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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

Back to Zero

6 hours ago

Ten year TIPS yields that is; the 10yr-3mo spread is 4 bps.

Figure 1: Ten year – three month Treasury spread (blue), and Ten year TIPS yield (red), both in %. Source: Federal Reserve via FRED, Treasury, and author’s calculations.

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The Relative Price of Soybeans vs. Grains, 2014-2019

11 hours ago

Reader Ed Hanson insists I plot soybean prices from 2014 onward, instead of 2016, to show how factors other than tariffs affect soybean prices. I am happy to accommodate his request. I wonder why soybean prices suddenly deviate from grains overall, staring in March 2018.

Figure 1: CPI deflated PPI for soybeans (blue) and grains (brown), in logs 2018M03=0. Orange shading denotes period during which China Section 301 action is announced/implemented. Brown dashed line is when Chinese tariffs on US soybeans goes into effect. Source: BLS via FRED, author’s calculations.
I am pretty sure I’ve mentioned the dollar as a determinant of US agricultural export prices, years ago. Indeed, see here (nearly two years ago), inter alia.
What is remarkable is how — while showing all this tremendous price

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Have All Agricultural Commodity Prices Behaved As Did Soybean Prices?

1 day ago

That’s what reader sammy asserts, trying to support the proposition that Chinese retaliatory tariffs on imports of US soybeans had no impact on US soybean prices.
… chart of soybean prices there are a number of other commodity price charts, such as copper, wheat, coffee etc. They are unaffected by the tariff war yet are remarkably similar to the soybean chart.

That might be true over the past 45 years (I haven’t checked), but we’re talking about tariffs. Since metals are affected by drastically different factors than grains and oilseeds, I thought it might be useful to see what has happened to the relative prices of two ag commodities — soybeans (blue) and grains (brown) — since the announcement of Section 301 actions and corresponding Chinese tariffs.

Figure 1: CPI deflated PPI for

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What a Trump Trade Victory Looks Like: Soybeans

3 days ago

Back in July 2018, reader CoRev wrote:
…no one has denied the impact of tariffs on FUTURES prices. Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.
Back on March 23rd, when Mr. Trump announced intent to launch Section 301 actions, nearest month soybean futures closed at 1028. Latest today is 902. Indeed, prices have been falling since Mr. Trump signed the much heralded (by some) Phase 1 deal. This is shown in Figure 1 below.

Figure 1: Front month soybean futures (black). Trump announces intent of Section 301 action against China (red), Section 301 tariffs and Chinese retaliation in

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Manufacturing Employment Lags in Three Midwest States

4 days ago

Figure 1: Manufacturing employment in US (blue), and aggregate of Michigan, Pennsylvania, and Wisconsin (red), both in logs, 2018M12=0. December data preliminary. GM strike in October. Source: BLS, author’s calculations. 
Michigan, Pennsylvania and Wisconsin aggregate manufacturing employment 1% below peak. In contrast, nationwide manufacturing employment (total, including managerial) has been flat from September 2019.

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Spot the Incipient Recession

4 days ago

Most accounts these days suggest the risk of recession has abated, given the strength of various indicators, and the un-inversion of the yield curve. This made me wonder what two key indicators look like in real time on the eve of a recession. Take a look at these two graphs, to see which one denotes data just before a recession.

Figure 1: Nonfarm payroll employment, 000’s (blue, left log scale), industrial production (tan, right log scale). Each tick denotes a month. Red arrow and associated number denotes y/y growth rate, in log terms. Source: BLS, Federal Reserve via ALFRED.

Figure 2: Nonfarm payroll employment, 000’s (blue, left log scale), industrial production (tan, right log scale). Each tick denotes a month. Red arrow and associated number denotes y/y growth rate, in log terms.

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Guest Contribution: “Carbon Prices, not Monetary Policies, Are the Tools to Fight Climate Change”

4 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  January 17th.

Everyone agrees that Climate Change is one of the top one or two most important policy issues that we face – everyone except some Trump supporters who apparently believe that it is all a hoax.  Identifying the problem, however, is not much use unless we also identify the appropriate tools to address the problem.
Financial institutions
In my own field of specialization, central bankers [such as recently departed Bank of England Governor Mark Carney] have caught Climate Change fever.  Even the International Monetary Fund and the ECB have

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Judy Shelton to the Fed?

5 days ago

From the White House:

Well, this is a crazy nomination. Documentation:
Judy Shelton Confuses Me (Part 2,432,671)
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What Does Judy Shelton Believe GDP Growth and Inflation Are in 2019?
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Judy Shelton Confuses Me: On Interest Rates, Currency Manipulation
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“White House Considers Economist Judy Shelton for Fed Board”
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This Makes No Sense
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This graphic summarizes my feelings:

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A “Critique” of Confidence Intervals

5 days ago

Steven Kopits opines on statistics:
I don’t like confidence intervals for two reasons:

First, the word ‘confidence’ can be misleading. If the underlying data is bad, if the survey method is weak, if respondents lied, if the sample is not random (but not known to be so), and if the analyst cherry picks data, then the confidence interval can be wildly misleading. If the public reads ‘a 95% confidence interval’, then they think that surely the true mean must be within that interval in all likelihood. But that’s not what the CI means if any of the above mentioned conditions — bad data, bad survey, dishonest statistician — pertains. The only thing is says is that the CI for the calculation for data as it exists and was selected for inclusion yields that particular CI.
The second problem is

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Planes, Trains, and Automobiles – and Trucks

6 days ago

Figure 1: Freight Transportation Services Index (bold black), Truck Tonnage Index (tan), Vehicle Miles Traveled (green), Rail Freight Carloads (red), Rail Freight Intermodal Traffic (blue), Air Revenue Ton Miles of Freight and Miles (purple), all in logs, 2019M08=0. Source: BTS via FRED, and author’s calculations. 
All series are below peak.

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David Romer: “In Praise of Confidence Intervals”

7 days ago

That’s the name of a new NBER working paper, and a paper presented at ASSA (slides; I didn’t get to see myself). As I get to teach applied econometrics for public policy this semester, I thought this was interesting paper. From the abstract:

Most empirical papers in economics focus on two aspects of their results: whether the estimates are statistically significantly different from zero and the interpretation of the point estimates. This focus obscures important information about the implications of the results for economically interesting hypotheses about values of the parameters other than zero, and in some cases, about the strength of the evidence against values of zero. This limitation can be overcome by reporting confidence intervals for papers’ main estimates and discussing their

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Business Cycle Indicators as of Today

8 days ago

December industrial production (red line) adds to the (mixed) picture…

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (12/30 release), and author’s calculations.
As noted previously, employment is likely to be revised downward, based on QCEW trends. I redraw the figure using this implied series.

Figure 2: Nonfarm payroll employment implied by Quarterly Census of Employment and Wages (light bold blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in

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The US China Phase 1 Deal Interpreted: Break Thing, Claim to Fix Thing, Repeat

10 days ago

Through 2018M03, US exports to China were growing smartly. The Section 232 and Section 301 actions were announced. The “deal” essentially restores real exports to China to the pre-shock trend for 2020, above for 2021 (if you believe!).

If the commitments to the deal’s export provisions are upheld, then there is a quantitatively important impact, at least insofard as the US-China bilateral balance is concerned.
However, what if nothing had happened in the US-China trade war. Well, me might have gotten  to where we are supposed to be with the deal…

Figure 1: US goods exports to China, log transformed, seasonally adjusted using ARIMA X11, deflated by price index for all US commodity exports (blue), forecast based ARIMA(1,1,1) in logs 2016-18M03 (red), 90% prediction interval (gray lines),

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GAO: “Office of Management and Budget—Withholding of Ukraine Security Assistance”

12 days ago

From GAO today on “the drug deal”:
In the summer of 2019, the Office of Management and Budget (OMB) withheld from obligation funds appropriated to the Department of Defense (DOD) for security assistance to Ukraine. In order to withhold the funds, OMB issued a series of nine apportionment schedules with footnotes that made all unobligated balances unavailable for obligation.
Faithful execution of the law does not permit the President to substitute his own policy priorities for those that Congress has enacted into law. OMB withheld funds for a policy reason, which is not permitted under the Impoundment Control Act (ICA). The withholding was not a programmatic delay. Therefore, we conclude that OMB violated the ICA.
Full decision here.

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EconoFact: “What is the Toll of Trade Wars on U.S. Agriculture?”

12 days ago

By Menzie Chinn and Bill Plumley, at EconoFact, posted a few minutes ago:
U.S. agriculture has been caught in the tit-for-tat of the trade wars. Retaliation by China, Canada, Mexico, Turkey and members of the European Union to tariffs imposed by the Trump administration have taken a bite out of U.S. agricultural incomes. Tariffs on imports of steel and aluminum in the United States have also raised costs for machines, equipment and structures used by the agriculture sector. Agriculture incomes would have shown no growth in 2019 but for massive and unprecedented federal assistance. Even with this assistance, however, the agriculture sector shows signs of stress, with a rise in debt, a decrease in solvency and an increased number of bankruptcies.
Were it not for Federal government support,

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The “Deal”: Much Ado About Nothing

12 days ago

[unable to retrieve full-text content]Take a look at what exports to China will look like, with an additional $200 bn exports to China over two years, using the 2017 levels, as reported: [Graph correct 1/17, Avery Shenfeld at CIBC Capital Markets points out an error in previous version] Figure 1: US exports to China, bn$ at annual rate (blue), […]

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Navarro vs. Navarro

13 days ago

From WSJ today, an op-ed by Peter Navarro:
The national-security externalities associated with Trump trade policy may be even more  consequential. A case in point is the tariffs being used as leverage to defend America’s technological crown jewels from being forcibly transferred to Chinese companies—from artificial intelligence, robotics and autonomous vehicles to quantum computing and blockchain. These industries comprise the core of the next generation of weapons systems needed to repel threats from rivals like China, Russia and Iran. One must ask the antitariff forecasters: Where are the benefits of a freer and more secure American homeland counted in your models?
From Peter Navarro, The Policy Game (Wiley, 1984), p.82, on the national security/trade policy nexus.
National Security

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On the Eve of “The Deal – Phase 1” Signing

14 days ago

Currency manipulation or not? The Treasury’s semiannual foreign exchange report, released yesterday, says no, contra Mr. Trump’s statement a few months ago.

Treasury has been engaging closely with China over developments in the Chinese renminbi (RMB). China has a long history of facilitating an undervalued currency through protracted, one-sided intervention in the foreign exchange market and other tools. Over the summer, China took concrete steps to devalue the RMB. Subsequently, Treasury determined under Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 that China was a currency manipulator, given that the purpose of China’s devaluation was to gain unfair competitive advantage in international trade.
Intensive trade and currency negotiations between the United States and

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Is Employment Growth (a Lot) Lower Than We Think?

16 days ago

[unable to retrieve full-text content]Yesterday’s employment release indicated a deceleration in nonfarm payroll (NFP) employment growth. Data from other sources suggests that the deceleration over the last year is more marked than indicated by the establishment survey. First, consider the deceleration relative to 2017-18 (stochastic) trend, in Figure 1. Figure 1: Nonfarm payroll employment (bold blue), stochastic trend for […]

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Wisconsin, Minnesota and US GDP over the Walker Years

17 days ago

[unable to retrieve full-text content]State level GDP data for 2019Q3 are out today. If you were wondering, Wisconsin lagged both the US and Minnesota. Since 18Q4 (the last full Walker quarter), Wisconsin growth has matched Minnesota growth. Figure 1: Log real GDP for Minnesota (blue), for Wisconsin (red) and US (black), all normalized to 2011Q1=0. Light orange shading denotes […]

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Required Reading on the History of (Macro)economic Thought

19 days ago

Why was the financial crisis of 2008 so surprising to so many macroeconomists (but from my experience, a little less so for international finance economists familiar with financial crises in emerging markets…)? From the conclusion to George Akerlof’s “What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years” in the latest JEP.

The adaptation of The General Theory into the Keynesian-neoclassical synthesis neglected multiple vulnerabilities of the resultant model. Of course, there were reasons for this adaptation, prominently including a desire to build a professional consensus in support of activist Keynesian fiscal policy. By creating a model with an aggregate supply side that was classical in nature, and that allowed plentiful opportunities for

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Shouldn’t we win the trade war before beginning a shooting war?

21 days ago

From ASSA, take a look at the first paper’s abstract:
United States-China Trade Relationships
Chair: Heiwai Tang, Johns Hopkins University and Hong Kong University

Quantifying the United States-China Trade Conflicts

Jiandong Ju, Tsinghua University

Hong Ma, Tsinghua University

Zi Wang, Shanghai University of Finance and Economics

Xiaodong Zhu, Toronto University

 View Abstract

Structural Change and Global Trade

Logan Lewis, Federal Reserve Board

Ryan Monarch, Federal Reserve Board

Michael Sposi, Southern Methodist University and Federal Reserve Bank of Dallas

Jing Zhang, Federal Reserve Bank of Chicago

 View Abstract
 Download Preview (PDF, 432.77 KB)
Input Trade and Policy Uncertainty: Theory and Evidence from

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“Most important global event of 2020? The US election”

25 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. 

An interview question from Chosun Ilbo (the #1 Korean newspaper) for the New Year:   Which political event of 2020 should concern us the most? (E.g., the U.S. presidential election, the geopolitical crisis on the Korean Peninsula, Brexit…?)
My response:
Perhaps I am too US-centric.  But out of all events in 2020, I see November’s presidential election in the United States as warranting the greatest concern, not just for my home country but for the world.
The global system
To recap briefly a familiar story, in the 2nd half of the 20th century a majority of countries enjoyed a historic path of relative

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Year in Review, 2019: “Victory at IAD” and Other Alternative Facts

26 days ago

It’s the year that Donald Trump said  that in the war against Great Britain, “Our army manned the air, it rammed the ramparts, it took over the airports, it did everything it had to do, and at Fort McHenry, under the rockets’ red glare, it had nothing but victory,”

Hard for anything else to compare, but let’s try, starting with inveterate liars…
January. Stephen Moore, “economic analyst”:
February. Scott Walker’s knowledge of tax policy history on display
March. More from Stephen Moore, “economic analyst”
April. Ramesh Ponnuru confuses me…

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Business Cycle Indicators, End-2019

28 days ago

Here are some key indicators tracked by NBER’s Business Cycle Dating Committee:

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), all log normalized to 2019M01=0.  Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (12/30 release), and author’s calculations.
Industrial production remains nearly a percentage point below December 2018 levels, while manufacturing and trade sales are even with January 2019 levels. The other indicators’ growth rates have decelerated.
What about some other indicators. First, consider the Chicago Fed National Activity Index:

Figure 2: Chicago Fed National Activity Index (black),

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Dispatches from the Trade Wars

29 days ago

Net impact on employment from Trump’s trade war and associated retaliation:

Source: Flaaen and Pierce, 2019.

From Flaaen and Pierce:
Since the beginning of 2018, the United States has undertaken unprecedented tariff increases, with one goal of these actions being to boost the manufacturing sector. In this paper, we estimate the effect of the tariffs—including retaliatory tariffs by U.S. trading partners—on manufacturing employment, output, and producer prices. A key feature of our analysis is accounting for the multiple ways that tariffs might affect the manufacturing sector, including providing protection for domestic industries, raising costs for imported inputs, and harming competitiveness in overseas markets due to retaliatory tariffs. We find that U.S. manufacturing industries more

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Pictures from the Steel Trade War

December 27, 2019

Raw steel production is down, as is primary metal employment.

Figure 1: Primary metal production workers (NAICS 331), 000’s s.a. (blue, left scale), and raw steel production index (NAICS 3311, 2pt.), 2012=100 (brown, right scale), both on log scale. Light orange is Trump administration; orange is since implementation of Section 232. Source: BLS, Federal Reserve Board, via FRED. 
In 2015-17, it could be argued that the strong dollar drove the decline in employment in those years.

Figure 2: Primary metal production workers (NAICS 331), 000’s s.a. (blue, left scale), and real value of US dollar against broad basket of currencies, March 1973=100 (brown, right scale), both on log scale. Light orange is Trump administration; orange is since implementation of Section 232. Source: BLS, Federal

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Is California in Recession? (Part XVIII)

December 26, 2019

November employment figures are out. Time to re-evaluate this assessment from two years ago in Political Calculations 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. It’s (still) unlikely that a recession occurred in California.
On employment:

Figure 1: California nonfarm payroll employment (dark blue), civilian employment (red), in 000’s  s.a., on log scale. Source: BLS.
As recounted in a previous post, the household series (which Ironman in Political Calculations relied upon) is subject to

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Guest Contribution: “How Are Uncertainty and the Uncovered Interest Parity Condition Related?”

December 23, 2019

Today, we are pleased to present a guest contribution written by N.R. Ramirez-Rondan and Marco E. Terrones (Universidad del Pacifico).

There is well-established literature that documents the failure of the uncovered interest rate parity (UIP) condition. While a host of factors have been identified as possible reasons behind this result, the role of uncertainty is not fully understood. This column reports evidence that uncertainty is a key omitted threshold variable whose inclusion results in the UIP condition holding during low-uncertainty periods but does not during high-uncertainty periods.
Over the past four decades, the validity of the UIP condition has been extensively examined, but with mostly unfavorable results. Empirically, the UIP condition has been tested by regressing the

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