Monday , March 25 2019
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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

Update: Mr. Stephen Moore’s Peer Reviewed Journal Articles

3 days ago

Below are the peer-reviewed journal articles authored or co-authored by Stephen Moore, CNN “economic expert”:

 
 
 
 
 
This list might be incomplete.

His non-peer reviewed articles/books include the annually published Rich States, Poor States, and the associated Laffer-Moore-Williams economic outlook ranking. My assessment of the empirical relevance of their index is in this post.

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Inversion!

3 days ago

Of the 10yr-3mo spread.

Source: Bloomberg.
For context, see what has happened each time an inversion of 10yr-3mo has occurred.

Figure 1: 10 year-3 month Treasury term spread (blue), 10 year-2 year Treasury term spread (red), March 2019 observations for 3/22 noon, all in %. Three month rate is secondary market. NBER defined recession dates shaded gray. Source: Federal Reserve via FRED, Reuters, NBER and author’s calculations. 
For the implications, see Chinn and Kucko (2015). See also Klein (2018).
For implications for emerging markets, see Mehl (2006).
I hear that Mr. Trump is going to nominate Stephen Moore to be Fed governor. God help us all.
Update, 6pm Pacific: Market expectations of a Trump recession jump 0.37 to 0.40.

Source: PredictIt, accessed 22 March 2019 9PM Eastern.

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MMT for the ADD

4 days ago

I’ve written up a draft set of notes for my undergraduate macro students. Here is my interpretation of Modern Monetary Theory for them. Comments welcome.
This post is for those who are unable to read an entire completely verbal exposition regarding Modern Monetary Theory (MMT). MMT has been the source of some debate recently. Instead of critiquing the literature, I attempt to illustrate the approaches for “paleo-Keynesians” relying on Wray (2011), Bell (1998), and the interpretations by mainstream macroeconomists Rowe (2011).
The main components of MMT are:
The interest sensitivity of investment is zero.
High powered money finances government spending.
If a government can borrow in its own currency, that is a sovereign currency which will be demanded elastically.
Below potential output,

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Self-Professed Policy Analyst Predicts Minimum-Wage Induced Employment Disaster [CORRECTED]

7 days ago

[Graph corrected 3/18 of 3/15 post– apologies to all for the error of using NY-wide series in the earlier post] New York City. Inveterate commenter Steven Kopits cites an article from some publication called “Liberty Nation”:

76.50% of full service restaurant respondents reduced employee hours, and 36.30% eliminated jobs in 2018, in response to mandated wage increases. 75% of limited service restaurant respondents report that they will reduce employee hours, and 53.10% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31, 2018.
This is a pretty faithful summary of the report by the NYC Hospitality Alliance. I thought that instead of citing (unweighted) statistics, it might be useful to look at data, to see what actually happened (as opposed

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Self-Professed Policy Analyst Predicts Minimum-Wage Induced Employment Disaster

9 days ago

In New York City. Inveterate commenter Steven Kopits cites an article from some publication called “Liberty Nation”:

76.50% of full service restaurant respondents reduced employee hours, and 36.30% eliminated jobs in 2018, in response to mandated wage increases. 75% of limited service restaurant respondents report that they will reduce employee hours, and 53.10% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31, 2018.
This is a pretty faithful summary of the report by the NYC Hospitality Alliance. I thought that instead of citing (unweighted) statistics, it might be useful to look at data, to see what actually happened (as opposed to what restaurateurs thought would happen, at the end of December). So, below, are outcomes:

Figure 1: New

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Guest Contribution: “The ECB has reached the end of its rope, leaving the eurozone with few options”

11 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.  
 

It seems a puzzle why, at its March 7 meeting, the European Central Bank indulged in sedate tinkering despite the mounting risk of a damaging eurozone recession. The puzzle has a simple answer. The ECB has reached both political and technical limits. It offers mainly words, in particular a recurring promise to aggressively use its “instruments” if economic weakness “persists.” Left with no options, the ECB must define the problem as lying in the future, not in the present. Hence,

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The Administration’s GDP Forecast, Compared

11 days ago

The President’s budget document included a table (S-9) including GDP forecasts (q4/q4). How much of an outlier are these forecasts? I let readers decide.

Figure 1: GDP as reported (black), Administration forecast (red squares), CBO January forecast (blue) and forecast from ARIMA(1,1,1) estimated over post-recession period, with plus/minus one standard error, all in bn.Ch.2012$ SAAR Source: BEA initial 2018Q4 release, President’s budget, CBO Budget and Economic Outlook January 2019, and author’s calculations.
The Administration forecast is noticeably above the CBO’s forecast (conditioned on current law), even for the current year. (And the WSJ February survey consensus is for about 2.2% q4/q4 growth vs. 3.2% from Administration). By end of 2025, one can conclude that the Administration’s

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Open for Business Wisconsin Compared against Multiethnic Socialist Heckhole California

12 days ago

California GDP has grown a cumulative 13 percentage points more than Wisconsin over the Brown and Walker years. Employment, 10 percentage points…

Regarding GDP:

Figure 1. Real GDP for California (blue), and for Wisconsin (red), in Ch.12$, logs 2011Q1=0. Laffer-Moore-Williams ALEC Economic Outlook rankings in light color. Source: BEA, ALEC Rich States, Poor States 2018, and author’s calculations. 
On employment through January:

Figure 2. Nonfarm payroll employment for California (blue), and for Wisconsin (red), in logs 2011M01=0. Laffer-Moore-Williams ALEC Economic Outlook rankings in light color. Source: BEA, ALEC Rich States, Poor States 2018, and author’s calculations.

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Walker’s Wisconsin Manufacturing Renaissance Revised Away (Again)

13 days ago

Or. Oops. (Again).

Figure 1: Manufacturing employment, in thousands s.a., from December 2018 release (red), and January 2019 benchmarked release (blue). Light green shading denotes benchmarked data. Source: BLS.
A longer term perspective shows how consequential the revision has been.

Figure 2: Manufacturing employment, in thousands s.a., from December 2018 release (red), and January 2019 benchmarked release (blue). Light green shading denotes benchmarked data. NBER denoted recession dates shaded gray. Source: BLS, NBER.
Former governor Walker stated in October:
“We don’t want to go backwards,” Walker told members of Wisconsin Manufacturers and Commerce at a luncheon in Madison. “About 88 percent of all the recipients … are small businesses. Businesses that make less than $1 million a

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The Pedagogical Implications of Mr. Trump

15 days ago

He’s made a lot more work for me over the past two years — re-arranging and updating lecture slides. One thing is moving up and emphasizing what a recession is (a 20 year old student doesn’t remember the last one, really), and what current indicators are flashing. (You can imagine what it’s done for my international trade class!)

Here’s some cautionary notes on defining a recession (caution: log scales)
Here are some notes on prediction (caution: probit, Normal distribution!)
Here’s the first midterm the undergrads just took.

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“Artemisia” – An Opera

18 days ago

St. Paul’s Chapel, Broadway and Fulton Street
The Choir of Trinity Wall Street, NOVUS NY, and Trinity Baroque Orchestra
March 7 and 9, 2019 at 7pm
Time’s Arrow
Laura Elise Schwendinger Artemisia

Exploring sensitive themes of our time, the festival includes the fully staged world premiere of the new opera Artemisia (composer Laura Schwendinger, librettist Ginger Strand and Stage Director Christopher Alden).  Artemisia tells the story of the Baroque artist who portrayed herself as Susanna in her famous paintings Susanna and the Elders, and Judith Slaying Holofernes.
Heather Buck – Susanna
Augusta Caso – Artemisia Gentileschi
Oliver Mercer – Agostino Tassi/Elder 1
Christopher Burchett – Cosimo di Medici/Elder 2/Oculist
Richard Troxell – Tomasso
NOVUS NY
Laura Schwendinger – composer
Ginger

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The Fault Is … in Ourselves

20 days ago

Or more correctly, in Mr. Trump. As reported by Bloomberg, Mr. Trump has said:
“a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentleman that likes a very strong dollar in the Fed.”

I think Mr. Trump is partly himself to blame for the strength of the dollar. To show this, I estimate the following relationship over 2014Q1-18Q3, with r the log real trade weighted value of the US dollar, EPU world economic policy uncertainty as measured by Baker, Bloom and Davis, y is log real GDP, i  is the policy rate (shadow Fed funds for US), and “RoAdv” denotes rest-of-advanced economies.
r = -0.123 + 0.054EPU + 2.209(y-yRoAdv) + 1.227(i-iRoAdv) + u
Adj.-R2 = 0.86, N=19, DW = 0.89. bold denotes significant at the 5%

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What Has the Wisconsin Manufacturing and Agriculture Credit Wrought?

21 days ago

Has manufacturing value added increased above what was expected, in response to the (costly) Manufacturing and Agriculture Credit? Comparing against Minnesota (which did not implement such a measure) suggests no.

Figure 1: Log manufacturing value added in Minnesota (dark blue), Wisconsin (dark red), and US (black). NBER defined recession dates shaded gray. MAC phase in shaded orange. Source: BEA, NBER.
This picture is merely suggestive. In order to answer the question posed in the title, one needs to generate a counterfactual. I use the first differences relationship between real manufacturing value added, Wisconsin GDP, US GDP, and (lagged) real exchange rate for Wisconsin.
 
Δmfgt = -0.006 + 1.35ΔyWIt + 1.71ΔyUSt – 0.117Δrt-1 + ut
Adj. R2 = 0.79, N = 31, DW = 2.29. bold denotes

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Trinity Wall Street presents Operas “Artemisia” and “Susanna”

21 days ago

March 5–9, 2019
St. Paul’s Chapel, Broadway and Fulton Street
The Choir of Trinity Wall Street, NOVUS NY, and Trinity Baroque Orchestra
Free

Continuing the commitment to amplifying the voices of female artists across multiple mediums, this year’s Time’s Arrow festival juxtaposes old and new stories of the biblical figure Susanna. Exploring sensitive themes of our time, the festival includes the fully staged world premiere of the new opera Artemisia (composer Laura Schwendinger, librettist Ginger Strand and Stage Director Christopher Alden) and concerts of Handel’s Susanna as Trinity continues its presentation of the composer’s oratorios. Artemisia tells the story of the Baroque artist who portrayed herself as Susanna in her famous painting Susanna and the Elders.

March 5, 2019 at 1pm

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Guest Contribution: “Bold Ideas are Not Always Better than Old Ideas”

24 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 on February 25th.

US Democrats
are moving to the left, we are told.  It
is not yet clear that the median voter is in fact moving left, nor the median
congressman who was elected last November.  But it is
clear that many of the candidates for the 2020 Democratic presidential nomination
are experimenting with “bold new ideas”, or at least bold rhetorical
formulations.  They are receiving what
seems a disproportionate amount of attention for doing so.  Many of the policy proposals, if interpreted
literally, are not entirely practical, either economically or

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Is California in Recession? (Part XV)

26 days ago

Back a little over a year ago, Political Calculations asked if 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]
Today’s release of the 2018Q3 state GDP figures provides an opportunity to revisit this question — it’s likely no recession occurred.

Figure 1: California GDP, in mn. Ch2012$ SAAR (blue). 2018Q4 figure estimated using first differences relationship between GDP and employment (+/- 1 standard error interval in gray). NBER defined nation-wide recession dates shaded gray. Source: BEA and NBER.
Of course, the GDP figures will be revised. However, as of now,

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If a Recession Shows Up in 2020, Who Will Have Predicted It?

29 days ago

Recessions, once they are underway, happen fast — a lot faster than expansions. Who’s forecasting recessions, according to the WSJ February survey (the February Survey of Professional Forecasters has been postponed until March because of the data delays associated with the Trump government shutdown).

Figure 1: Histogram of forecasted GDP Growth Rates, for 2019 (top), for 2020 (middle) and 2021 (bottom). High, median and low predictions labeled in red. Source: WSJ February survey. James F. Smith of Parsec Financial Management is relentlessly optimistic 2019-2020 (he even forecasts 3.5% growth for 2018 implying a 4.3% q/q SAAR growth rate for 2018Q4!).
While no one forecasts negative growth in 2019, Dianne Swonk of Grant Thornton and Stephen Gallager of Societe Generale do so for 2020

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Did Minnesota’s Minimum Wage Hikes Hit the Fast Food Sector Hard?

February 22, 2019

I don’t think so. But you be the judge:

First, look at how the minimum wage and employment in limited-service restaurants have evolved over time.
Figure 1: Minnesota employment in limited service restaurants, 000’s, s.a. (blue, left scale), and Minnesota minimum wage, $/hour (red, right scale). NBER defined recession dates shaded gray. Source: BLS, NBER.Figure 1 provides a cautionary note about trending variables. How about Minnesota versus Wisconsin (where there’s been no action on the minimum wage over the Walker years)? This comparison is shown in Figure 2.
Figure 2: Log of Minnesota to Wisconsin employment in limited service restaurants (blue, left scale), and log of Minnesota to Wisconsin minimum wage (red, right scale). NBER defined recession dates shaded gray. Source: BLS,

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The VSD (“Very Stable Dollar”)

February 21, 2019

Is this what we want the Chinese to peg against?

Figure 1: Log real value of US dollar against a broad basket of currencies, 1973M01=0. NBER defined recession dates shaded gray. Source: Federal Reserve Board via FRED.Here the short run volatility of the dollar, illustrated.
Figure 2: Month-on-month annualized appreciation of real value of US dollar against a broad basket of currencies. NBER defined recession dates shaded gray. Source: Federal Reserve Board via FRED, and author’s calculations.

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Time Series on Term Spreads, Yield Curve Snapshots

February 21, 2019

Part of the yield curve is already inverted.

Figure 1: Yield curves as described. Source: Bondsupermarket.com. Notice that inversion occurs at the 2-3 year maturities; the key 10yr-3mo spread continues to decline, while the 10yr-2yr spread has stalled.
Figure 2: Ten year-3 month Treasury spread (blue), and ten year-two year Treasury spread (red). Source: Federal Reserve via FRED, Treasury Department, author’s calculations. The inversion at the 2-3 year maturities suggests lower short rates in the near future.

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A Primer on Exchange Rate Misalignment (Updated)

February 20, 2019

As the administration pushes for “stability” in the Chinese exchange rate while imposing tariffs on China, it might be useful to recount the various ways in which different observers define currency “misalignment”. Here I update a primer first posted in 2010.

Currency misalignment can be determined on the basis of the following criteria or models:
Relative purchasing power parity (PPP)Absolute purchasing power parityThe “Penn Effect”The behavioral equilibrium exchange rate (BEER) approachThe macroeconomic balance effectThe basic flows approachAn equilibrium approachI have discussed several of these approaches in the past [0] [1], but a review of the approaches bear repeating, if only because there so much confusion regarding what constitutes currency misalignment.
Relative PPP
Relative

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Crazy Definitions of Equilibrium Exchange Rates

February 17, 2019

“The Coalition for a Prosperous America” releases what it burbles as a “Groundbreaking CPA Study…” entitled “Quantifying Economic Growth and Job Creation from a Competitive Dollar”. Don’t be fooled by all the footnotes and the numbers. At the basis of the analysis is the aphorism: “Neither a borrower nor a lender be”.

Here’s how the email from CPA described the study:
A new study of the US economy fromthe Coalition for a Prosperous America (CPA) economics team shows that the US dollar is overvalued by 27 percent. Adjusting the dollar to a competitive level would yield large benefits to the economy, including an estimated $1 trillion in additional GDP and up to an additional 6.7 million new jobs over six years.
Here’s the basic picture we’re working with:
Figure 1: Real value of US dollar

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Industrial and Manufacturing Production Decline: Whence the Business Cycle?

February 15, 2019

Interesting news even as we are flying partly blind (some government series are still lagging).

Here’re industrial and manufacturing indices, normalized to 2009M06=0 (recession trough).
Figure 1: Industrial production (blue) and manufacturing production (red), both in logs normalized to 2009M06=0 (NBER defined trough). Orange denotes Trump administration. Source: Federal Reserve Board via FRED, and author’s calculations.The 0.9% and 0.6% declines in m/m manufacturing and industrial output compare to 0.55% and 0.5% standard deviations over the 2009M06-2013M01 period. The manufacturing decline is therefore statistically significant. Last month’s numbers were also revised down. As noted in Reuters, automobile production seems to be driving this latest movement.
This data follows the retail

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Why Isn’t Stephen Moore Still Bragging about Coal As #1?

February 14, 2019

Recall from July 2017, when Stephen Moore wrote an article entitled “When It Comes To Electric Power, Coal Is No. 1” ?

No more. Now, lying has never been an impediment to Mr. Moore claiming something that was untrue (see [1] [2] [3] [4] [5] [6] [7] ) — but in this case perhaps it’s just so clearly untrue, he was chastened:
Figure 1: Share of all fuels net power generation accounted for by coal (red) and natural gas (blue). Orange shading denotes Trump administration. Source: EIA and author’s calculations.So much for “winning” (coal edition). Not that I’m complaining.
Addendum, 2/15 9am Pacific
Figure 2:  Net power generation accounted for by coal (red) and natural gas (blue). Orange shading denotes Trump administration. Source: EIA

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