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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

CEA Chair Hassett: US recession ‘impossible’ by summer next year

16 hours ago

That title from an article in FoxBusiness.

“With that kind of income growth there’s going to be consumption growth, there’s going to be GDP growth, we’ve got all this capital spending—it’s just impossible,” he said.
My view (from my experience being on CEA staff in March 2001, when that recession began): beware data revisions. Figure 1 below shows how the data available in April 2001 differed from that reported many years later.
Figure 1: Real GDP normalized to 1999Q1 as of 1/31/2001 (blue), as of 4/27/2001 (red), as of 7/27/2001 (green), as of 6/28/2018 (black). NBER defined recession dates shaded gray. Source: ALFRED, BEA, NBER, and author’s calculations.
Secondly, just as in the case of CEA Chair Ed Lazear, I think there is some potential for someone to be surprised. Private

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New Estimates of Excess Mortality on Puerto Rico

1 day ago

It’s easy to forget that thousands of American died in the wake of Hurricane Maria, and more are set to die as the administration opposes further assistance to the Commonwealth. Yet, new estimates confirm earlier estimates, and give detail on the causes.

Figure 1 summarizes some key estimates, including that from a recent study by Cruz-Cano and Mead.

Figure 1: Cumulative excess deaths from September 2017, for simple time dummies OLS model (blue), OLS model adjusting for population (green), and Quantile Regression model adjusting for population (red), Milken Institute point estimate (black square) and 95% confidence interval (gray +), Santos-Lozada, Howard letter (chartreuse triangle), Cruz-Cano and Mead (pink squares), Kopits (teal triangle). Not pictured: Kopits estimate of 300-400 for

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A Gold Standard Exchange Rate Regime for the 21st Century

2 days ago

The quasi-nomination of Stephen Moore and Herman Cain to the Federal Reserve Board has resurrected the issue of the gold standard. Jim Hamilton has repeatedly — and convincingly — critiqued the idea of a return to the classical gold standard, here, here, here, and here. But here I talk about what a gold standard for the 21st century would entail.

In “A Gold Standard Does Not Require Interest-Rate Targeting“, Lawrence White critiques an article by Matt O’Brien, noting the operation of the classical gold standard did not involve interest targeting, and hence would not require large variations in interest rates. Rather:
Under the regime of the classical gold standard, a newly minted US $10 dollar coin contained .48375 troy ounces of gold. Alternatively put, the gold definition of the dollar

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Who’s Supporting Moore for Fed? Institutional Affiliations of Signatories

4 days ago

Yesterday, I posted some observations on the signatories to the letter supporting Stephen Moore for the Fed  letter posted [PDF]. Here for the sake of completeness is the list of the affiliations the signatories provided.

Laffer Associates
Forbes magazine
The Heritage Foundation (former)
Atlanta Fed (former)
The Federal Reserve (former)
University of Texas at Dallas
University of London, Royal Holloway College
Universidad Francisco Marroquin
University of Texas at El Paso
Whitworth University
Virginia Military Institute (former)
University of Dallas
University of Notre Dame
University of Virginia (former)
University of Nevada, Las Vegas
Saint Vincent College
University of South Florida (former)
American Enterprise Institute
Univ of Virginia
Beacon Hill Institute
University of North

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Isn’t that Exactly the Definition of…

5 days ago

From Bloomberg:
China is considering a U.S. request to shift some tariffs on key agricultural goods to other products so the Trump administration can sell any eventual trade deal as a win for farmers ahead of the 2020 election, people familiar with the situation said.
Recall Mr. Trump’s attempts to buoy Boeing, intervene in merger talks, support the steel industry through protection, and so forth. Also consider the attempts to politicize the Fed. Now consider this entry from The Library of Economics and Liberty:
Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly,

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The Campaign Continues: Economists Supporting Stephen Moore for the Fed

5 days ago

We get an inkling from a letter posted [PDF] yesterday, with “105 economists and conservative activists”…signing on

As advertised, not all the signatories are economists. Some have PhDs not in economics: Ed Fuelner has a PhD in polisci, James Huffman has law degrees, Merrill Matthews has a PhD in humanities, Brian Domitrovic a PhD in history, Alfredo Ortiz a PhD in development studies.
Some have a PhD from a non-accredited university: Robert L. Bradley Jr., in political economy.
Some have no advanced degree in economics: Steve Forbes, George Gilder.
Some have no degree at all: Don Luskin.
About 30 are emeritus/retired professors
About 8 did their graduate study with James Buchanan and/or in the public choice school.
Some Chief Economists have no advanced degree: John

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The IMF WEO on Brexit

6 days ago

What did the UK just dodge (temporarily)?

The IMF’s most recent World Economic Outlook has an interesting box on the subject of Brexit impacts. They analyzed several scenarios in addition to the baseline.

The simulations are shown below:

Notice that not only do each of the “no deal” scenarios imply recessions (relative to baseline), the current baseline is below the April 2016 (pre-Brexit referendum) baseline. In other words, the uncertainty associated with Brexit has already depressed economic activity in the UK.
More on estimates of the Brexit costs, see here (scenarios assuming orderly withdrawal).

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Soybean Prices on the Eve of the US-China Trade Deal

7 days ago

Why haven’t they risen?

May 2019 futures for soybeans:

Some observers have pointed out that the record 900 mn odd bushels of soybeans in US stockpiles might be exerting some downward pressure. I agree, but the “news” that would accompany a deal that Chinese are buying US soybeans would mean that ceteris paribus future stockpiles would be smaller than otherwise. Of course, this prediction is predicated on the deal being “credible”. And the one thing we know about the current administration is that credibility is in short supply…
In sum, I’m still awaiting the soybean price recovery that was promised for end-2018…
In other news, Fagjelbaum et al. have tabulated the costs to the US economy of Mr. Trump’s trade war thus far…

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Data Sources, Again [Updated]

7 days ago

[Updated to include CoRev’s analysis of trends 4/16/2019] I have repeated requests for raw data used in this post, part of which is plotted in this graph. Reader CoRev writes:
…Menzie has admitted he mis-attributed his full range of sources used, and has yet to provide ALL the data he used.
This is not true. I didn’t admit mis-attribution. All I can conclude is that there is some confusion over terms.

First, there is some confusion over whether the data differs between BLS, or BLS via FRED.

Figure 1: Nonfarm payroll employment (dark blue), and stochastic trend (red). Stochastic trend estimated using 2010-2016 data, and regression of first log difference on a constant. Source: BLS March 2019 employment situation release, and author’s calculations.
Just to verify, the BLS series and the

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Guest Contribution: “The Euro area: Are member countries similar enough to share the same currency?”

7 days ago

Today we are pleased to present a guest contribution written by Virginie Coudert (Banque de France and CEPII), Cécile Couharde (EconomiX-CNRS, University of Paris Nanterre), Carl Grekou (CEPII and EconomiX-CNRS), and Valérie Mignon (EconomiX-CNRS, University of Paris Nanterre, and CEPII). This blog post reflects the opinions of the authors and does not necessarily express the views of the institutions to which they belong.

The 2008 financial crisis and the sovereign crisis that followed in Europe have revived the old debates about the European Monetary Union (EMU). The key question underlying most issues is to know if member states have benefited enough from sharing the same currency and if their differences have begun to be ironed out.
In a recent working paper (Coudert et al., 2019),

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Forward Rate Bias over a Third of a Century

8 days ago

Just updated/cleaned and extended the survey and forward rate data used in Chinn and Frankel (2019) (discussed in this post). Here are preliminary results regard forward rate bias, both pre- and post-crisis.

Consider the regression:
st+3-st = α + β(ft,t+3 – st) + ut+3
Where st is the log spot rate at time t, ft,t+3 is the log forward rate at time t for a trade at time t+3. Then OLS estimates of β are illustrated below for the early period up to 2008M05 (starting in 1986M08 for advanced currencies except euro, and 2001M10 for others), and late period from 2008M09 to 2018M05 2017M09.

Figure 1: β estimates from pre-crisis (blue bar) and post-crisis (red bar), using 3 month ahead forward rates. Green line at value of 1, implied by unbiasedness hypothesis. Source: authors’ calculations.

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Data Sources

9 days ago

Recently, in response to my posting a graph of the most recent nonfarm payroll data, Reader CoRev wrote:
Can you provide the raw data used?
This request came despite the fact that the graph states explicitly:

Source: BLS March 2019 employment situation release, and author’s calculations.
In other words, despite my compulsive documentation, people still want to be led to the data. To illustrate how to get the data, note that in this case, one could go directly to the BLS (Bureau of Labor Statistics) website, or just go to the St. Louis Fed’s FRED database. Most data series that one might be interested in are there.
In general, if one doesn’t want to go to FRED, or one can’t find the specific series there, go to the specific website.
If BLS, then go to
If BEA, then go to

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I Spent a Couple Trillion Dollars, and All I Got Was Trend Employment Growth!

10 days ago

Reader JBH writes:
“Employment has done marvelously well under this president.”
I laughed and laughed and laughed when I read this. Why? Take a look:

Figure 1: Nonfarm payroll employment (dark blue), and stochastic trend (red). Stochastic trend estimated using 2010-2016 data, and regression of first log difference on a constant. Source: BLS March 2019 employment situation release, and author’s calculations.
We are doing as well as we were from 2010-2016, even after massive tax cuts and the end of spending restraints amounting in the trillions.
But kudos to JBH for livin’ in a fantasy world … it for sure is more pleasant than my world. Thanks, Drumpf!

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Why Is the Structural Budget Deficit Blowing Up Since Trump?

10 days ago

The structural, or cyclically adjusted, budget balance has been deteriorating. In accounting terms, what’re the drivers?

Figure 1: Structural/cyclically adjusted budget balance as a percentage of potential GDP. Source: CBO, Budget and Economic Outlook, Jan. 2019.
Steven Kopits writes:
“…spending side. That also appears out of control…”
While I agree that the end of the spending restraints is partly at fault, my view is that thus far, the biggest cause of the deterioration is from the revenue side, and the failure for the Stephen Moore claim of a self-financing tax cut to materialize.
To see this, one can decompose the changes in the full employment budget balance since FY2017 into the revenue and outlays sides. This yields:

Figure 2: Change in structural/cyclically adjusted revenues

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When the Textbook Is Right: Implications of the Trump Fiscal/Trade Regime

10 days ago

Today we learned that through March, the Federal budget deficit was 15% larger than the corresponding point in the last fiscal year — as expected given a not particularly stimulative tax cut (so much for tax cuts paying for themselves, as Stephen Moore claimed) and the ending of spending restraints. The dollar remains at elevated levels, as interest rates have risen. The trade deficit, excluding petroleum, continues to deteriorate. As I explained to my macro class today… it’s all textbook (notes).

Figure 1: Federal structural budget balance as a share of potential GDP (dark blue, left scale), and projection (light blue), and ten year TIPS yield (red, right scale). Light orange shading denotes Trump administration, dashed line at passage of Tax Cut and Jobs Act. Source: CBO, Budget and

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Trade Policy Uncertainty and World Uncertainty

11 days ago

If measured world uncertainty shocks cause decelerating economic growth, then Trump will be partly responsible for the global slowdown the IMF is forecasting.

Economic policy uncertainty in the US, as measured by the Baker, Bloom and Davis has been elevated since the election, although not as much as one might think. But one component has been strikingly elevated: trade policy uncertainty.

Figure 1: Categorical economic policy uncertainty (blue) and trade policy uncertainty (red). NBER defined recession dates shaded gray; Trump administration shaded orange. Source: and NBER.
Consider the pattern of US trade policy uncertainty movements and world uncertainty.

Figure 2: Categorical  trade policy uncertainty (red) and world uncertainty. NBER defined recession dates

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Is California in Recession? (Part XVI)

12 days ago

February coincident indices from the Philadelphia Fed are out. Time to re-evaluate this assessment from slightly over a year 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 (the Q3 GDP figures are discussed here). It’s (still) unlikely that a recession occurred.

Figure 1: Log coincident index in US (black), and in California (blue), both in logs, normalized to 2011M01=0. Blue arrow at timing of Political Calculations recession conjecture. Source: Philadelphia Fed

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Guest Contribution: “Global Growth Forecasts Shift Downward—What’s Behind the Numbers and Why It Matters”

12 days ago

Today, we are pleased to present a guest contribution written by Enrique Martínez-García (Senior Reserach Economist and Policy Advisor, Federal Reserve Bank of Dallas). 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. He acknowledges the contributions of Valerie Grossman, Michael Morris, Amro Shohoud, and Mark A. Wynne in preparing these comments.

The expectations of near-term global expansion have weakened noticeably in recent months—2019 global growth forecasts have declined from 3.9 percent in April 2018 to 3.4 percent in March 2019, while 2020 global growth forecasts (3.5 percent with March 2019 data) suggest a very modest bounce-back is anticipated next year. The 2019 forecast

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Don Luskin Speaks: On Trump’s Fed Nominees

13 days ago

Donald Luskin, chief investment officer at Trend Macrolytics, said: “Trump is holding the Fed accountable, and as the man who appoints Fed governors, that is entirely appropriate.” (CNBC)

That’s not exactly a rousing defense. In any case, remember Don Luskin is the guy who gave the “all clear” on September 14, 2008. 
In addition:
A 47% plurality of respondents believes the nominations along with the president’s critical remarks about the Fed are “reducing the central bank’s independence”
To remember why “Fed independence” is more than just a empty phrase, recall the time-inconsistency of non-inflationary monetary policy, excellently explained in this set of notes by Jeff Frankel (which I just taught to my students in macro class).

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What Would It Take to Implement Cain’s Gold Standard, Interest-Rate-Wise?

14 days ago

Stabilizing the price of gold in US dollars requires adjusting the interest rate (akin to how the exchange rate is managed). Herman Cain’s call for a return to the gold standard would imply that the Fed funds rate would have to be about 15 percentage points higher than it was in January 2000 in order to keep the dollar’s value stable at January 2000 levels — a rate 18 percentage points higher than actually recorded in March 2019.

Figure 1: Log price of gold relative 2000M01 (blue). Source: London bullion market via FRED.
To figure this out, consider the relationship between the log price of gold and the real 3 month Treasury yield, estimated over the 1968M03-2019M02 period.
pgold = 6.423 – 10.210 fedfunds
Adj-R2 = 0.17, DW = 0.007 n = 612. Bold figures denote significance at the 1% msl,

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A Pyrrhic Victory (Perhaps) on China Trade

15 days ago

From Bradsher in NYT:
…spurred by tariffs and trade tensions, global companies are beginning to shift their supply chains away from China, just as some Trump administration officials had wanted.
It’s important to understand that driving away import sourcing from the lowest cost producer to a higher cost producer is the definition of “trade diversion”. Consider this exposition (adapted from Feenstra/Taylor):

Figure 1: Trade diversion when home country does not produce. Adapted from Feenstra-Taylor.
Suppose pre-trade war, SChina is the relevant supply curve for Chinese imports into the US, as is SThai for imports from Thailand. Q4-Q2 is imports from China, Q2 from Thailand. The imposition of tariffs and the political risk associated with the imposition of further tariffs makes the

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Does Policy Uncertainty Matter?

16 days ago

The Atlanta Fed along w/Bloom (Stanford) and Davis (Chicago) survey business operators and finds it does!

From David Altig, Nick Bloom, Steve Davis, Brent Meyer and Nick Parker, “Tariff Worries and U.S. Business Investment, Take Two” (February):
We estimate that tariff hikes and trade policy tensions lowered gross investment in 2018 by 1.2 percent in the U.S. private sector and by 4.2 percent in the manufacturing sector.
A key table:

This estimate takes on heightened impact given today’s employment release indicating manufacturing employment was essentially flat.

Figure 1: US Manufacturing employment, 000’s (blue, left log scale), and manufacturing production (red, right log scale), both seasonally adjusted. Source: BLS and Federal Reserve via FRED.

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“A Requiem for “Blame It on Beijing”: Interpreting Rotating Global Current Account Surpluses”

17 days ago

That’s the title of my new paper with Hiro Ito. The US current account deficit (as a share of world GDP) remains, but China’s surplus shrinks…

Figure 1. Global Current Balances for Select Country Aggregates. Note sum of surpluses and deficits do not equal due to statistical discrepancy. Source: IMF, WEO, October 2018.
While the imbalances havea reappeared (see my Jackson Hole paper), the dispersion of current account imbalances has not yet come close to that witnessed in 2007, on the eve of the Great Recession.

Figure 2. Distribution of current account balances, as share of national GDP
From the abstract of the paper:
Global current account imbalances have reappeared, although the extent and distribution of these imbalances are noticeably different from those experienced in the middle

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Empirically Assessing “a whole world of hurt”

19 days ago

That’s how an unidentified White House official characterized the impact of closing the southern border.

Who’s making a more formal assessment? Here’s a relevant quote:
“It’s something that I’m sure we’ll be looking into and studying,” Kevin Hassett, the chairman of the Council of Economic Advisers said on Monday…”
In some senses, the trade linkages between US and Mexico do not seem to loom large:

Figure 1: US-Mexico goods trade balance, in billions $, SAAR (blue). NBER defined recession dates shaded gray; Trump administration shaded orange. Source: BEA/Census and author’s calculations.

Figure 2: US goods exports to Mexico as a share of GDP (blue), US goods imports from Mexico (red). NBER defined recession dates shaded gray; Trump administration shaded orange. Source: BEA/Census and

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Two Years of “Winning”: Messages from GDP, International Investment Releases

20 days ago

The release of the final release for GDP, and the international investment position provides an opportunity to assess progress on the trade war. I for one have gotten tired of “winning”.

Figure 1: Current account (NIPA definition) (blue), and Net International Investment Position (green), both as a share of GDP. Orange shading denotes Trump administration. Source: BEA, 2018Q4 final release, 2018Q4 international investment release, author’s calculations. 
There’s been some volatility in trade flows in recent quarters; it’s likely that that is partly due to the timing shifts aimed at avoiding Chinese tariffs. Note the spike in net exports in 2018Q2.

Figure 2: Change in current account (NIPA definition) (blue), net exports (red), and net exports excluding petroleum (green), as a share of

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UK Gross Fixed Capital Formation

24 days ago

Why I think the UK is in a world of hurt, regardless of where Brexit goes. It’s just a matter of how bad…

Figure 1: UK Gross Fixed Capital Formation, in billions of 2000 pounds, seasonally adjusted (blue, log scale). Post-Brexit referendum period shaded orange. Source: OECD Main Economic Indicators via FRED.
So while UK GDP keeps on rising, forward looking components like fixed investment — susceptible to expectations and uncertainty — have already turned down.

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