Saturday , October 31 2020
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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

(Non)Diversity in Econoblogging

2 days ago

The issue of diversity in economic discourse has occupied a prominent place over the past few years. The AEA has had long running initiatives to broaden the diversity of individuals in the economics professions, along gender, racial and ethnic lines, but it’s fair to say they have become much more visible as the debate has waxed: https://www.aeaweb.org/resources/best-practices . The last AEA conference had a panel devoted to the topic of racial diversity (video) . A good summary of the argument for promoting diversity in the economics profession is provided by Janet Yellen. A forceful statement on the economics professions gender diversity problem is here.
What about the EconoBlogosphere (or what remains of it)?

It’s hard for one person to do a comprehensive evaluation, so I’ll use

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What Are Current Borrowing Costs for the Federal Government?

3 days ago

Remember Δbt = (r-g)bt-1 + deft , where b is debt/GDP, r is the real interest rate, g is the GDP growth rate, and def is the primary budget deficit/GDP ratio. What’s r?

Figure 1: Ten year constant maturity Treasury yield (black), WSJ October survey mean forecast (green +), CBO July projection (red), and ten year TIPS (teal), all in %. October 2020 is data through 10/26. Source: Federal Reserve via FRED, WSJ, and CBO.

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Guest Contribution: “The Relative Performance of the U.S. Federal Debt”

4 days ago

Today we are fortunate to have a guest contribution by Sam Williamson, Emeritus Professor of Economics at Miami University, and President of Measuring Worth. This is the second post in a series; the first post is here.

It is not surprising that the largest increases in the debt were during the terms of Wilson and FDR who were financing the two World Wars and both were Democrats. Between the wars and after, the attitude was to reduce the debt by running surpluses to pay off the war borrowing.

In January 1956, Eisenhower was to say “In this connection, I should mention our enormous national debt. We must begin to make some payments on it if we are to avoid passing on to our children an impossible burden of debt.”  On that day, the per capita debt was $1,600, today it is over $200,000.

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Guest Contribution: “The Relative Economic Performance of the Trump Administration”

5 days ago

Today we are fortunate to have a guest contribution by Sam Williamson, Emeritus Professor of Economics at Miami University, and President of Measuring Worth.

When the estimates of Gross Domestic Product (GDP) for the third quarter come out on October 29, they are likely to show a significant growth in the economy compared to the second quarter. If so, we can expect statements by President Trump and his supporters about how great the economy has performed during his term and another tweet claiming that electing Vice President Biden “Will kill your Stocks, 401k’s, and the ECONOMY. BIG CRASH!” As an alternative you have a forecast from Goldman Sachs that says “A blue wave this November led by Democratic presidential nominee Joe Biden would lead to a surge in economic growth.”
How do you

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Yet More Economists against Trump

8 days ago

In addition to previous open letters, here is one released today, with over 750 signatories:

We, the undersigned economists, strongly urge voters not to re-elect Donald Trump on the following grounds:

His chaotic and ineffective approach to negotiation has damaged relations with trade partners, interrupted supply chains, degraded international norms, and harmed American farmers — all without achieving his stated goal of reducing the trade deficit. Even his landmark trade deal, the USMCA, is not projected to have a meaningful impact on either GDP or the trade deficit.

His managerial incompetence has damaged the credibility and effectiveness of the public sector. Agencies cycle through acting heads, disgruntled former staffers frequently appear in the media with dire warnings, and

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Labor Force Developments

8 days ago

Nationwide, labor force down 2.7% from February, and down 2.4% from year ago.

Figure 1: Civilian labor force, 000’s, s.a. Red arrow denotes year-on-year decline. NBER defined recession dates. A NBER peak was declared for February 2020. Source: BLS via FRED, NBER, and author’s calculations.
In other words, the labor force declined in September, indicating that the labor market recovery has at a minimum slowed, and the scarring effects are getting more pronounced as more people drop out of the labor force administratively defined. (One has to be careful about inferring trends from m/m changes, particularly at the statewide level when it comes to household survey based figures.)
Two days ago, state statistics — which are subject to greater measurement error and calculated using a different

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Alan Blinder on the Biden Agenda

8 days ago

The Center for Research on the Wisconsin Economy (CROWE) sponsored a series of talks on the election and economic issues. Yesterday’s talk was by Princeton’s Alan Blinder (former CEA member, former Fed Vice Chair). His talk with Q&A is here (YouTube).
Other visitors included Lee Ohanian, Diane Whitmore Schanzenbach, Casey Mulligan and Brian Riedl (Manhattan Institute).
[Econbrowser on Ohanian,  Mulligan, and on Riedl.’

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Covid-19 Hospitalizations, Fatalities Trending Up

9 days ago

Two days ago, reader Bruce Hall wrote:
Cases continue to escalate; deaths do not; hospitalizations are basically level. The hyperbole around cases is unfortunate because infections are not categorized for action since asymptomatic to severe are lumped together.

Mr. Hall should revise and extend his remarks.

Figure 1: Covid-19 related current Hospitalizations (blue, left scale), fatalities, seven day moving average (red, right scale). Source: Covid Tracking Project, accessed 10/22/20.
Given previous observable correlation between lagged hospitalizations and fatalities, my guess is we will see fatalities continue to trend upward for some time.

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Covid-19 Fatalities and Excess Fatalities

9 days ago

The most recent “excess fatality” count remains solidly in the positive region, despite the severe under-reporting bias in the most recent observations. To see this, consider the most recent estimates for each of the previous vintages of “excess fatalities” calculated as actual-expected.

Figure 1: Excess fatalities, 10/21 vintage (chartreuse), 10/7 vintage (purple red), 9/30  vintage (violet), 9/23 vintage (chartreuse), 9/16 vintage (red), 9/9 vintage (green), 9/2 vintage (orange), 8/25 vintage (blue). Note excess fatalities differ from CDC series which are bounded below at zero. Source: CDC , various vintages, and author’s calculations.
This pattern suggests to me we should take with circumspection (1) the most recent counts of excess fatalities as they are likely to be revised

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Guest Contribution: “Post COVID-19 Exit strategies and Emerging Markets Economic Challenges”

10 days ago

Today, we are pleased to present a guest contribution written by Joshua Aizenman (University of Southern California) and Hiro Ito (Portland State University) . 

The pandemic of the new corona virus, COVID-19, wreaked havoc of the global economy in 2020. According to the International Monetary Fund (IMF), as of June 2020, the world economy’s GDP is predicted to shrink by 4.4% in 2020, the largest shrinkage since the Great Depression of the 1930s. To calm financial markets and avoid a possible free fall into a Great Depression, many countries, especially AEs, mobilized policy resources. The stimulus packages among AEs have amounted to about $4.2 trillion in 2020, leading these economies to run budget deficits of almost 17% of their GDP. Their central banks rapidly expanded balance sheets

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Some People Think Covid-19 Hospitalizations Are Level

10 days ago

Reader Bruce Hall writes yesterday:
Cases continue to escalate; deaths do not; hospitalizations are basically level. The hyperbole around cases is unfortunate because infections are not categorized for action since asymptomatic to severe are lumped together.

I do not think this assertion regarding current hospitalizations are correct (and by definition, those are not asymptomatic cases, so the argument against using cases numbers does not apply). And where hospitalizations go, fatalities have usually followed.

Figure 1: Covid-19 related current Hospitalizations (blue, left scale), fatalities, seven day moving average (red, right scale). Source: Covid Tracking Project, accessed 10/20/20.

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Fiscal Policy Efficacy in Times of Covid

11 days ago

Just in time for the module on fiscal policy in my macro policy course, multipliers in a time of Covid-19. From a CBO working paper by Selsiki, Betz, Chen, Demirel, Lee, and Nelson, “Key Methods That CBO Used to Estimate the Effects of Pandemic-Related Legislation on Output”.

Table 2 reports the ranges for a period of economic slack (empirical evidence in support of recounted in this New Palgrave survey article on multipliers), and then the adjustments made for social distancing.

Source: Selsiki, et al. (2020).
The “direct effect” varies by measure (purchases of goods and services vs. unemployment insurance enhancement vs. PPP).

Source: Selsiki, et al. (2020).
Noteworthy is the fact that the demand multiplier for the Paycheck Protection Program is quite small; however, if we are

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Business Cycle Indicators, 16 October

15 days ago

With the release of industrial production figures today, the deceleration in economic activity continues, according to some key indicators noted by the NBER’s Business Cycle Dating Committee (BCDC).

Figure 1: Nonfarm payroll employment (dark blue), Bloomberg consensus for October as of 10/16 (light blue square), 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 2020M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (10/1 release), NBER, Bloomberg, and author’s calculations.
Industrial production fell -0.6% m/m vs. Bloomberg consensus of +0.5%. The series was revised upward in August, so the level of industrial production

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Wall Street vs. Academics on Q3 and Q4

16 days ago

Given apparent gridlock in Washington – that is the gap between the administration and Senate Republicans on phase 4 recovery package – Wall Street economists and academics see the recovery somewhat differently. From the Initiative on Global Markets/FiveThirtyEight Covid panel round 10 survey (released October 12).

Figure 1: GDP actual (black bold), WSJ October survey mean (red), and IGM/Fivethirtyeight Round 10 survey median (blue). Source: BEA 2020Q3 advance, WSJ survey, IGM/Fivethirtyeight Round 10 survey, and author’s calculations.
Once again, the results are not quite comparable since the WSJ survey consensus is a mean, and the IGM/538 consensus is a median, but you get the idea (using the WSJ median makes that trajectory a bit more optimistic).

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Wisconsin Employment in September

16 days ago

Statistics released by Wisconsin DWD show nonfarm payroll employment growing in line with US, but — like at the national level — at a decelerating pace.

Figure 1: Nonfarm payroll employment in Wisconsin, September release (brown), Economic Outlook forecast of June (teal), author’s forecast based on August release of state and September release of national employment (brown box), in 000’s, s.a. Source: BLS, DWD, Wisconsin Economic Outlook (June 2020), and author’s calculations.
June through September month-on-month annualized growth has declined from 59% to 14% to 17% to 11%.
I used a first-log-differences specification between Wisconsin and national employment over the 2019-2020M08 period to forecast August employment. For September, the forecast error was 13072 (underpredicted by

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Wisconsin Covid-19 Trends

16 days ago

This graph is for those who believe reports of negative outcomes Wisconsin are “fake news”.

Figure 1: Wisconsin current Covid-19 hospitalizations (blue, left log scale), fatalities as of date reported (red, right scale). Source: Covid Tracking Project, accessed 10/14/2020.
From Wisconsin State Journal (10/13/2020):
Citing inaction by the state Legislature, a St. Croix County judge on Monday rejected a request by a conservative legal group for a temporary injunction against Gov. Tony Evers’ statewide mask mandate.

The GOP-led Legislature has met once since the pandemic began, in April, to take up legislation in response to COVID-19. Lawmakers and Evers ultimately signed what officials on both sides of the aisle described as “imperfect” legislation.

The package aimed to complement

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For the Record: Covid-19 Hospitalizations, Fatalities

21 days ago

Covid-19 related current hospitalizations are up; administratively defined fatalities are up slightly. However the pattern displayed in figure 1 is unsettling (a rejoinder to all those folks who think hospitalization is falling, and think cases rising is merely a reflection of more testing; e.g., here).

Figure 1: Hospitalizations associated with Covid-19 (blue, left scale), and fatalities due to Covid-19 (red, right scale), both 7 day trailing moving averages. Source: Covid Tracking Project, accessed 10/10/2020, and author’s calculations.

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Nowcasts Compared

21 days ago

NY Fed, Atlanta Fed, St. Louis Fed, and IHS Markit released nowcasts today.

Figure 1: GDP in bn. Ch.2012$ SAAR (black), Atlanta Fed GDPNow (blue), NY Fed nowcast (blue), St. Louis Fed nowcast (chartreuse), IHS Markit nowcast (red), Bloomberg consensus. Source: BEA 2020Q2 3rd release, Atlanta Fed, NY Fed, St. Louis Fed, IHS Markit, Bloomberg, author’s calculations.
The NY Fed nowcast of growth is substantially lower than that of Atlanta Fed’s GDPNow. In normal times, with 21 days to the advance release, one would put greater weight on GDPNow.

Source: Luzzetti, et al. “Tracking the GDP trackers,” Deutsche Bank US Economic Perspectives, 24 July 2019.
Jim Hamilton described how the NY and Atlanta Fed nowcasts differ:
The forecast the two approaches start the quarter with is one of the key

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Covid-19: Excess Fatalities vs. Administrative Counts

22 days ago

In contrast to earlier weeks, the most recent “excess fatality” count is solidly in the positive region, despite the severe under-reporting bias in the most recent observations. To see this, consider the most recent estimates for each of the previous vintages of “excess fatalities” calculated as actual-expected.

Figure 1: Excess fatalities, 10/7 vintage (purple red), 9/30  vintage (violet), 9/23 vintage (chartreuse), 9/16 vintage (red), 9/9 vintage (green), 9/2 vintage (orange), 8/25 vintage (blue). Note excess fatalities differ from CDC series which are bounded below at zero. Source: CDC , various vintages, and author’s calculations.
This pattern suggests to me we should take with circumspection (1) the most recent counts of excess fatalities as they are likely to be revised

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This Time Was Not Different

22 days ago

Revising notes on recession prediction for my course, I find the 10yr-3mo spread has preceded 7 of the last 8 recessions (8 if the 14 bps near inversion of mid-1989). And back in June 2019, recession seemed not unlikely.

Figure 1: Ten year minus three month Treasury spread, % (constant maturity) (dark blue), ten year minus two year (red). NBER defined recession dates shaded gray; assumes last trough in April. Source: Federal Reserve Board via FRED, NBER, and author’s calculations.
Of course, there is a false positive if you go back to 1965…
Using the most plain-vanilla of specifications, a probit regression on the 12 month lagged 10yr-30mo spread estimated over 1960M01-2019M01period  (for recession indicator variable going up to 2020M01), I obtain the following recession probabilities

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Wisconsin Alumni Assn/La Follette School/Elections Research Center panel: “Foreign Relations, Trade, & Policy: 2021 and Beyond”

23 days ago

On Oct 12, 7-8:30pm Central:
Moderator: Susan Webb Yackee — director of the La Follette School of Public Affairs
Panelists:
Menzie Chinn — professor of public affairs and economics
Mark Copelovitch — professor of political science, public affairs, and international relations
Tana Johnson ’01 — associate professor of public affairs and political science
Jon Pevehouse — Vilas Distinguished Professor of Political Science: International Relations
Register here.

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WSJ October Survey: Q3 Growth Revised Up, Q4 Down

23 days ago

In levels (incorporating revisions to actual GDP):

Figure 1: GDP as reported in 2020Q2 3rd release (black), WSJ April survey (tan), May survey (green), June survey (red), July survey (pink), August survey (blue), September (brown), and October (chartreuse), all in billions Ch.2012$, SAAR, all on log scale. Source: BEA, various vintages, WSJ survey, various vintages, author’s calculations.
The three most recent forecasts are for rising levels of Q4 GDP — arising partly from higher reported Q2 GDP at each revision, and mostly from upwardly revised estimates of Q3 growth (even as Q4 is revised downward). GDP does not exceed previous peak level until 2021Q4, according to the mean survey response.
The most optimistic forecaster (for the remainder of 2020) remains the ever consistently

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Deal/No Deal

24 days ago

Macro (GDP) implications of “no deal”.

Not sure there’s any specific comparison, but I can show the Goldman Sachs forecast from early September (in the WSJ survey) and the “no deal” forecast from a couple weeks ago.

Figure 1: Actual GDP (black), Goldman-Sachs early September forecast (blue), Goldman-Sachs “no deal” forecast of 23 Sept. (red). Growth rates applied to relevant level of GDP. Source: BEA, WSJ September survey, Goldman-Sachs, and author’s calculations.
The growth rate in the GS early-September forecast for Q4 is cut in half (6% to 3%, SAAR) in the no-deal scenario; of course, there are other things changing, but this probably gets at a general magnitude of effect.

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Wall Street Votes on Ending Covid Package Negotiations

25 days ago

The Hill (posted at 3:01 EDT):
President Trump said Tuesday that he has instructed his top aides to stop negotiating with House Speaker Nancy Pelosi (D-Calif.) on future coronavirus stimulus legislation until after the November election.
The Dow Jones:

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Economists for Biden-Harris

25 days ago

More than 200 economists have signed a letter of support for Joe Biden and KamalaHarris. Signers include Nobel Prize winner Joseph Stiglitz, Laura Tyson,William Spriggs, Claudia Goldin, Robert Reich, Robert Gordon, Ebonya Washington, Jeff Sachs, and Emmanuel Saez. The letter contends that the U.S. is facing a series of simultaneous major crises — health, economic, and political — and that only strong national leadership from the Biden-Harris ticket supported by a grassroots democratic movement can address these crises and create an economy that works for all Americans.

From the letter:
The Biden-Harris program includes:
Raising the minimum wage to $15 an hour and supporting worker rights 
Guaranteeing health care for every American by offering a public option and extending Medicare to

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Synergy in Wisconsin

27 days ago

College re-opening or disdain for masks…or both! From WSJ:
Some public-health officials say they suspect that the large number of socially inclined students returning to the state at the end of August and start of September worked in tandem with another dynamic: a large number of state residents who don’t wear masks, they say, because many communities don’t require them or don’t enforce orders requiring them.

Regarding the effectiveness of local mandates:
In Dane County, home to UW-Madison, Katarina Grande, with Public Health Madison & Dane County, said her agency’s public-health policies—including a mask mandate, bars closed to indoor patrons and a prohibition on off-campus parties—can only do so much because neighboring communities have less stringent rules.
“We don’t allow gatherings

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Guest Contribution: “Will the Coronavirus Spur Action on Climate Change?”

28 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 and The Guardian.

From early on in this pandemic, a common reaction has been “at least, maybe now we will get serious about addressing climate change.”  One can see the logic.  The terrible toll taken by Covid-19 should remind us of the importance of three things: the need for science, the role for public policy, and the usefulness of international cooperation.  With these three revelations firmly in mind, we can see that we also need them to respond to the problem of climate change.  We should listen to the scientists who have been warning for decades

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A Funny Forecasting Story

28 days ago

Last night, I knew I was on tap to talk about Wisconsin GDP numbers today (Wisconsin Public Radio report here). I wondered what a naive forecast would imply, so I regressed first difference of log Wisconsin GDP on first difference of log US GDP and a lagged Wisconsin GDP first difference, to obtain this forecast…(red square)

Figure 1: Wisconsin GDP, latest release (black), and previous vintage (gray-red), and forecast based on previous vintage (red square) and 95% confidence interval (gray +), all in millions of Ch.2012$, SAAR. BEA, and author’s calculations.
Using the data in plotted as the gray-red line, I forecasted out-of-sample Wisconsin GDP for 2020Q2 shown as the red square. The 2020Q2 forecast error was -0.0015 (-0.15%), or 419 million Ch.2012$ SAAR — barely anything!
But the

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