Tuesday , September 25 2018
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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: “Trump Renews Charges of Chinese Currency Manipulation”

2 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.

The US Treasury is due in October to submit its biannual report to Congress on what countries, if any, are manipulating their currencies to gain unfair trade advantage. President Trump has recently resumed the accusations he made during the election campaign that China was manipulating its currency. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” he told Reuters. He is apparently pressuring the Treasury directly in its deliberations.
What has changed since April?
What has changed since the last

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Using Gov. Walker’s Gold Standard QCEW, Has 250K Jobs Been Added?

3 days ago

Maybe. But not as of 2018M01.
Figure 1: Wisconsin private nonfarm payroll employment, 000’s s.a. (green) relative to 2011M01 value, Quarterly Census of Employment and Wages private employment (dark blue square) relative to 2011M01, +250K (red line). Source: BLS, author’s calculations.
One could seasonally adjust the QCEW series using a standard seasonal adjustment routine. I use X-13 (multiplicative) in EViews to generate a seasonally adjusted QCEW series. This is plotted in an analogous fashion in Figure 2.
Figure 2: Wisconsin private nonfarm payroll employment, 000’s s.a. (green) relative to 2011M01 value, Quarterly Census of Employment and Wages private employment, adjusted by X-13 (dark blue) relative to 2011M01, +250K (red line). Source: BLS, author’s calculations.
By this measure,

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Is California in Recession? (Part IX)

3 days ago

August employment figures are out. Time to re-evaluate this mid-December Political Calculations assertion that California was in recession.
Going by these [household survey based labor market] measures, it would appear that recession has arrived in California, which is partially borne out by state level GDP data from the U.S. Bureau of Economic Analysis. [text as accessed on 12/27/2017]
The release provides an opportunity to revisit this question (the 2018Q1 state GDP figures are discussed here). It’s (still) unlikely that a recession occurred.

Figure 1: Nonfarm payroll employment in US (black), and in California (blue), both in logs, normalized to 2011M01=0. Blue arrow at timing of Political Calculations recession conjecture. Source: BLS and author’s calculations.
According to my work

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Who Could’ve Known “Crash Brexit” Would Be Problematic?

4 days ago

In the aftermath of the Salzburg summit, where the Chequers plan was dismissed by the EU, and PM May demanded “respect”, the pound has plunged.

Source: TradingEconomics.com.
Deutsche Bank (Harvey, et al., “Deep impact: DB forecasts in a crash Brexit”) yesterday lays out why:
In our analysis, we calculate that UK growth will be around 4% cumulatively lower than under our baseline scenario by end-2020. The UK will enter a two year recession, with output shrinking -0.3% and -0.6% in 2019 and 2020 respectively. The main contributers to the fall in demand are household consumption, which shrinks around 6% relative to our baseline, and business investment which is 13% lower than our baseline. Net trade is assumed to add a moderate boost to GDP, as while trade falls substantially, imports fall

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Huzzah! Three and a Half Years Late, Walker Hits His +250K Jobs Promise

5 days ago

As Wisconsinites will recall, as late as August 2013, Governor Walker was reiterating his promise to create 250,000 new private sector jobs by the end of his first term (January 2015). As of July 2018, Wisconsin’s private sector net job creation surpassed Walker’s promised target — a full 3.5 years late.
Figure 1: Wisconsin private nonfarm payroll employment, 000’s s.a. (red), +250K by January 2015 (light gray), +250K by January 2015 trend (dark gray). Source: BLS, DWD, author’s calculations.
Note that net job creation will not catch up with the trend implied by Governor Walker’s +250K by January 2015 pledge.
By the way, August private NFP declined 100 — essentially flat — after July numbers were revised down by 1900. (Civilian employment, which is poorly estimated at the state level,

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W/o Comment: Senate Judiciary Committee – GOP Members

6 days ago

Note: Republican members of the Senate Judiciary Committee (from top left): Chuck Grassley, Orrin Hatch, Ben Sasse, Thom Tillis, Ted Cruz, John Cornyn; (from bottom left) Lindsey Graham, Jeff Flake, John Kennedy, Mike Crapo and Mike Lee. (Photos: U.S. Senate). Source: Yahoo.

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From the Front Lines of the (Soybean) Wars

6 days ago

Reuters has an interesting article, entitled “Inside China’s strategy in the soybean trade war”.
Mu Yan Kui … ticked off a six-part strategy to slash Chinese consumption and tap alternate supplies with little financial pain.

Source: barchart.com.
…“Many foreign business people and politicians have underestimated the determination of Chinese people to support the government in a trade war,” said Mu, vice chairman of Yihai Kerry, owned by Singapore-based Wilmar International (WLIL.SI).
The comments echo a growing confidence within China’s soybean industry and government that the world’s largest pork-producing nation can wean itself off U.S. soy exports – a prospect that would decimate U.S. farmers, upend a 36-year-old trading relationship worth $12.7 billion last year, and radically remap

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Council on Foreign Relations International Affairs Fellowship in International Economics

6 days ago

The International Affairs Fellowship (IAF) in International Economics, sponsored by Kimberly Querrey, offers business economists as well as university-based economics scholars hands-on experience in the U.S. government to expand their range of thinking and work on international economic policy. Possible host placements for the fellowship appointment include but are not limited to the U.S. Department of the Treasury, U.S. Department of Commerce, the Federal Reserve Bank, and relevant parts of the U.S. Department of State and the White House [so the Fed, the IMF, the World Bank, the Treasury or any other policy institution are also possibilities]. The IAF in International Economics aims to enrich the teaching, scholarship, and research of academics, inform the practice of business

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The Long Run Elasticity of Farm Product Prices and the US Dollar

7 days ago

Expansionary fiscal policy combined with Taylor-rule induced monetary tightening has resulted in a strong dollar. That strong dollar is driving US agricultural prices.

Figure 1: Farm product PPI divided by CPI-all (left log scale, blue), and real trade weighted US dollar exchange rate, against broad basket (right log scale, red). An increase in the dollar exchange rate variable is a dollar depreciation. NBER defined recession dates shaded gray; Trump administration shaded orange. Source: BLS, Federal Reserve Board, NBER, and author’s calculations.
Notice the close correlation between the inflation adjusted series. Neither series rejects a unit root, using conventional ADF tests. A Johansen maximum likelihood test for cointegration rejects (using asymptotic critical values) the

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(Still) Waiting for Recovery in US Soybean Prices (Levels, Relative)

7 days ago

November soybean futures keep on going down. And the US-Brazil spread has proven durable.
Source: barchart.com.
For those who argued Chinese tariffs would be immaterial to prices because of arbitrage/relabeling (see this post, and associated comments), the following graph is, I think, dispositive, as the gap in US and Brazilian soybean prices has proven very durable (more so than I had expected). One could argue weather/harvesting yield news could (should) affect the level of soybean prices, but should not affect the tariff-induced spread. Lo and behold:
Source: Javier Blas.
I ask: Are US soybean farmers tired of “winning” yet.

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New Tariffs on Chinese Imports

8 days ago

USTR announcement:
As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.
The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018. …
Implied US tariff overall

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Farm Country Gets What It Voted For

8 days ago

From Yahoo Finance:
Tariffs imposed as retaliation for US tariffs worsen the US terms of trade (i.e., lower ag export prices), and a strong dollar lowers US ag prices. Rising interest rates due to the collision of monetary and fiscal policies worsens the debt service load of the ag sector, while reducing farmland prices.
Thanks, Trump!

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Guest Contribution: “International Macroeconomics in the wake of the Global Financial Crisis”

10 days ago

Today, we are pleased to present a guest contribution written by Laurent Ferrara (Banque de France), Ignacio Hernando (Banco de España) and Daniela Marconi (Banca d’Italia), summarizing the introductory chapter of their book International Macroeconomics in the wake of the Global Financial Crisis. The views expressed here are those solely of the author and do not reflect those of their respective institutions.
A decade after the eruption of the Global Financial Crisis (GFC), the world economy has finally returned to a more sustained pace of expansion (see Fig. 1).
Figure 1: World GDP annual growth (in %, constant prices). Source: IMF, World Economic Outlook, April 2018 and July 2018 update
Yet major challenges still remain, as the engines of long-run growth have still not recouped their

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Why Is Mr. Trump Saying 70% Power Outage on Eve of Hurricane Maria Strike?

10 days ago

Following up on yesterday’s tweets on estimates of excess mortality, official statement on twitter:

“They say all these people died in the storm in Puerto Rico, yet 70% of the power was out before the storm. So when did people start dying? At what point do you recognize that what they are doing is a political agenda couched in the nice language of journalism?” @GeraldoRivera
The WSJ does note 70% temporary outage after Hurricane Irma “sideswiped” Puerto Rico, but also notes rapid recovery thereafter. Moreover, the power utility reports only 3.9% outage on 9/19, the day before Hurricane Maria struck.
In addition, estimates based on light generation reported in Shermeyer indicate 27.9-41.0% outage on 9/16.
Source: Shermeyer (2018).
As noted in this post, post-Maria electricity outages

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Official White House Statement on Post-Hurricane Mortality in Puerto Rico

10 days ago

From tweets [1] [2]:
“When Trump visited the island territory last October, OFFICIALS told him in a briefing 16 PEOPLE had died from Maria.” The Washington Post. This was long AFTER the hurricane took place. Over many months it went to 64 PEOPLE. Then, like magic, “3000 PEOPLE KILLED.” They hired……..GWU Research to tell them how many people had died in Puerto Rico (how would they not know this?). This method was never done with previous hurricanes because other jurisdictions know how many people were killed. FIFTY TIMES LAST ORIGINAL NUMBER – NO WAY!

As early as November 2017, academic studies [3] indicated excess casualties far exceeding the official count. The graphic reproduced here shows alternative estimates as of over three months ago.
As noted here, tweets by Mr. Trump are

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Recalling the Beginning of the Lost Decades

11 days ago

Lehman Brothers, the global financial crisis and ensuing great recession, plus ten.
In our book, Lost Decades: The Making of America’s Debt Crisis and the Long Recovery (Norton, 2011), Jeffry Frieden and I undertook a historically and economics based assessment of what went wrong. Here are some graphs that underpin our analysis:
Figure 1: Government borrowing and borrowing from abroad.
Figure 2: Low real interest rates encouraged borrowing
Figure 3: More importantly, perceived risk disappeared
Figure 4: Household debt rose in crisis countries
Figure 5: But not in non-crisis countries
Figure 6: In the US, housing booms fueled by lending, particularly in asset backed securities
Figure 7: Debt accumulation drove, and was driven by, housing booms in crisis countries
Figure 8: But no in

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Excess Casualties in Puerto Rico, According to Mr. Trump

12 days ago

From Mr. Trump, this morning:
3000 people did not die in the two hurricanes that hit Puerto Rico. When I left the Island, AFTER the storm had hit, they had anywhere from 6 to 18 deaths. As time went by it did not go up by much. Then, a long time later, they started to report really large numbers, like 3000……..This was done by the Democrats in order to make me look as bad as possible when I was successfully raising Billions of Dollars to help rebuild Puerto Rico. If a person died for any reason, like old age, just add them onto the list. Bad politics. I love Puerto Rico!
We do have one estimate of 200-400 through October 1, 2018, so at least there is at least one person who believed Mr. Trump as of 5/31/2018:
…Excess deaths in PR through year end, those recorded by the Statistics Office,

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“Unsung Success” in Puerto Rico

13 days ago

Following up on examples of the incredible and unsung success of the recovery effort in Puerto Rico described by Mr. Trump, from Begnaud/CBSNews:
What may be millions of water bottles. meant for victims of Hurricane Maria, have been sitting on a runway in Ceiba, Puerto Rico, since last year, according to @FEMA, which confirmed the news to me, late tonight, after pictures, posted today on social media, went viral.
If 2975 dead is a success, what does a failure look like?
But Mr. Trump did pass out some paper towel rolls.

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Econbrowser, on the Day Lehman Brothers Closed

14 days ago

Back to the Real Side of the Economy: Recession Watch (9/15/2008)
Only on a day like today does an over 1 percent decrease in industrial output move to third page. But this item (and this hilarious article h/t Economists View) reminded me to update the indicators used by the NBER BCDC are headed. Their trajectories are, in general, not too comforting.
Consider first the series that prompted the investigation. In Figure 1, I show (in logs) industrial production and manufacturing production; the former is the one considered by the NBER BCDC.
Figure 1: Log industrial production (blue), and log manufacturing production (NAICS definition), 2002=100. Line at industrial production peak; NBER recession dates shaded gray. Source: Federal Reserve Board via St. Louis Fed FRED II, accessed 15

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Puerto Rico Austerity-Induced Excess Mortality Exceeds That of Hurricane Maria?

15 days ago

A commentator [1] has recently concluded that excess mortality due to austerity in Puerto Rico exceeds that attributable to Hurricane Maria and its aftermath. I take issue with that conclusion.

First, consider mortality data through February.
Figure 1: Mortality per month (blue). Gray denotes in-sample period; orange shading denotes Hurricane Maria and post-hurricane period; dashed line at PROMESA legislation. Source: Santos-Lozada and Howard, 2017, June release of Vital Statistics data.
Second, now consider constructing the counterfactual not incorporating austerity measures both before and after PROMESA implementation (legislation passed as of in July 2016, control in effect as of October 2016). I accomplish this by estimating two equations: (1) a simple averaging over the 2010-2015

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Chinn-Ito Financial Openness Index Updated to 2016

17 days ago

Hiro Ito has updated our de jure financial openness index through 2016, with all the data located at here, in Excel and Stata files.

Figure 1: Ten year average change in normalized (0 to 1) Chinn-Ito index, 2006-2016. Source: Chinn-Ito and author’s calculations.
Data, documentation, all located here.

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Manufacturing Employment and Output

18 days ago

Today’s employment situation release depicted a picture of continuing recovery in the labor market. One interesting aspect is what is happening to the tradables sector, which I proxy with the manufacturing sector. There, the advance data indicate a slight decline.

Figure 1: Manufacturing production (NAICS) (dark blue), manufacturing employment of production & nonsupervisory workers (red), aggregate hours of manufacturing employment of production & nonsupervisory workers (green), all in logs, normalized to 2017M01=0. Source: Federal Reserve, BLS, via FRED.
One observation is not a trend, so of course, one wouldn’t want to infer too much from these data points. However, if manufacturing output follows employment, and next month’s employment numbers follow this month’s trend, then it’ll be

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“The United States is going to become the warehouse for global soybean supplies”

20 days ago

That’s a quote from Paul Burke, regional director for North Asia at the U.S. Soybean Export Council, in Time. He continues “This is the realization that we’re coming to within the trade within the last couple of weeks.”

The Chinese plan is — in addition to relying on Brazil and Argentina — to switch to other sources, like palm mill, rapeseed, sunflower seed, and other countries, such as Russia, Ukraine and Kazakhstan, for soybeans. Obviously, the development of other countries’ ability to grow soybeans will take time. But that was also true for Brazil.
There is some discussion that China might not need to rely on US soybeans even in the short term. From SCMP (August 2):
Ma Wenfeng, an analyst from Beijing Orient Agribusiness Consultant, said China had been importing far more soybeans

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The Trade Deficit Rises

20 days ago

From Goldman Sachs (Hatzius, et al.) today, interpreting today’s July trade release:
The trade deficit rose to $50.1bn in July, from a revised $45.7bn in June. Total exports fell 1.0%, as the total drop in exports ($2.1bn) was comprised primarily of declines in civilian aircraft ($1.6bn) and soybeans ($0.7bn). The decline in soybeans exports likely reflects payback following a sharp increase in June ahead of Chinese retaliatory tariffs. Total imports (+0.9%) rose, reflecting increases in both petroleum imports (+3.7%) as well as nonpetroleum imports (+0.6%).

The deterioration was in line with expectations, so no major impact on GDP predictions for 2018Q3 GDP. Figure 1 shows the nominal deficit, and normalized by GDP.
Figure 1: Nominal trade balance in billions $ SAAR (blue), as ratio to

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Trade Policy Uncertainty

22 days ago

My guess [1] is it’s gonna rise again (not that it’s particularly low right now)
Figure 1: Categorical Economic Policy Uncertainty — (blue), Trade Policy Uncertainty (red), 2005-2010=100. Source: PolicyUncertainty, accessed 9/3/2018.

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The Investment Boom…or Not

23 days ago

Fixed nonresidential investment is rising at a rapid clip. However, there are some nuances to the headline story.
Figure 1: Nonresidential fixed investment, in billions of Ch.2012$ (blue), and in billions of dollars (red), both SAAR, both on log-scale. Source: BEA, 2018Q2 2nd release.
Some sizable portion of recent investment is associated with the mining/drilling/fracking phenomenon.
Figure 2: Contributions to overall nonresidential fixed investment growth of structures investment in mining (red), and all else (blue). Source: BEA, 2018Q2 2nd release, and author’s calculations.
For the moment, investment looks like it should be sustained. However, should oil prices decline, or the spigot of cash diminish (see McLean/NYT today), then the support coming from this sector might disappear.

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Short Term Growth Prospects

24 days ago

Figure 1: GDP (blue), GDO (red), and GDPPlus (green), q/q SAAR growth calculated as log diferences, and GDPNow (blue square) and NY Fed Nowcast (blue open triangle). Source: BEA 2018Q2 2nd release, Philadelphia Fed, Atlanta Fed (8/30),NY Fed (8/31), and author’s calculations.

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Thinking about that Surge in Growth

25 days ago

Two points from the 2018Q2 2nd release: GDO is smoother, and a breakout has not yet appeared.

First, consider real GDP and real GDO (average of GDP and GDI) growth, q/q SAAR.
Figure 1: Real GDP growth (blue), and real GDO growth (red), both q/q SAAR, in log terms. Light orange shading denotes Trump administration. Source: BEA, 2018Q2 2nd release, and author’s calculations.
While the quarter-on-quarter GDP growth is high, it’s not unparallelled (see discussion in this post). In addition, GDO, which has shown itself to be a better predictor of revised values of GDP, indicates less rapid growth (see Justin Fox’s article today).
Second, returning to GDP, is there evidence of a breakout in growth? Consider recursive one-step-ahead regression residuals. OLS regressions
Δyt = const
are

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Trumpification of USDA?

25 days ago

The demolishment of technocratic and research groups continues.
From Politico (8/15):
Staff members at USDA’s Economic Research Service were blindsided by Agriculture Secretary Sonny Perdue’s decision to move the agency out of Washington, and agricultural economists are concerned the department’s economic research arm could be weakened by the changes.
When Perdue announced last week that ERS and the National Institute of Food and Agriculture would be relocated by the end of 2019 and that ERS also would be realigned with the Office of the Chief Economist, he cited anticipated cost savings, the ability to provide better customer service by operating closer to USDA’s constituents, and the opportunity to better attract and retain staff by sparing them from the high cost of living inside the

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