikes for this year. ...continued here...

                                                                    Posted by on Monday, March 12, 2018 at 10:59 AM in Economics, Inflation, Monetary Policy, Unemployment | Permalink  Comments (42) 

                                                                    Sunday, March 11, 2018

                                                                    Links for 03-12-18

                                                                      Posted by on Sunday, March 11, 2018 at 09:09 PM in Economics, Links | Permalink  Comments (192) 

                                                                      Friday, March 09, 2018

                                                                      Links for 03-09-18

                                                                      I kind of got behind...

                                                                        Posted by on Friday, March 9, 2018 at 11:08 AM in Economics, Links | Permalink  Comments (229) 

                                                                        Friday, March 02, 2018

                                                                        Links for 03-02-18

                                                                          Posted by on Friday, March 2, 2018 at 09:59 AM in Economics, Links | Permalink  Comments (578) 

                                                                          Thursday, March 01, 2018

                                                                          Fed Changing Its Tune

                                                                          Tim Duy:

                                                                          Fed Changing Its Tune: Yesterday I called attention to this line from Federal Reserve Chairman Powell’s testimony:

                                                                          In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.

                                                                          I interpreted this as a shift in the Fed’s focus. The risks are shifting, hence the new concern about an overheated economy. In contrast, previous iterations of this policy guidance referred to “achieving” and then “sustaining” full employment. Central bankers must view the economy as in a danger zone for inflationary pressures. ...continued here...

                                                                            Posted by on Thursday, March 1, 2018 at 10:33 AM in Economics, Monetary Policy | Permalink  Comments (72) 

                                                                            Wednesday, February 28, 2018

                                                                            “Avoiding An Overheated Economy”

                                                                            Tim Duy:

                                                                            “Avoiding An Overheated Economy,” by Tim Duy: Federal Reserve Chairman Jerome Powell delivered the Fed’s Semiannual Monetary Policy Report Tuesday morning. Powell smoothly and confidently responded to – or deflected – questions as if he were already seasoned in the role of Chair. As to the content of his remarks, they were hawkish. More hawkish than I anticipated and arguably signaled a significant change of focus for the Fed.  ...continued here...

                                                                              Posted by on Wednesday, February 28, 2018 at 10:45 AM Permalink  Comments (103) 

                                                                              Links for 02-28-18

                                                                                Posted by on Wednesday, February 28, 2018 at 10:45 AM in Economics, Links | Permalink  Comments (121) 

                                                                                Monday, February 26, 2018

                                                                                Looking For Policy Continuity From Powell

                                                                                Tim Duy:

                                                                                Looking For Policy Continuity From Powell, by Tim Duy: Federal Reserve Chairman Jerome Powell will tackle his first Semiannual Monetary Policy Report to the Congress this week. The expectation is that Powell will by and large reiterate the case for continued gradual tightening of monetary policy. That has come to mean three rate hikes in 2018, although given the data dependence of policy the risk is that three becomes four. Market participants remains nervous, however, that Powell will set a more hawkish tone indicating a sharp acceleration of rate hikes. I think this very unlikely at this juncture. I do think there is room, however, to emphasize that if fiscal spending supercharges growth in 2018, then rate hikes will continue into 2019. ...Continued here...

                                                                                  Posted by on Monday, February 26, 2018 at 12:03 PM in Economics, Monetary Policy | Permalink  Comments (72) 

                                                                                  Links for 02-26-18

                                                                                    Posted by on Monday, February 26, 2018 at 11:28 AM in Economics, Links | Permalink  Comments (246) 

                                                                                    Friday, February 23, 2018

                                                                                    Links for 02-23-18

                                                                                      Posted by on Friday, February 23, 2018 at 09:38 AM in Economics, Links | Permalink  Comments (267) 

                                                                                      Paul Krugman: Nasty, Brutish and Trump

                                                                                      "there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom":

                                                                                      Nasty, Brutish and Trump, by Paul Krugman, NY Times: On Wednesday, after listening to the heart-rending stories of those who lost children and friends in the Parkland school shooting — while holding a cue card with empathetic-sounding phrases — Donald Trump proposed his answer: arming schoolteachers.
                                                                                      It says something about the state of our national discourse that this wasn’t even among the vilest, stupidest reactions to the atrocity. No, those honors go to the assertions by many conservative figures that bereaved students were being manipulated by sinister forces, or even that they were paid actors.
                                                                                      Still, Trump’s horrible idea, taken straight from the N.R.A. playbook, was deeply revealing...
                                                                                      To see why, consider the very case often used to illustrate how bizarrely we treat guns: how we treat car ownership and operation...,there’s a lot of variation in car safety among states within the U.S., just as there’s a lot of variation in gun violence.
                                                                                      America has a “car death belt” in the Deep South and the Great Plains; it corresponds quite closely to the firearms death belt defined by age-adjusted gun death rates. It also corresponds pretty closely to the Trump vote — and also to the states that have refused to expand Medicaid, gratuitously denying health care to millions of their citizens. ...
                                                                                      For whatever reason, there’s a faction in our country that sees public action for the public good, no matter how justified, as part of a conspiracy to destroy our freedom.
                                                                                      This paranoia strikes both deep and wide. ... And it goes along with basically infantile fantasies about individual action — the “good guy with a gun” — taking the place of such fundamentally public functions as policing.
                                                                                      Anyway, this political faction is doing all it can to push us toward becoming a society in which individuals can’t count on the community to provide them with even the most basic guarantees of security — security from crazed gunmen, security from drunken drivers, security from exorbitant medical bills (which every other advanced country treats as a right, and does in fact manage to provide).
                                                                                      In short, you might want to think of our madness over guns as just one aspect of the drive to turn us into what Thomas Hobbes described long ago: a society “wherein men live without other security than what their own strength and their own invention shall furnish them.” And Hobbes famously told us what life in such a society is like: “solitary, poor, nasty, brutish and short.”
                                                                                      Yep, that sounds like Trump’s America.

                                                                                        Posted by on Friday, February 23, 2018 at 09:30 AM in Economics, Politics | Permalink  Comments (59) 

                                                                                        Economic Fluctuations and Growth Research Meeting

                                                                                        I am here today:

                                                                                        Economic Fluctuations and Growth Research Meeting
                                                                                        Andrew Atkeson and Monika Piazzesi, Organizers
                                                                                        Federal Reserve Bank of San Francisco
                                                                                        February 23, 2018

                                                                                        Friday, February 23

                                                                                        9:00 am
                                                                                        Fatih Guvenen, University of Minnesota and NBER
                                                                                        Gueorgui Kambourov, University of Toronto
                                                                                        Burhanettin Kuruscu, University of Toronto
                                                                                        Sergio Ocampo-Diaz, University of Minnesota
                                                                                        Daphne Chen, Florida State University
                                                                                        Use It Or Lose It: Efficiency Gains from Wealth Taxation
                                                                                        Discussant: Roger H. Gordon, University of California at San Diego and NBER

                                                                                        10:15 am
                                                                                        Matteo Maggiori, Harvard University and NBER
                                                                                        Brent Neiman, University of Chicago and NBER
                                                                                        Jesse Schreger, Columbia University and NBER
                                                                                        International Currencies and Capital Allocation
                                                                                        Discussant: Harald Uhlig, University of Chicago and NBER

                                                                                        11:30 am
                                                                                        Katarína Borovičková, New York University
                                                                                        Robert Shimer, University of Chicago and NBER
                                                                                        High Wage Workers Work for High Wage Firms
                                                                                        Discussant: Isaac Sorkin, Stanford University and NBER

                                                                                        1:30 pm
                                                                                        Marcus Hagedorn, University of Oslo
                                                                                        Iourii Manovskii, University of Pennsylvania and NBER
                                                                                        Kurt Mitman, Institute for International Economic Studies
                                                                                        The Fiscal Multiplier
                                                                                        Discussant: Adrien Auclert, Stanford University and NBER

                                                                                        2:45 pm
                                                                                        Carlos Garriga, Federal Reserve Bank of St. Louis
                                                                                        Aaron Hedlund, University of Missouri
                                                                                        Housing Finance, Boom-Bust Episodes, and Macroeconomic Fragility
                                                                                        Discussant: Veronica Guerrieri, University of Chicago and NBER

                                                                                        4:00 pm
                                                                                        John Kennan, University of Wisconsin at Madison and NBER
                                                                                        Spatial Variation in Higher Education Financing and the Supply of College Graduates
                                                                                        Discussant: Danny Yagan, University of California at Berkeley and NBER

                                                                                          Posted by on Friday, February 23, 2018 at 09:08 AM in Academic Papers, Conferences, Economics, Macroeconomics | Permalink  Comments (1) 

                                                                                          Thursday, February 22, 2018

                                                                                          Fedspeak and the January FOMC Minutes

                                                                                          Tim Duy:

                                                                                          Fedspeak Reiterates Gradual Path: Fed speakers continue to reiterate that policy remains on a gradual path of tightening. So far, the inflation data and brightening economy has more emboldened their commitment to gradual rate hikes than a faster pace of hikes. What about fiscal policy? That train has left the station, but central bankers don’t seem too concerned – yet. ...continued here...

                                                                                          And one more from Tim:

                                                                                          First Impressions of the January FOMC Minutes: The minutes of the January FOMC meeting revealed increasing confidence in the economic outlook. That translated into increased confidence that gradual rate hikes remains the appropriate policy path. Does that mean the central bankers stand poised to raise their “dots” such that the median rate hike projection rises to four hikes? I don’t think so. I read the minutes as wiping away lingering concerns about the inflation outlook and allowing policymakers to coalesce around the existing three hike projection. The risk remains, of course, that conditions remain sufficiently buoyant to raise the rate projection in June or September. More important to me at this juncture is I see clear hints that the projections beyond 2018 are vulnerable to upward revisions. ...continued here...

                                                                                            Posted by on Thursday, February 22, 2018 at 02:27 PM in Economics, Monetary Policy | Permalink  Comments (51) 

                                                                                            Links for 02-22-18

                                                                                              Posted by on Thursday, February 22, 2018 at 08:31 AM in Economics, Links | Permalink  Comments (138) 

                                                                                              Tuesday, February 20, 2018

                                                                                              On the Link between US Pay and Productivity

                                                                                              Anna Stansbury and Lawrence Summers at VoxEU:

                                                                                              On the link between US pay and productivity, by Anna Stansbury and Lawrence Summers, VoxEU: Pay growth for middle class workers in the US has been abysmal over recent decades – in real terms, median hourly compensation rose only 11% between 1973 and 2016.1 At the same time, hourly labour productivity has grown steadily, rising by 75%.
                                                                                              This divergence between productivity and the typical worker’s pay is a relatively recent phenomenon. Using production/nonsupervisory compensation as a proxy for median compensation (since there are no data on the median before 1973), Bivens and Mishel (2015) show that typical compensation and productivity grew at the same rate over 1948-1973, and only began to diverge in 1973 (see Figure 1).

                                                                                              Figure 1 Labour productivity, average compensation, and production/nonsupervisory compensation 1948-2016


                                                                                              Notes: Labour productivity: total economy real output per hour (constructed from BLS and BEA data). Average compensation: total economy compensation per hour (constructed from BLS data). Production/nonsupervisory compensation: real compensation per hour, production and nonsupervisory workers (Economic Policy Institute).

                                                                                              What does this stark divergence imply about the relationship between productivity and typical compensation? Since productivity growth has been so much faster than median pay growth, the question is how much does productivity growth benefit the typical worker?2
                                                                                              A number of authors have raised these questions in recent years. Harold Meyerson, for example, wrote in American Prospect in 2014 that “for the vast majority of American workers, the link between their productivity and their compensation no longer exists”, and the Economist wrote in 2013 that “unless you are rich, GDP growth isn't doing much to raise your income anymore”. Bernstein (2015) raises the concern that “[f]aster productivity growth would be great. I’m just not at all sure we can count on it to lift middle-class incomes.” Bivens and Mishel (2015) write “although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority”.
                                                                                              Has typical compensation delinked from productivity?
                                                                                              Figure 1 appears to suggest that a one-to-one relationship between productivity and typical compensation existed before 1973, and that this relationship broke down after 1973. On the other hand, just as two time series apparently growing in tandem does not mean that one causes the other, two series diverging may not mean that the causal link between the two has broken down. Rather, other factors may have come into play which appear to have severed the connection between productivity and typical compensation.
                                                                                              As such there is a spectrum of possibilities for the true underlying relationship between productivity and typical compensation. On one end of the spectrum – which we call ‘strong delinkage’ – it’s possible that factors are blocking the transmission mechanism from productivity to typical compensation, such that increases in productivity don’t feed through to pay. At the opposite end of the spectrum – which we call ‘strong linkage’ – it’s possible that productivity growth translates fully into increases in typical workers’ pay, but even as productivity growth has been acting to raise pay, other factors (orthogonal to productivity) have been acting to reduce it. Between these two ends of the spectrum is a range of possibilities where some degree of linkage or delinkage exists between productivity and typical compensation.
                                                                                              In a recent paper, we estimate which point on this linkage-delinkage spectrum best describes the productivity-typical compensation relationship (Stansbury and Summers 2017). Using medium-term fluctuations in productivity growth, we test the relationship between productivity growth and two key measures of typical compensation growth: median compensation, and average compensation for production and nonsupervisory workers.
                                                                                              Simply plotting the annual growth rates of productivity and our two measures of typical compensation (Figure 2) suggests support for quite substantial linkage – the series seem to move together, although typical compensation growth is almost always lower.

                                                                                              Figure 2 Change in log productivity and typical compensation, three-year moving average


                                                                                              Notes: Data from BLS, BEA and Economic Policy Institute. Series are three-year backward-looking moving averages of change in log variable.

                                                                                              Making use of the high frequency changes in productivity growth over one- to five-year periods, we run a series of regressions to test this link more rigorously. We find that periods of higher productivity growth are associated with substantially higher growth in median and production/nonsupervisory worker compensation – even during the period since 1973, where productivity and typical compensation have diverged so much in levels. A one percentage point increase in the growth rate of productivity has been associated with between two-thirds and one percentage point higher growth in median worker compensation in the period since 1973, and with between 0.4 and 0.7 percentage points higher growth in production/nonsupervisory worker compensation. These results suggest that there is substantial linkage between productivity and median compensation (even the strong linkage view cannot be rejected), and that there is a significant degree of linkage between productivity and production/nonsupervisory worker compensation.
                                                                                              How is it possible to find this relationship when productivity has clearly grown so much faster than median workers’ pay? Our findings imply that even as productivity growth has been acting to push workers’ pay up, other factors not associated with productivity growth have acted to push workers’ pay down. So while it may appear on first glance that productivity growth has not benefited typical workers much, our findings imply that if productivity growth had been lower, typical workers would have likely done substantially worse.
                                                                                              If the link between productivity and pay hasn’t broken, what has happened?
                                                                                              The productivity-median compensation divergence can be broken down into two aspects of rising inequality: the rise in top-half income inequality (divergence between mean and median compensation) which began around 1973, and the fall in the labour share (divergence between productivity and mean compensation) which began around 2000.
                                                                                              For both of these phenomena, technological change is often invoked as the primary cause. Computerisation and automation have been put forward as causes of rising mean-median income inequality (e.g. Autor et al. 1998, Acemoglu and Restrepo 2017); and automation, falling prices of investment goods, and rapid labour-augmenting technological change have been put forward as causes of the fall in the labour share (e.g. Karabarbounis and Neiman 2014, Acemoglu and Restrepo 2016, Brynjolffson and McAfee 2014, Lawrence 2015).
                                                                                              At the same time, non-purely technological hypotheses for rising mean-median inequality include the race between education and technology (Goldin and Katz 2007), declining unionisation (Freeman et al. 2016), globalisation (Autor et al. 2013), immigration (Borjas 2003), and the ‘superstar effect’ (Rosen 1981, Gabaix et al. 2016). Non-technological hypotheses for the falling labour share include labour market institutions (Levy and Temin 2007, Mishel and Bivens 2015), market structure and monopoly power (Autor et al. 2017, Barkai 2017), capital accumulation (Piketty 2014, Piketty and Zucman 2014), and the productivity slowdown itself (Grossman et al. 2017).
                                                                                              While we do not analyse these theories in detail, a simple empirical test can help distinguish the relative importance of these two categories of explanation – purely technology-based or not – for rising mean-median inequality and the falling labour share. More rapid technological progress should cause faster productivity growth – so, if some aspect of faster technological progress has caused inequality, we should see periods of faster productivity growth come alongside more rapid growth in inequality.
                                                                                              We find very little evidence for this. Our regressions find no significant relationship between productivity growth and changes in mean-median inequality, and very little relationship between productivity growth and changes in the labour share. In addition, as Table 1 shows, the two periods of slower productivity growth (1973-1996 and 2003-2014) were associated with faster growth in inequality (an increasing mean/median ratio and a falling labour share).
                                                                                              Taken together, this evidence casts doubt on the idea that more rapid technological progress alone has been the primary driver of rising inequality over recent decades, and tends to lend support to more institutional and structural explanations.

                                                                                              Table 1 Average annual growth rates of productivity, the labour share and the mean/median ratio during the US’ productivity booms and productivity slowdowns


                                                                                              Note: Data from BLS, Penn World Tables, EPI Data Library.

                                                                                              Policy implications
                                                                                              The slow growth in median workers’ pay and the large and persistent rise in inequality are extremely concerning on grounds of both welfare and equity. There are important ongoing debates about the factors responsible for this phenomenon, and what must be done to reverse it.
                                                                                              Our contribution to these debates is, we believe, to demonstrate that productivity growth still matters substantially for middle income Americans. If productivity accelerates for reasons relating to technology or to policy, the likely impact will be increased pay growth for the typical worker.
                                                                                              We can use our estimates to calculate a rough counterfactual. If the ratio of the mean to median worker's hourly compensation in 2016 had been the same as it was in 1973, and mean compensation remained at its 2016 level, the median worker's pay would have been around 33% higher. If the ratio of labour productivity to mean compensation in 2016 had been the same as it was in 1973 (i.e. the labour share had not fallen), the average and median worker would both have had 4-8% more hourly compensation all else constant. Assuming our estimated relationship between compensation and productivity holds, if productivity growth had been as fast over 1973-2016 as it was over 1949-1973, median and mean compensation would have been around 41% higher in 2016, holding other factors constant.
                                                                                              This suggests that the potential effect of raising productivity growth on the average American’s pay may be as great as the effect of policies to reverse trends in income inequality – and that a continued productivity slowdown should be a major concern for those hoping for increases in real compensation for middle income workers.
                                                                                              This does not mean that policy should ignore questions of redistribution or labour market intervention – the evidence of the past four decades demonstrates that productivity growth alone is not necessarily enough to raise real incomes substantially, particularly in the face of strong downward pressures on pay. However it does mean that policy should not focus on these issues to the exclusion of productivity growth – strategies that focus both on productivity growth and on policies to promote inclusion are likely to have the greatest impact on the living standards of middle-income Americans.
                                                                                              Acemoglu, D and P Restrepo (2017), "Robots and jobs: Evidence from US labour markets", NBER Working Paper 23285.
                                                                                              Acemoglu, D and P Restrepo (2016), “The race between machine and man: Implications of technology for growth, factor shares and employment”, NBER, Working Paper 22252.
                                                                                              Autor, D, D Dorn, L F Katz, C Patterson and J Van Reenen (2017), “The fall of the labour share and the rise of superstar firms”, CEPR Discussion Paper 12041.
                                                                                              Autor, D, D Dorn and G H Hanson (2013), "The China syndrome: Local labour market effects of import competition in the United States", American Economic Review 103(6): 2121-2168.
                                                                                              Autor, D, L F Katz and A B Krueger (1998), "Computing inequality: Have computers changed the labour market?"  Quarterly Journal of Economics 113(4): 1169-1213.
                                                                                              Barkai, S (2016), "Declining labour and capital shares", Stigler Center for the Study of the Economy and the State, New Working Paper Series 2.
                                                                                              Bernstein, J (2015), “Faster productivity growth would be great. I’m just not sure we can count on it to lift middle class incomes”, On the Economy Blog, 21 April.
                                                                                              Bivens, J and L Mishel (2015), “Understanding the historic divergence between productivity and a typical worker's pay: Why it matters and why it's real", Economic Policy Institute, Washington DC.
                                                                                              Borjas, G J (2003), “The labour demand curve is downward sloping: Reexamining the impact of immigration on the labour market”, Quarterly Journal of Economics 118(4): 1335-1374.
                                                                                              Brynjolfsson, E and A McAfee (2014), The second machine age: Work, progress, and prosperity in a time of brilliant technologies, WW Norton & Company.
                                                                                              The Economist (2015), “Inequality: A defining issue – for poor people”, Economist Blog – Democracy in America, 16 December.
                                                                                              Elsby, M, B Hobijn and A Şahin (2013), "The decline of the US labour share", Brookings Papers on Economic Activity 2013(2): 1-63.
                                                                                              Feldstein, M (2008), “Did wages reflect growth in productivity?" Journal of Policy Modeling 30(4): 591-594.
                                                                                              Freeman, R B, E Han, B Duke, D Madland (2016), “How does declining unionism affect the American middle class and inter-generational mobility?”, Federal Reserve Bank, 2015 Community Development Research Conference Publication.
                                                                                              Gabaix, X, J‐M Lasry, P‐L Lions and B Moll (2016), "The dynamics of inequality", Econometrica 84(6): 2071-2111.
                                                                                              Goldin, C D, and L F Katz (2009), The race between education and technology, Harvard University Press.
                                                                                              Grossman, G M, E Helpman, E Oberfield and T Sampson (2017), “The productivity slowdown and the declining labour share: A neoclassical exploration”, NBER, Working Paper No 23853.
                                                                                              Karabarbounis, L and B Neiman (2014), “The global decline of the labour share", Quarterly Journal of Economics 129(1): 61-103.
                                                                                              Lawrence, R Z (2015), “Recent declines in labour's share in US income: A preliminary neoclassical account", NBER Working Paper No w21296.
                                                                                              Lawrence, R Z (2016), “Does productivity still determine worker compensation? Domestic and international evidence”, in The US Labour Market: Questions and Challenges for Public Policy, American Enterprise Institute Press.
                                                                                              Levy, F and P Temin (2007), "Inequality and institutions in 20th century America", NBER Working Paper 13106
                                                                                              Meyerson, H (2014), “How to raise Americans’ wages”, The American Prospect, 18 March.
                                                                                              Piketty, T (2014), Capital in the Twenty-First Century, Cambridge, MA: Belknap Press.
                                                                                              Piketty, T and G Zucman (2014), “Capital is back: Wealth-income ratios in rich countries 1700–2010”, Quarterly Journal of Economics 129(3): 1255–1310.
                                                                                              Stansbury, A and L Summers (2017), “Productivity and pay: Is the link broken?”, NBER, Working Paper 24165.
                                                                                              [1] As measured using the CPI-U-RS consumer price deflator. Using the PCE consumer price deflator, median compensation has risen by about 26% over the period rather than 12%. We use the Economic Policy Institute’s measure of median compensation, which they calculate from median wages (BLS) and the average wage-total compensation ratio (BEA NIPA).
                                                                                              [2] Note that we focus in this column on the divergence of median or typical pay from average productivity. The divergence of average compensation from average productivity – equivalent to the declining labour share – has been smaller and more recent. Analyses of the average compensation-average productivity divergence can be found in Feldstein (2008), Lawrence (2016) and our recent paper (Stansbury and Summers 2017).

                                                                                                Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Income Distribution, Productivity | Permalink  Comments (91) 

                                                                                                Links for 02-20-18

                                                                                                  Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Links | Permalink  Comments (156) 

                                                                                                  Inflation, General Data Flow, Fiscal Stimulus, And Implications For Monetary Policy


                                                                                                  Tim Duy:

                                                                                                  Inflation, General Data Flow, Fiscal Stimulus, And Implications For Monetary Policy, by Tim Duy: The data flow remains supportive of the Fed’s forecast of sustained moderate growth. A spike in prices, however, drove core CPI inflation to the fastest monthly pace since 2005, again raising fears that the Fed will accelerate the pace of rate hikes. I still think this is premature. To be sure, the risk is that the Fed hikes rates more than the projected three times this year. But Powell & Co. will need more data to support a faster pace of rate hikes. They will not overreact to data that may prove to be nothing more than a flash in a pan. ...continued here...

                                                                                                    Posted by on Tuesday, February 20, 2018 at 11:08 AM in Economics, Monetary Policy | Permalink  Comments (12) 

                                                                                                    Monday, February 19, 2018

                                                                                                    Links for 02-19-18

                                                                                                      Posted by on Monday, February 19, 2018 at 11:56 AM in Economics, Links | Permalink  Comments (178)