Thursday , November 15 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

Odds on a Trade Truce: Soybean Edition

20 hours ago

The gap between US and Brazil soybean prices is (finally) shrinking:
Source: CNBC.
CNBC notes:
“Narrowing US-Brazil soybean price differentials imply greater market optimism on the potential for a Trump-Xi trade deal or at least a de-escalation of US-Sino trade tensions in advance of the G20. This positive sentiment stands somewhat in contrast to other asset markets, including equities,” the Citi strategists wrote.
The gap last week was 13-15% while the tariff implies a wedge of 25%, given durable tariffs and no tariff evasion.
Is the market justified in its optimism? This account from BI made me wonder.
[A]s soybean prices plummeted in August, and Trump threatened to hit China with more tariffs, Aistrope dropped his chores and jumped on a plane to China for a trade mission arranged by

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Always Learning: They Make 300 Feet White Bags

24 hours ago

For soybeans, among other things.
Source: Bloomberg. Notes: 300-foot plastic bags sit filled with soybeans and corn. Photographer: Daniel Acker/Bloomberg
End-of-September stocks.
Source: Bloomberg.
Note: The end-of-year salvation through higher prices has not materialized yet, at least in futures.
Thanks, Trump!

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Which Observation Is Not Like the Others: US Inward FDI Again

2 days ago

Plotting nominal dollar value of inward FDI understates the collapse in inflows. Here is the ratio to GDP, and — considering how FDI covaries with the stock market’s level — the real S&P 500 (As I recall, working on this topic during the dot.com boom, the dollar’s strength was the other important factor — but that hasn’t changed much over the last three years.)

Figure 1: Inward US bound FDI as a ratio to nominal US GDP (blue, left scale), and real S&P 500 (red, right scale). NBER defined recession dates shaded gray. Trump administration denoted by orange shading. Deflation using CPI. Source: OECD, BEA 2017Q3 advance via FRED, Robert Shiller, NBER, and author’s calculations.
Note that given the correlation between stock prices and FDI, I would’ve expected higher levels of inflows. If you

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Inward US Bound FDI

3 days ago

There’s been a drastic fall-off in inbound FDI.
Figure 1: Inward US bound FDI, in millions $ (blue), 2017$ (red). NBER defined recession dates shaded gray. Trump administration denoted by orange shading. Deflation using CPI-U. Source: OECD, NBER, and author’s calculations.
The decline in inbound FDI is remarkable given the buoyant stock markets around the world, and fast GDP growth globally.

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Origins and Challenges of a Strong Dollar

5 days ago

That’s the title of an op-ed appearing in Nikkei newspaper (日本経済新聞):

Chinn, as translated, in The Nihon Keizai Shinbun.
Over the past four years, the US dollar has exhibited noticeable strength. The dollar appreciated 17% in inflation adjusted terms from mid-2014 to the eve of the election; upon the election of Donald J. Trump, the dollar again jumped another 5% in anticipation of fiscal stimulus and the Fed’s interest rate response. Throughout 2017, as the Trump Administration struggled to deliver on tax cuts and an infrastructure program, the dollar faded – only to surge with the passage of the tax plan, and the Fed’s stated intent to raise interest rates. The dollar now stands 20% stronger than it began its ascent.
The sustained appreciation of the dollar, combined higher interest

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Out of Sample Regression Prediction of Mass Shooting Fatalities

6 days ago

Does a Trump dummy “work”? Reader sam writes:
i think you’re putting too much weight into too few observations.
Some things to make your analysis more convincing 1) show the if predictive accuracy increased with a trump dummy OUT OF SAMPLE or 2) try placing the ‘trump dummy’ variable a few months before or a few months after and see if that changes the coefs. i doubt you’ll see much of an effect.

I did (2). sam is wrong. I address (1) by estimating a regression 1982q4-2016q4:
f = -14.838 + 0.083pop f = -14.438 + 0.0835pop (corrected 11/10, 1:30 Pacific)
Adj.R2 = 0.08, N = 137, DW = 1.84, bold denotes significance at 10% msl using HAC robust standard errors.
Where f denotes mass shooting fatalities per quarter, pop is average monthly population in millions.
Here is a graph of actual

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Three Graphs and a Regression Equation

7 days ago

And we are less than one-third of the way through November.

Cumulative casualties seem to be rising at a faster and faster pace.
Figure 1: Cumulative mass shooting fatalities (dark red), non-fatal injured (pink), from 1982M08, through November 8, 2018.. Orange denotes 2017M01-2018M11, light orange 2016M11-2017M01. Source: Mother Jones, accessed 11/8/2018, and author’s calculations.
The frequency of mass shooting events seems to be increasing. A negative binomial count regression (estimated using QML) indicates 1.6 more events per month under Trump (estimate statistically significant a 1% msl).
Figure 2: Mass shooting event count, from 1982M08, through November 8, 2018.. Orange denotes 2017M01-2018M11, light orange 2016M11-2017M01. Source: Mother Jones, accessed 11/8/2018, and author’s

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Arkansas and Missouri Minimum Wage Increases Contextualized

8 days ago

Arkansas and Missouri voted to raise minimum wages. Time to worry? Here’s a graphical depiction of CPI-deflated minimum wage up to September, and into 2021.

Figure 1: Minimum wage for Arkansas (blue), Missouri (red) and Minnesota (green), all in 2017$, calculated using CPI-U. Observations for 2018M10- use CPI forecasts from CBO, cubic interpolation from quarterly to monthly. Source: Github, BLS via FRED, CBO, Budget and Economic Outlook, August 2018, and author’s calculations.
Notice while Missouri in particular faces a rapid increase in the real minimum wage, the actual level attained by 2021 is comparable to levels attained in 1980 (and won’t nearly match those in the 1960’s).
In addition, the rapidity of the ascent even in Arkansas does not match that of Minnesota in 2014. As

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“Inflation in Emerging and Developing Economies”

8 days ago

That’s the title of a new volume released today, edited by Jongrim Ha, M. Ayhan Kose, and Franziska Ohnsorge.
Figure 3.1.B from Ha, Kose, Ohnsorge.
Emerging market and developing economies, like advanced economies, have experienced a remarkable decline in inflation over the past half-century. Yet, research into this development has focused almost exclusively on advanced economies. Inflation in Emerging and Developing Economies (PDF, 23 MB) fills that gap, providing the first comprehensive and systematic analysis of inflation in emerging market and developing economies. It examines how inflation has evolved and become synchronized among economies; what drives inflation globally and domestically; where inflation expectations have become better-anchored; and how exchange rate fluctuations

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Why Kobach Lost

9 days ago

This graph of Kansas employment during the Brownback years is suggestive.
Figure 1: Kansas nonfarm payroll employment (dark blue) and civilian employment (pink), in thousands, s.a. Light green shading denotes Brownback administration; very light green shading denotes Colyer administration. Source: BLS, and author’s calculations.
Compare Kansas against her neighbor Missouri to see how far Kansas lagged as a consequence of Brownback’s policies.
Figure 2: Missouri nonfarm payroll employment (blue) and Kansas (red), in logs 2011M01=0. Light green shading denotes Brownback administration; very light green shading denotes Colyer administration. Source: BLS, and author’s calculations.
Or, it could be just the sheer mendacity, mean-spirited criminality, and quasi-fascism of the candidate.

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Time Series Evidence on the Minimum Wage Impact in Minnesota vs. Wisconsin

10 days ago

Is the partial derivative of fast food employment with respect to the minimum wage negative? Maybe, maybe not. Does a higher minimum wage decrease young adult employment? Maybe, maybe not. Does a higher minimum wage raise fast food restaurant prices? Not noticeably.These conclusions (reported in this working paper written by Louis Johnston and me) stand in contrast to those obtained by Noah Williams, and reported in this CROWE Policy Brief.

If one saw the following battery of graphs provided in the Policy Brief, one could plausibly think the answers to all three questions were unambiguously “yes”.

Well, the temptation to do “ocular regressions” is why academic economists do econometrics.
Let me elaborate. A paper critically influential to my education as an economist was Ed Leamer’s

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US Goods Exports and Trade Policy Uncertainty

14 days ago

At a minimum, trade policy uncertainty has risen. Whether that has resulted in the stagnation in exports is an open question.
Figure 1: Log ratio goods exports to GDP, both in Ch.2012$ (blue, left scale), and US trade policy categorical index (red, right scale). NBER defined recession dates shaded gray. Source: BEA 2018Q3 advance, policyuncertainty.com, NBER, and author’s calculations.
Update, 11/2, 7AM Pacific: The dollar obviously is of importance — confirmed by slowdown in exports in 2014.
I compare static fit 2009Q2-2018Q3 using standard regressors (Fed real dollar index, rest-of-world GDP from WEO, interpolated, all three variables in logs), time trend against same augmented with (level) of trade policy uncertainty. I get the following:

Measured uncertainty certainly seems to be

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Scenes from Artemisia: An Opera of Passion, Betrayal and Art

16 days ago

This Saturday, the Center for Contemporary Opera presents scenes from an opera composed by Laura Schwendinger, libretto by Ginger Strand.

Leonard Nimoy Thalia TheatreSaturday November 3rd, 2018 8pm2537 Broadway at 95th StreetNew York City
tickets
Conductor Sara JobinStage Director Fred AmbrosePianist Jerome Tan
Cast:
Artemisia Augusta CasoTommaso Blake FriedmanSusanna Jennifer SgroeAbra/Tuzia Anastasiya RoytmanElder 1 Daniel Folz-MorrisonElder 2 Kevin Johnson
Synopsis
Artemisia Gentileschi was born in Rome in 1593, the eldest child of the Tuscan painter Orazio Gentileschi and was one of the most important followers of the Caravaggist style. Artemisia Gentileschi achieved renown in an era when women painters were not accepted by patrons and was the first women member of the Accademia di

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Mass Shooting Casualties through 28 October

17 days ago

Regression 1982q4-2018q3:
f = -18.52 + 0.028pop + 5.182trump
Adj.R2 = 0.18, N = 144, DW = 2.07, bold denotes significance at 10% msl using HAC robust standard errors.
Where f denotes mass shooting fatalities, pop is population in millions, trump is a dummy variable for Trump administration.
One can interpret this as follows: a Trump administration quarter is associated with 5.2 greater fatalities from mass shootings, or 20.8 on an annualized basis. (Over 1982q4-16q4, the average frequency per quarter is 4.876). Inclusion of a deterministic time trend yields a negative coefficient on population, and a trump coefficient (4.093) significant at 11% msl.

Figure 1: Cumulative mass shooting fatalities (dark red), non-fatal injured (pink), from 1982M08. Orange denotes 2017M01-2018M10, light

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Wisconsin and Her Neighbors: Coincident Indices

21 days ago

Cumulative growth in Wisconsin since 2017M01 lags Illinois, according to estimates released today. And the 2018M09 Wisconsin index is below peak (nobody else in the region is).

Figure 1: Coincident indices for MN (blue), WI (red), IA (green), IL (black), IN (pink), and OH (purple), in logs, normalized to 2017M01=0. Source: Federal Reserve Bank of Philadelphia, and author’s calculations.
For a comparison using employment, see this post.

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Thankfully, “New Nafta” Has Saved Wisconsin Dairy!

21 days ago

Ooops. Jumped the gun. Actually Nafta 0.8 will only yield minor benefit to American dairy farmers. In the meanwhile, prices are plummeting…
Figure 1: November 2018 milk futures. Pink dashed line at Nafta deadline/agreement. Source: ino.com.
From Dairy Herd Management (August):
Another 382 dairy farms have left the business in Wisconsin this year through the first seven months of the year. That’s an attrition rate of 4.3%, and there are still five months to go.
The negative impact is hitting all sorts of farms. From Wisconsin State Journal:
Unlike past years, when just the smallest farms, with herds of 50 or fewer cows, were closing, some big farms with herds of more than 300 cows are also succumbing to the pressures of building debt with little equity, Basse said. “It all depends upon how

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Wisconsin and Her Neighbors

21 days ago

Bruce Hall takes issue with my post on Wisconsin’s employment growth, and writes (sarcastically):
Looks as if every state in the midwest is doing fine except Wisconsin.
Mebbe the unsarcastic interpretation is more correct. I let readers assess, based on these graphs.

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Fragile Inferences on Minnesota Minimum Wage Effects

23 days ago

An informal assessment of the impact of the minimum wage change suggests a large negative impact. Appearances can be deceiving. From a forthcoming working paper by me and Louis Johnston, a graph of the log ratio of MN employment in limited service eating establishments to Wisconsin (blue, left scale), and log ratio MN/WI minimum wage (red, right scale).
Figure 2: Log ratio of MN employment in limited service eating establishments to Wisconsin (blue, left scale), and log ratio MN/WI minimum wage (red, right scale). Source: BLS, author’s calculations.
Running a regression 1990-2018M07, one finds:
(emplMN-emplWI) = 0.026 – 0.053(minwMN-minwWI)
Adj.-R2 = 0.005, N = 343, DW = 0.03. bold denotes significance at the 10% msl using HAC robust standard errors.
Hence, the conclusion that the minimum

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US Treasury Yield Curve Website, Today…

24 days ago

Is it just me? I’ve tried 3 browsers and my iphone…

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx.
Or is there something SecTreas Mnuchin doesn’t want us to know.
Update, 10pm Pacific: For those curious, here is Friday’s yield curve.
Source: BondSupermart.

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Corey Lewandowski: “Fed is … a rogue agency”

24 days ago

That’s from a remarkable op-ed in The Hill by Corey Lewandowski. He also writes:

It is time for every institution in the federal government to get on the same page and promote policy that will accelerate the Trump economic recovery.
The logical implication of this statement is the “leadership principle” (auf Deutsch, “Fürherprinzip”). A reading of the history of the Deutsche Reichsbank (previously known as the Reichsbank) is in this regard quite useful. When placed in service of the Reich’s goals, personal possessions of enemies of the state could be seized and used as assets of the central bank. This would allow enhancement of the balance sheet, to be used in further stimulus of the economy.
So, you heard it here first: In economic policymaking, it should be “One people, one realm, one

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Guest Contribution: “Modeling Time-Variation Over the Business Cycle (1960-2017): An International Perspective”

27 days ago

Today, we are pleased to present a guest contribution written by Enrique Martínez-García (Federal Reserve Bank of Dallas), based on his forthcoming article in Studies in Nonlinear Dynamics and Econometrics. The views expressed here are those solely of the author and do not reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.

A sustained wave of globalization has led to deeper ties in the post-World War II period: The decision to terminate the convertibility of the U.S. dollar into gold in 1971 effectively ended Bretton Woods, ushering in a new era of fiat and free-floating currencies. The international monetary system has evolved since—removing the multilateral constraints of Bretton Woods (which fixed exchange rates and distorted the allocation of resources

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Guest Contribution: “China’s Q3 GDP Reportedly Slowed to 6.5%. Or Is It 6.4%?”

27 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.

Headlines today note a further slowdown in China’s growth. Newly announced GDP data give a preliminary estimate of 6.5 % in the 3rd quarter of 2018, relative to Q3 of 2017. The growth rate had been 6.7% previously.
The change is part of the long-term slowdown that, perhaps inevitably, followed the spectacular 10% average growth rate achieved by China from 1980 to 2010.
One thing that interests me in the reports is a particular (very wonkish) detail. For the US and most other countries, the quarter’s GDP is routinely reported relative to the preceding quarter, not relative to four quarters ago. Why do

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Q3 Chinese Growth

28 days ago

Q/q Chinese growth in 2018Q3 is estimated at 1.6% (not annualized), after downwardly revised 1.7% rate in Q2. Y/y growth was 6.5%. [1] [2]

Source: TradingEconomics.
There are two things to remember. First, reported GDP growth is implausibly smooth; even so, this is not proof that GDP is overstated. There is widespread belief that services are undercounted; hence the level of GDP might be higher than reported, even if the growth rate is lower. On this second count of growth rates, we might profitably refer to alternative estimates.
The Li Keqiang index (40% electricity consumption, 40% outstanding loan growth, 20% rail freight) is the most common reference. This index provides a different perspective.
Source: Ailing Tan.
Fernald, Malkin and Spiegel (2013) show that the Li Keqiang index

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Wisconsin Labor Force, Civilian, Total and Private Nonfarm Payroll Employment All Decline

28 days ago

August total NFP and private NFP also revised downward.
Figure 1: Wisconsin nonfarm payroll employment, from August release (blue), and September release (red), 000’s, s.a., on log scale. Source: BLS, DWD.
Figure 2: Wisconsin private nonfarm payroll employment, from August release (blue), and September release (red), 000’s, s.a., on log scale. Source: BLS, DWD.
The headline of today’s DWD release: “BLS Data: Wisconsin Adds Statistically Significant 35,900Private-Sector, 22,800 Manufacturing Jobs Over Year”. (Durable manufacturing declines by 400 in September over August, probably not statistically significant).

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Guest Contribution: “The role of debt dynamics in US household consumption”

29 days ago

Today, we are pleased to present a guest contribution written by Vincent Grossmann-Wirth and Clément Marsilli (Banque de France) summarizing their chapter in the book International Macroeconomics in the wake of the Global Financial Crisis edited by L. Ferrara, I. Hernando and D. Marconi. The views expressed here are those solely of the authors and do not reflect those of their respective institutions.

The US economy has experienced an unprecedented leveraging-deleveraging cycle over the last fifteen years. The ratio of household debt to disposable personal income rose continuously in the 2000’s, reaching a peak of 133% by the end of 2007, before a sharp decline. While consumer credit picked up rapidly after the Global Financial Crisis, housing debt dynamics remain far from pre-crisis

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The Fed: Drumpffeind

October 16, 2018

So sayeth Donald Trump today. From FoxBusiness:
“My biggest threat is the Fed,” Trump said on Tuesday during an interview with FOX Business’ Trish Regan. “Because the Fed is raising rates too fast, and it’s too independent,” he complained.
To recap, the Fed’s increase in interest rates is by most criteria fairly modest. Consider the implied Fed funds rate assuming no interest rate smoothing, the Laubach-Williams one-sided estimate of the real natural rate, and a target variable of 4 quarter PCE inflation.
Figure 1: Implied Fed funds rate, using CBO output gap, Laubach-Williams one-sided estimate of real natural rate, PCE 4 quarter inflation, and no interest rate smoothing. Source: Atlanta Fed.
If we use the traditional 2% real natural rate instead of the Laubach-Williams estimate, we get

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Ashok Mody at UW: “EuroTragedy: A Drama in Nine Acts”

October 15, 2018

On Wednesday, October 17.

Wednesday, October 17, 2018, 12:00PM – 2:00PMLocation: Grainger Hall, 975 University Avenue, Plenary RoomAsoka Mody, visiting professor in international economic policy at Princeton University, will discuss his recent book, followed by comments from La Follette School Professors Menzie Chinn and Mark Copelovitch.
Sponsored by the La Follette School of Public Affairs, Center for European Studies, University Lectures Fitch Fund, Department of Political Science.
Contact: [email protected].
Ashok’s guest posts here: A Program for Greece: Follow the IMF’s Research, The ECB and the Fed: A Comparative Narrative, The European Central Bank’s Lack of Accountability Has Consequences, and The ECB’s Strong Euro Problem

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N. Dakota “orphan soybeans” at 236 million bushels

October 14, 2018

That’s from WaPo. In 2017, the US exported 1.2 billion bushels to China: North Dakota’s orphan soybeans today are nearly 1/5 of total sales to China in 2017…
“Lots of guys will be scrambling,” said Joe Ericson, a grower who operates a 5,000-acre farm near Wimbledon. “It’s going to be a struggle. This year might not be as bad because a lot of guys have forward-contracted a lot of this year’s crop already. But if it goes into next year, it could be tough for soybean.”
Peterson has about 25 percent of his crop under contract with a buyer and will store the rest. Many farmers in the region have begun dusting off old bins for storage. Others are hoping to build new storage facilities for the overflow, but steel and aluminum tariffs have driven up construction costs.
“We’re getting hit by both

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Guest Contribution: “The New NAFTA”

October 12, 2018

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.

Donald Trump thinks he once again pulled off a smashing victory on October 1, delivering on his oft-repeated campaign promise to terminate NAFTA, “the worst trade deal ever,“ and replace it with something much newer and better. One is tempted to say to oneself, “Let him think that.” The US-Mexico-Canada Agreement may not be an improvement over the status quo, but at least it is an improvement over the end to free trade in North America which he had threatened.
By now, a Trump modus operandi has come into view. First you threaten to blow up the world,

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