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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

Tracking the Current Recession

18 hours ago

Paweł Skrzypczyński has taken on the task of tracking what he calls the Covid-19 recession as the data come out:

So stay tuned to this site as the data roll in. (Note: the NBER Business Cycle Dating Committee has not yet declared a peak in economic activity, and is unlikely to do so for some time.)
Here’s my tracking of just 5 indicators from a few days ago (none of these series have been updated since):

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.  Manufacturing and trade sales for February assumed to be at stochastic trend for 2018-2020M01. Source: BLS, Federal Reserve, BEA, via

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And Here It Comes: There’s an early January PDB on the Novel Coronavirus

2 days ago

From ABC News today:
“Analysts concluded [a novel coronavirus pandemic] could be a cataclysmic event,” one of the sources said of the NCMI’s report. “It was then briefed multiple times to” the Defense Intelligence Agency, the Pentagon’s Joint Staff and the White House.
From that warning in November, the sources described repeated briefings through December for policy-makers and decision-makers across the federal government as well as the National Security Council at the White House. All of that culminated with a detailed explanation of the problem that appeared in the President’s Daily Brief of intelligence matters in early January, the sources said. For something to have appeared in the PDB, it would have had to go through weeks of vetting and analysis…
We need the PDB declassified and

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Reader Comment from March 9th

2 days ago

Bruce Hall, on Stephen Moore’s “roaring back” comment, about a month ago:
The situation is a prepper’s dream: market dropping with prices probably following as competition for any sales heats up, assets in gold and cash, a big stock of freeze-dried food, and a self-contained dwelling.
But realistically, once the real scope of the problem is understood and amelioration actions are effected, things will begin to normalize. That may be six weeks or six months, but Moore is probably right although “roaring” may be overstating the case. The economy did not “roar” back to life after the last major downturn. There may be significant re-thinking about supply chains and markets because of the vulnerabilities exposed by Covid 19. You know … eggs in one basket ….
Wow, oil below $30 around midnight,

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Guest Contribution: “It’s (Long Past) Time for a Eurozone Brady Plan”

3 days ago

Today we are fortunate to be able to present a guest contribution written by Mark Copelovitch  (University of Wisconsin – Madison).

The COVID-19 crisis highlights the long-term consequences of past Eurozone policy mistakes. If the Euro is go­ing to survive another crisis, now is the time for a comprehensive debt solution.
 Eurozone countries are facing yet another crisis, as they struggle not only with the tragic public health consequences of the COVID-19 pandemic, but also with the near-total sudden stop in the economy. The crisis, and the political debate over appropriate policy responses to it, have once again laid bare longstanding, fundamental problems in the Eurozone. The focus has rightly been on the immediate monetary and fiscal policy responses. But Eurozone countries’ ability

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Business Cycle Indicators, April 6, 2020

3 days ago

Five key indicators followed by the NBER BCDC, as of today:

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.  Manufacturing and trade sales for February assumed to be at stochastic trend for 2018-2020M01. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (3/26 release), and author’s calculations.

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The Current Crisis: SitRep and Interpretation Lecture

4 days ago

I was lucky enough to get assigned to coteach a macro course (with Charles Engel) this semester. However, as time passed, it seemed strange to go through the models without referring to current events — in my half of the course, I got to teach one lecture in person, and then had to switch to remote teaching –, so here is my digression from the syllabus, talking about — among other things — why a “V” recovery is not likely, contra Larry Kudlow, Stephen Moore, et al.

Source: Deutsche Bank, March 30, 2020.
Today’s presentation is here (I’m afraid narrated lecture restricted to enrolled students). Next lecture will go over recent models of the crisis.
Webpage for my half of the course, with link to first half.

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For These Times

6 days ago

If you despair of the administration bringing us safely through this test, then let this provide some hope, click here.

Elgar’s Nimrod Variation IX, from the Enigma Variations – musicians of the Calgary Philharmonic Orchestra and the Edmonton Symphony Orchestra.

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Comparing GDP, Employment to 2007

6 days ago

For my macro lectures next week:

Figure 1: Nonfarm payroll employment, in logs, normalized 2020M02=0 (blue), lagged and normalized 2007M12=0 (red). Source: BLS.

Figure 2: Real GDP, in logs, normalized to 2019Q4=0 (blue), Goldman Sachs 3/31 forecast (teal triangles), lagged and normalized to 2007Q4=0 (red). Source: BEA and Goldman Sachs.

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Ma, Rogers, Zhou: “Global Economic and Financial Effects of 21st Century Pandemics and Epidemics”

9 days ago

Addendum, A new paper by Chang Ma, John H. Rogers and Sili Zhou:
We provide perspective on the possible global economic and financial effects from COVID-19 by examining the handful of similar major health crises in the 21st century. We estimate the effects of these disease shock episodes on GDP growth, fiscal policy, expectations, financial markets, and corporate activity. Simple time-series models of GDP growth indicate that real GDP is 2.57 % lower on average across 210 countries in the year of the official declaration of the outbreak and is still 2.96 % below its pre-shock level five years later. The negative effect on GDP is felt less in countries with more aggressive first-year responses in government spending. Consensus forecast data suggests a pessimistic view on real GDP initially

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9 days ago

In the wake of the Covid-19 crisis, we wonder why we did not prepare adequately and efficiently. Trump has blamed China, Obama, the media, the governors, General Motors and the hospitals.
I suspect there are historical parallels, and someday we will see the documentation. Like below:

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Wisconsin Senator Ron Johnson Looks on the Bright Side

10 days ago

And argues against excessive debt accumulation.
From a USA Today op-ed:
Every premature death is a tragedy, but death is an unavoidable part of life. More than 2.8 million die each year — nearly 7,700 a day. The 2017-18 flu season was exceptionally bad, with 61,000 deaths attributed to it. Can you imagine the panic if those mortality statistics were attributed to a new virus and reported nonstop?

Current IHME projections (3/31) are for 84K [37K-153K 95% prediction interval] cumulative fatalities by 8/4, assuming current travel restrictions remain in place. The consensus from the suite of models examined by the White House task force seems to be in line with this estimate.
Senator Johnson also forwards the false choice posed between keeping the economy going and engaging in

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The Economy in a Time of Covid-19

11 days ago

Just finished a conversation on Wisconsin Public Radio “Central Time”. Here are some papers that informed my talk.

IHME projections
NY Fed on high frequency tracking
CBPP on CARES and what more needs to be done
Bown on Tariffs disrupted medical supplies critical to US coronavirus fight
Correia et al. Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu
Eichenbaum et al. The Macroeconomics of Epidemics
Atkeson, A note on the economic impact of coronavirus 
Atkeson, Lockdowns and GDP: Is there a tradeoff?
Update, 3/31:
NBER working papers on the Covid-19 pandemic

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Guest Contribution: “Black Swans Like COVID-19 are Forecastable”

11 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  March 27th.

Events like the COVID-19 pandemic of 2020, the US housing crash of 2007-09, and the terrorist attack of September 11, 2001, can be called “black swans”: in each case, few people were able to predict them reliably.  But they were known unknowns, not unknown unknowns.  That is, in each case, knowledgeable analysts were fully aware that such a thing could happen, even that it was likely to happen eventually.  They could not predict that the event would happen with high probability in any given year.  But the consequences of each of these

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EconoFact on the Covid-19 Pandemic

11 days ago

EconoFact has been providing insights into the current health/economic crisis. Here is a compendium:

Tracking the Pandemic’s Trajectory: COVID-19 Cases vs. Deaths in the U.S.
By Hoyt Bleakley·March 26, 2020

Policy Responses: Megan Greene and I point out in Policy Responses to the Economic Consequences of the Coronavirus
The precipitous nature this crisis demands an immediate response.
The tension between rapid economic recovery and public health.
The economic pain will be very unevenly shared.

Mortality rates for whom? We know the elderly are more at risk.  Who else faces an elevated risk of death? Phil Levine and Robin McKnight (Wellesley) draw lessons from the 1918 Spanish Flu pandemic in Lessons from the 1918 Flu Pandemic:
The poor suffer higher mortality than those who are better

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Guest Contribution: “Banks on the Brink”

13 days ago

Today we are fortunate to be able to present a guest contribution written by Mark Copelovitch  (University of Wisconsin – Madison) and David Singer (MIT).

“The peculiar essence of our financial system is an unprecedented trust between man and man; and when that trust is much weakened by hidden causes, a small accident may greatly hurt it, and a great accident for a moment may almost destroy it.” –Walter Bagehot (1873), Lombard Street: A Description of the Money Market, pp.158-9.
Why do banking crises occur? In our new book, Banks on the Brink: Global Capital Securities Markets, and the Political Roots of Financial Crises, we seek to understand why some countries are more prone to banking crises than other countries or at different times.
At the simplest level, banks collapse because

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Guest Contribution: “Macroeconomic nowcasting in times of Covid-19 crisis: On the usefulness of alternative data”

14 days ago

Today, we are pleased to present a guest contribution written by Laurent Ferrara (SKEMA Business School and QuantCube Technology), Alice Froidevaux (QuantCube Technology) and Thanh-Long Huynh (QuantCube Technology).

Nowcasting macroeconomic activity has proved extremely useful to track in real-time fluctuations of macro aggregates like GDP, inflation, consumption … Indeed, Quarterly National Accounts are generally published on a quarterly basis by Statistical Institutes, with a delay of release of about one or two months. For example, to be aware of the economic activity in the first quarter of the year (from beginning of January to end of March), we need sometimes to wait until mid-May, depending on the country considered.
This is why nowcasting tools have been developed in order to be

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Guest Contribution: “Charting This Crisis”

15 days ago

Today, we are fortunate to present a guest contribution written by Ashoka Mody, Charles and Marie Visiting Professor in International Economic Policy, Woodrow Wilson School, Princeton University. Previously, he was Deputy Director in the International Monetary Fund’s Research and European Departments. He is the author of “EuroTragedy: A Drama in Nine Acts,” recently updated with a new afterword.

On February 28, I wrote a piece with a premonition: “Italy: the crisis that could go viral.” With events moving so quickly, on March 10, I did a follow-up with a more urgent message: “Italy will need a precautionary bailout—a financial firewall—as the coronavirus pushes it to the brink.” A lifetime has passed since then. I had feared things might go badly but had no special insight into the

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Guest Contribution: “Oceans Apart? China and Other Systemically Important Economies”

16 days ago

Today we are pleased to present a guest contribution written by Hongyi Chen, Senior Advisor at the Hong Kong Institute for Monetary and Financial Research, and Pierre Siklos, Professor of Economics at Wilfrid Laurier University.

There is a long tradition in economics suggesting that each country’s economic policies should be governed by the motto: “keep your own house in order”. For example, the textbook depiction of a flexible exchange rate is that it acts as an absorber of external shocks thereby allowing each country to independently set monetary policy. Indeed, this can explain why small open economies such as Canada have supported floating exchange rates the longest.  However, even policy makers in Canada have recognized for some time that exchange rate shocks produce distinct

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Equity Wealth and Consumption

24 days ago

Figure 1: Household equity wealth, in billions dollars (blue, left log scale), and estimated based on Russell 5000 (blue triangle at 2020Q1), and consumption, in billions Ch.2012$ SAAR (red, right log scale). Source: Fed Flow of Funds, via FRED, BEA 2019Q4 2nd release, and author’s calculations.
Note that scales are in logs. The picture looks a lot worse in levels.
On the other hand, equities net worth is only about 18% of total net worth in 2019Q4.

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The Deterioration in the Economic Outlook

26 days ago

Goldman Sachs reported out their forecast. Don’t be deceived by the “snapback” in growth rates…the levels look grim.

Figure 1: GDP (black), CBO January 2020 forecast (gray), Goldman Sachs March 4 forecast (pink), Goldman Sachs March 15 forecast, all in bn.Ch.2012$, SAAR. Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook (January 2020), Goldman Sachs, and author’s calculations.

Note the 15 March forecast predates the Fed action going to the ZLB.
The probability of recession remains elevated.

Figure 2: Economic Policy Uncertainty index (blue, left scale), PredictIt odds of recession (red, right scale). Source:, PredictIt.

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CDC Estimates of the Covid-19 Toll

27 days ago

[Update – Figure added 3/14 1:30pm Central. Source: Torsten Slok, DB.]
From The Hill today:
One model from the Centers for Disease Control and Prevention (CDC) suggested that between 160 million and 210 million Americans could contract the disease over as long as a year. Based on mortality data and current hospital capacity, the number of deaths under the CDC’s scenarios ranged from 200,000 to as many as 1.7 million.
It found as many as 21 million people might need hospitalization, a daunting figure in a nation with just about 925,000 hospital beds.

In contrast, flu-related deaths this season are estimated to range between 20,000-50,000.
The article continues:
Another model built by experts at Resolve to Save Lives, a global health nonprofit, and the Council on Foreign Relations found

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Incomprehensible Analyses of Macroeconomic Effects

27 days ago

A tweet:
I am fine with govt. helping people pay bills. But the idea that the spending will actually increase GDP is the Keynesian argument that I find very misguided.
So, here it is useful to have a model discipline one’s arguments (textbook I’m using this semester, here, includes Classical as well as New Keynesian models). Fiscal stimulus, particularly some that have proposed, involves transfers (SNAP, unemployment insurance payments). Helping people pay bills presumably makes aggregate demand higher (by virtue of enabling greater consumption) than it otherwise would be. If there is slack in the economy (which is likely if lots of people can’t pay their bills), then higher aggregate demand will lead to higher output.
If higher demand results in higher production, that means that income

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The Multiplier Debate, Again

29 days ago

From Mr. Brian Riedl, in NRO:
The multiplier is small because, in the modern economy, idle savings are not common — even during a recession.

I don’t understand Mr. Riedl’s logic (see my puzzlement here), but I’ll just focus my comments on his reliance of Barro’s empirical assessment of the multiplier. I think it useful to survey the academic literature, particularly the recent research, rather than hang everything on one paper.
More systematically, we can do a meta-analysis. Here is the abstract from a paper published in Oxford Economic Papers:
I apply a meta-regression analysis to a unique data set of 104 studies on multiplier effects to derive stylized facts and quantify the differing effectiveness of the composition of fiscal impulses, adjusted for study design characteristics. Public

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Stephen Moore: “the market and the real economy will burst back to life”

March 8, 2020

Conditional on: “Once the confidence and the health of the American people is restored…”, as quote in The Hill today.

In some ways, this is not a falsifiable statement, since the target date of confidence restoration is unspecified. You can see some current forecasts in this post. Here is snapshot of the global PMI (from Ed Yardeni).

Here is a compendium of his previous predictions, including “Kansas is doing very well.”
Update 3/9, 2pm Central:
Here is the recording of Mr. Moore’s talk. Note he says “Once we get this thing contained…” I might be presumptuous in noting this, but I think Mr. Trump’s own health experts have stated that we are past containment and into mitigation…

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Forecasts and Output Gaps in the Wake of Covid-19 (as of early March)

March 8, 2020

No major economics agency or group has forecasted a recession in their baseline. However, forecasts are definitely being marked down.

Figure 1: GDP as reported (black), CBO January 2020 projection (blue +), Goldman Sachs baseline forecast (pink +), CBO estimate of potential GDP (gray), HP filter applied to 1986-2019 (brown), SAAR, in billions Ch.2012$, all on log scale. Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook, Goldman Sachs (March 4), and author’s calculations.
While no recession is forecast (Goldman Sachs has 0% growth in Q2, Deutsche Bank barely negative), the output gap goes negative in the GS baseline (using the CBO estimate of potential).

Figure 2: Output gap using CBO January 2020 potential (gray), Goldman Sachs baseline forecast relative to CBO January

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When Ideologues Talk Macro

March 7, 2020

From Mr. Riedl at Manhattan Institute:
I really hope the fiscal stimulus debate doesn’t gain momentum. Not only is it premature…..but I don’t have the writing bandwidth to remind everyone how Keynesian stimulus is an outdated theory (the multiplier is close to zero) with a terrible historical track record.

I’m pretty sure that many investment bank analysts are now predicting in at least one scenario one quarter of negative growth, so if not now, when? This argument takes on reinforced strength given the limitations on monetary policy.
But as someone who teaches macroeconomics (I’m not paid to blog on the subject), I have to take issue with the assertion that “the multiplier is close to zero”. In fact, I anticipated Mr. Riedl would write this comment, so in August of 2019, I wrote this

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Forward Looking Components of Economic Activity

March 5, 2020

Nonresidential fixed investment has been declining for three quarters, while equipment has been declining for two quarters. If Atlanta Fed nowcasts prove right for the current quarter, then as of 2020Q1, equipment investment will have fallen for three quarters (while nonresidential will still be below peak).

Figure 1: Equipment investment (blue, left log scale), nonresidential fixed investment (red, right log scale), in billions Ch.2012$. 2020Q1 figures are FRB Atlanta Nowcast estimates for 3/2/2020, via FRED. Source: BEA, 2019Q4 2nd release, FRB Atlanta, and author’s calculations.
The dropoff in industrial equipment is more recent, but more marked; 2019Q4 change was -13.4% SAAR (in log terms).

Figure 2: Industrial equipment investment (blue, log scale). Source: BEA, 2019Q4 2nd

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