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Menzie Chinn

Menzie Chinn

He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Articles by Menzie Chinn

Guest Contribution: “Time-varying Models for Monetary Policy and Financial Stability”

1 day ago

Today, we are pleased to present a guest contribution written by Laurent Ferrara (Adjunct Professor of Economics, University Paris Nanterre, France). The views expressed here are those solely of the author.

This is the title of a Euro Area Business Cycle Network (EABCN) – Pierre Werner Chair conference organized last week at the European University Institute in Florence (Italy) by Fabio Canova (Norwegian Business School and EUI), Massimiliano Marcellino (Bocconi Univ.), Barbara Rossi (ICREA-Univ. Pompeu Fabra, BGSE and CREI) and Laurent Ferrara (Banque de France).
The Global Financial Crisis has led to dramatic changes in the global economy with strong reactions from policy-makers. Consequently, there is a need for macroeconomic models allowing for more flexibility in standard economic

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Double Time to Trade War?

4 days ago

From Politico’s Morning Trade:
RAPID PACE OF STEEL PROBE DISCONCERTING: Some Democratic lawmakers could soon press the administration over concerns that a potential Trump decision to restrict steel imports to protect national security could be challenged at the World Trade Organization if the Commerce Department does not provide a convincing basis for any action, Morning Trade has learned.

The United States last used the Section 232 law to consider restricting imports in 2001, at the request of two congressmen. In that investigation, the department recommended President George W. Bush not curb imports of iron ore and semi-finished steel products because U.S. national security requirements were “easily satisfied by current domestic production, and could continue to be satisfied

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Pangloss in Wisconsin

4 days ago

In search of a “supply side success” after the end of the Kansas experiment, conservative observers turn to Wisconsin. The Manhattan Institute’s Mr. Reidl declares victory:
Wisconsin’s job growth over the past six years has been extraordinarily strong.
When last we met Mr. Reidl, he was explaining why fiscal policy could have no impact on GDP because, well, because. That does not augur well for his abilities an economic analysis, and indeed we can easily poke holes into the argument that Wisconsin’s doing just great!

First, let’s compare Wisconsin to its neighbor Minnesota (and the Nation). To paraphrase the President, “Sad!”
Figure 1: Log private nonfarm payroll employment in US (black), Minnesota (blue), and Wisconsin (red), all normalized to 2011M01=0. Light green shading denotes

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“The Transmission of Macroprudential and Monetary Policies across Borders”

15 days ago

That’s the title of a one day conference at the margins of the IMF-World Bank Spring Meetings, organized by the International Banking Research Network (IBRN) and the Monetary and Capital Markets Department of the IMF, aimed at featuring research on the international transmission of macroprudential and monetary policies and to discuss policy implications from this research.

IBRN is led by Claudia Buch and Linda Goldberg. Speakers included Anat Admati, Svein Andresen, Matthieu Bussiere, Markus Brunnermeier, Menzie Chinn, Stijn Claessens, Stanley Fischer, Bostjan Jazbec, Olivier Jeanne, Philip Lane, Raghuram Rajan, and Hyun Song Shin.
The papers and presentations are here.

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The Pound on 8 June 2017

16 days ago

The UK voters look set to provide another surprise. The pound has moved substantially as exit poll data has come out.
Source: TradingEconomics, accessed 5pm CST.
From Reuters Instant View:
LEE HARDMAN, CURRENCY ANALYST AT MUFG“The market will be praying that this exit poll has got it wrong. Currency volatility is the best proxy for market fears. If the Conservative ship is sinking then the market will be looking for a life boat.”

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Employment Situation: Maybe a Little Softer than I Thought

17 days ago

A couple of days ago, I noted that most indicators showed continued growth. Quarterly Census of Employment and Wages figures released today indicate a slightly softer employment situation at end of 2016 than is represented by the establishment series.
Source: Wells Fargo, June 7, 2017.
From Wells Fargo:
The Quarterly Census of Employment and Wages (QCEW) is a detailed count of employment and wages derived from the unemployment insurance tax rolls and serve as the basis for the annual revisions to the monthly employment series. The latest data, which are available through December, show hiring slowed a bit more abruptly than previously thought during the second half of last year. The fourth quarter QCEW data show year-to-year job growth slowing to just 1.2 percent at year-end 2016, or some

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The Kansas Experiment Ends

17 days ago

From The Wichita Eagle:
Lawmakers rolled back Gov. Sam Brownback’s signature tax policy over his objections Tuesday night, forcing into law tax increases to fix a budget shortfall and provide more money for schools.

(h/t Bruce Bartlett)

The legislation ends the “march to zero” income tax cuts that Brownback heralded for much of his time as governor.
Income taxes will rise across the board but most tax rates will remain lower than they were before the 2012 tax cuts. The increases are expected to generate more than $1.2 billion for the state over the next two years.

The experiment has been going on for years, since at least 2013, but we have not yet seen the promised “shot of adrenaline” effect that was promised.
Figure 1: Log GDP relative to 2011Q1 for US (black), Plains (teal), and

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Implications of the President’s Muslim Travel Ban

19 days ago

Since the President has acknowledged that the intent of his restrictions on entry of individuals from certain countries is actually a “travel ban”, it is of interest to assess the impact on foreign travel to the United States, and consequent impact on the US economy.
Figure 1: Year-on-year growth rate of US international enplanements (blue), and world industrial production (red). Source: Bureau of Transportation Statistics, IMF World Economic Outlook, April 2017, Figure 1.1, and author’s calcuations.
Note that while the correlation is not very high, it is interesting that international enplanements (both incoming and outgoing) have trended sideways since 2016M11, even as world industrial production has risen. We will have additional insights (for March) on June 11th.
US News and World

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Slowdown? Recession Indicators as of June 5, 2017

19 days ago

As the prospects for a fiscal stimulus fade, and the prospects for protectionist backlash remain, some observers ponder whether growth will stall before it gets started.
What is true is nonfarm payroll employment growth has slowed, and in fact previous readings have been revised down.
Figure 1: Nonfarm payroll employment for January (blue), February (red), March (green), April (black), and May (blue), in thousands, seasonally adjusted, all on a log scale. Source: BLS, various releases.
Here are five of the key indicators that the NBER Business Cycle Dating Committee (BCDC) have referred to in the past.
Figure 2: Log nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers, in Ch.2009$ (green), manufacturing and trade sales, in Ch.2009$ (black),

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Why Did the President Rely upon a Consultant’s Report for His Decision on the Paris Accord

22 days ago

As noted in the NYT, the President cited this NERA study, commissioned by the American Council for Capital Formation, and the U.S. Chamber of Commerce. Why didn’t the President rely upon his own experts within the White House?
Because:(screen shot 8:28PM Central 6/2/2017)
While it’s true the Administration has formally nominated Kevin Hassett to CEA chair, it was painfully late that his name was broached.
Of course, there is a separate question whether the President would have listened to Dr. Hassett, even if he had been in place, given what the President has done with information he’s been given by the intelligence services.

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Stall Speed in Wisconsin?

22 days ago

A reader brings my attention to John Schmid’s article documenting the Wisconsin employment slowdown, relying on the Census of Quarterly Employment and Wages, for the year ending December 2016.
From the article:
Wisconsin added 11,590 private-sector jobs, lagging job creation gains in every other year of the current upswing, which ranged from a low of 29,723 in 2013 to a high of 38,077 in 2015. The state’s overall 2016 hiring gains amounted to an increase of only 0.5%, well under half the typical rate, which ranged from 1.3% in 2011 and 2013 to 1.6% in 2014 and 2015. Average weekly private-sector wages in the state declined 0.6% last year, led by a 5.3% plunge in manufacturing wages. Manufacturers lost 3,776 jobs in the 12-month period, which amounts to a 0.8% decline in employment in the

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“First thing we do, let’s kill all the beancounters” Part 2

23 days ago

First, it was Newt Gingrich saying abolish the CBO. Now, Mick Mulvaney advocates ignoring the CBO.
From The Washington Examiner:
White House Office of Management Director Mick Mulvaney on Wednesday opened fire on the Congressional Budget Office, asserting in an interview with the Washington Examiner that the day of the institution as an authoritative non-partisan arbiter of legislation “has probably come and gone.”
Mulvaney, speaking in his office in the Old Executive Office Building, described the CBO’s scoring of the House Republican healthcare bill as “absurd,” arguing that it was a perfect example of why Congress should stop being so deferential to the group.
“At some point, you’ve got to ask yourself, has the day of the CBO come and gone?”…
This is pretty rich for an administration

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Guest Contribution: “Can Google Trends Data Be Replicated?”

23 days ago

Today we are pleased to present a guest contribution written by Hal Varian, Emeritus Professor at the School of Information, the Haas School of Business and the Economics Department at UC Berkeley.
In a recent post on this blog Simon van Norden writes:
“….the time series provided by Google Trends are not replicable. Historical values available to us now are not the same as those that were available in the past, and values available in the future may be different again.”
As an example, he refers to data from my 2012 paper with Hyunyoung Choi, “Predicting the Present with Google Trends.” In that paper we predict contemporaneous initial claims for unemployment benefits using Google query categories on “Jobs” and “Welfare and unemployment”.
There are at least 3 reasons why the data extracted

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Stephen Moore Is a Liar

24 days ago

Or a statistical incompetent. Or both.(I know, in the grand scheme of lying, this is small bore.)I just heard Stephen Moore of Heritage Foundation saying we had a trillion dollar budget deficit, in a debate on CNN about the Paris Accord (1:42PM CST).
The FY 2017 budget deficit is $603 billion, according to the just released budget (see Table S-1). Add his serial lying to the statistical atrocity that is the ALEC-Laffer-Moore-Williams index, and all I can say is Mr. Moore should not be paid as a “CNN economic analyst”.
Update, 7:14 PM Pacific: I’d forgotten this tabulation of errors by Mr. Moore. The man has no shame.

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Guest Contribution: “The Case against Subsidizing Housing Debt”

24 days ago

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate.

At the end of the first quarter, according to the Federal Reserve Bank of New York, American consumer debt for the first time exceeded its previous peak (in dollars). That peak was in the 3rd quarter of 2008, just as the global financial crisis hit. Although car loans and student debt have been rising especially rapidly, housing debt remains more than 2/3 of the total ($8.6 trillion out of $12.7 trillion).
As a share of income, household debt is nothing like the threat to the national economy that it was ten years ago. But the new statistic is a good

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Beware the State Level Employment Series: Kansas Edition

25 days ago

Steven Kopits, in response to my caution over using state level household based employment series, writes:
If you are telling me you’re smarter than BLS, go ahead.
Well, I don’t think I’m smarter than BLS. I just think it’s a good idea to know what kind of imprecision is associated with the series one works with — so without further ado, here are two vintages of household survey based civilian employment for Kansas. Tell me what you think…
Figure 1: Kansas civilian employment, from April 2017 release (blue), and August 2016 release (red), seasonally adjusted. Source: BLS.
So, I’d take that surge in employment growth with a grain of salt…
I’ve mentioned this point about state level employment and labor force series, particularly for states with relatively small populations, following on

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Guest Contribution: “Uncertainty and business investment in the UK after the Brexit”

26 days ago

Today, we are pleased to present a guest contribution written by Laurent Ferrara (Adjunct Professor of Economics, University Paris Nanterre, France). The views expressed here are those solely of the author.

Trying to assess macroeconomic consequences of the Brexit seems to be too early as we only get at best 3 quarters of national account data since end of June 2016 (the referendum took place on June 23, 2016). However, looking at recent data is fruitful. The latest data on UK GDP have been published by the ONS on May 25, 2017, and relate to 2017q1. Although the second estimate for 2017q1 is quite low (0.2% quarter over quarter, downward revision of 0.1pp from the first release on 28 April 2017), we do not observe a marked slowdown since the onset of the Brexit (see the ONS website). The

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Kansas Employment below Peak

28 days ago

And declining.Figure 1: Log nonfarm payroll employment for Missouri (blue), Kansas (red), and US (black), seasonally adjusted, 2011M01=0. Source: BLS, and author’s calculations.

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Kansas GDP Growth Nil

29 days ago

Quarterly GDP figures for Kansas indicate essentially zero q/q growth in 2016Q4, and 0.3% y/y. This is true despite the end of the drought. BEA Plains region growth outpaces Kansas, as well.
Figure 1: Kansas real GDP, in millions Ch.2009$, SAAR ( blue, left log scale), and Kansas Palmer Drought Severity Index (red, right index); lower values indicate drier conditions. Source: BEA (May 11 release), and NOAA.
Needless to say, this growth performance leaves something to be desired. In fact, 2016Q4 Kansas GDP is only 1.2% higher than it was in the first quarter of 2012 – over four years earlier.
Some might argue that the region as a whole is growing slower than the nation. In Figure 2, I depict Kansas, Plains and US GDP relative to 2011Q1.
Figure 2: Log GDP relative to 2011Q1 for US (black),

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Coverage Implications of the Revised AHCA

May 24, 2017

From today’s CBO score of the AHCA, bottom line, 14 million more uninsured next year, and 23 million more by 2026.

CBO and JCT broadly define private health insurance coverage as consisting of a comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals. The agencies ground their coverage estimates on that widely accepted definition, which encompasses most private health insurance plans currently offered in the group and nongroup markets. The definition excludes policies with limited insurance benefits (known as mini-med plans); “dread disease” policies that cover only specific diseases; supplemental plans that pay for medical expenses that another policy does not cover; fixed-dollar

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“Tooth Fairies and Ludicrous Supply-Side Economics”

May 24, 2017

That’s how Larry Summers described the growth forecasts underpinning the Trump budget released today. And I can’t really disagree, regarding the medium to longer term forecasts.
From the article:
Apparently, the budget forecasts that U.S. economic growth will rise to 3.0 percent because of the administration’s policies — largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth fairies and ludicrous supply-side economics.
Then the administration asserts that it will propose revenue neutral tax cuts with the revenue neutrality coming in part because the tax cuts stimulate growth! This is an elementary double count. You can’t use the growth benefits of tax cuts once to justify an optimistic baseline and then again to claim that the tax cuts do not

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Guest Contribution: “Big Data and Fake Forecasts”

May 22, 2017

Today, we are fortunate to present a guest contribution written by Simon van Norden, Professor of Finance at HEC Montréal.
‘Big Data’ continues to be the subject of much hype these days, so let me share a small cautionary tale for readers who might be interested in using it for macroeconomic forecasting.
One of the oldest and most-studied sources of big data in macroeconomics is Google Trends, which Choi and Varian (2012) argued was useful in forecasting US unemployment rates, among other things. Another claim made in Choi and Varian (2012), that Google Trends could help predict flu outbreaks, was challenged by Lazar et al. (2014). They noted that Google’s Flu Trends index was doing a remarkably bad job predicting flu-related doctor visits. Many of the problems they identified also

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Guest Contribution: “The Real Exchange Rate and Economic Growth: Revisiting the Case Using External Instruments”

May 18, 2017

Today we are pleased to present a guest contribution written by Maurizio Michael Habib, Elitza Mileva and Livio Stracca. The views expressed belong to the authors and are not necessarily shared by the institutions to which the authors are affiliated.

Does depreciation spur growth? The answer really depends on whom you ask this question. Whereas laymen and politicians are often convinced that depreciation does spur growth, economists are generally sceptical that the relative price of two currencies may play a fundamental role in the medium term. For most economists, the exchange rate is an endogenous variable, whose contribution to growth may be difficult to single out.
Dani Rodrik (2008) made an attempt to support the widespread view of non-economists that the level of the exchange rate

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Is the Trump Dollar Rally Over?

May 17, 2017

Mix together the dashing of great (plutocratically oriented tax cut) expectations, the complete absence of any plan for infrastructure spending, and mix in some risk, and one gets this:Figure 1: Dollar index (DXY). Source: Tradingeconomics.

Here is a picture of the VIX over the past few months:Figure 2: S&P VIX. Source: TradingEconomics.
From Reuters:
From stocks to bonds to the U.S. dollar, a bevy of trades that have been fashionable since Trump’s election last November, were getting dialed back or in some cases shredded as his reform agenda looked increasingly vulnerable amid the fallout from his firing last week of James Comey, the director of the Federal Bureau of Investigation.
The uncertainty about Trump’s future increased in the last 24 hours over allegations Trump had sought to

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Pondering Economic Policy Implementation over the Next Four Years

May 16, 2017

From Reuters today:
“It’s becoming increasingly difficult to attract good people to work in this administration,” said one senior official. “In other cases, veteran people with expertise are leaving or seeking posts overseas and away from this White House.”

As of today, of the 557 key positions that are presidential appointments, 455 have no nominees, 24 are awaiting confirmation, 49 are formally nominated, and 29 are confirmed, according to The Partnership for Public Service
A slightly older tabulation (April 24) shows the progress by department. There was no nomination for undersecretary for domestic finance, no assistant secretary for economic policy, financial institutions, financial markets, financial stability, intelligence and analysis, tax policy (!!!). Kevin Hassett has been

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“Exchange Rate Models for a New Era: Major and Emerging Market Currencies”

May 14, 2017

That’s the title of an upcoming conference organized by Global Research Unit at Department of Economics and Finance, City University of Hong Kong, Bank for International Settlements, Asian Office, Centre for Economic Policy Research, and Journal of International Money and Finance, May 18-19 at City University Hong Kong. The conference program is here, official conference website here.

The conference provides a platform for discussing recent advances in modelling exchange rates, and the links between exchange rates and external balances and economic stability from perspectives of both major and emerging market currencies.
Here are the papers: KEYNOTE PAPER: Where’s the Risk? The Forward Premium Bias, the Carry-Trade Premium, and Risk-Reversals in General Equilibrium Kimberly A. Berg

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FinCEN to Share Information with Senate Intelligence Committee

May 13, 2017

As noted in Wednesday’s post, FinCEN — the Treasury’s Financial Crimes Enforcement Network — was asked by the Senate Intelligence Committee about information regarding connections between Russia and Trump and his associates. News reports indicate that FinCEN will provide the requested information.

From Reuters:
A unit of the U.S. Treasury Department that fights money laundering will provide financial records to an investigation by the Senate into possible ties between Russia and President Donald Trump and his associates, the Wall Street Journal reported on Friday, citing people familiar with the matter.
The Senate Intelligence Committee asked for the records from the Treasury’s Financial Crimes Enforcement Network, or FinCEN, late last month, the Journal cited the people as saying.

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EconoFact: “Import Limits on Steel and Aluminum: Protecting National Security or Protectionism?”

May 11, 2017

That’s the title of my article at EconoFact today.
The Issue:
The Trump Administration has proposed a number of trade related measures purportedly on the basis of national security. The first involves invoking a seldom-used provision of the trade law to investigate whether imposing import restrictions for steel and aluminum is justified by national security reasons. The second is the creation of a new White House office, the Office of Trade and Manufacturing Policy, superseding and replacing the National Trade Council established at the outset of the Trump Administration.
The question is whether the threats posed to national security are genuine, or merely a means of protecting domestic industries under the guise of national security.

Here is a graph of steel import sources, from the

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Stock Prices around October 20, 1973 (The Saturday Night Massacre)

May 10, 2017

Reader Julian Silk asks what happened to indicators around the Saturday Night Massacre, when President Nixon fired the Independent Special Prosecutor Archibald Cox. The Baker, Bloom and Davis daily version of the Economic Policy Index only extends back to 1985. Here is the Nasdaq around that date. Since October 20th was a Saturday, the relevant dates are 10/19 and 10/22.
Figure 1: Nasdaq index, June 1973-January 1974.
The Nasdaq rose slightly today. The true issue is what happens as events unfold.

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What Is FinCEN?

May 10, 2017

Several accounts [1] [2] [3] have noted that the Senate Intelligence Committee has requested information regarding related to President Donald Trump, his senior officials and his campaign staffers from the Treasury’s FinCEN. What is FinCEN?
It’s shortened form for “Financial Crimes Enforcement Network”.
From the official website:
The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.
For the record, the current acting director is Jamal El-Hindi (as of 2:22PM Pacific).

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