Wednesday , April 25 2018
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Econbrowser – James Hamilton

Liberal Biased Uncertainty Index Elevated

Reader CoRev argues that economic uncertainty indicators such as the Baker, Bloom and Davis based on content analysis of newspaper articles are instances of GIGO (garbage in, garbage out). Here is a plot of another indicator suggesting current elevated uncertainty. Figure 0: Measure of risk/uncertainty (red). Date for April is data through 4/23. This indicator is the VIX, which is “a measure of the stock market’s expectation of volatility implied by S&P 500 index options”. Compare...

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A Dummies Approach to Trumpian Uncertainty

Once again, is economic policy uncertainty (EPU) as measured by the Baker, Bloom and Davis news index, elevated during the Trump era? There are many ways to answer this. First, is to look at whether the index (or average of index) is above the full sample average (the unconditional mean), second, relative to other presidential terms (conditional), third, relative to presidential terms and exogenous events, or fourth relative to a more recent period, controlling for exogenous events. The...

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Yield Curves Flattening in High Income Countries

A recent article on the predictive abilities of yield curves (Shrager/Quartz) includes a nifty interactive which allows you to look at yield curves over time. Below, I do a snapshot comparison, across the world. Figure 1: Ten year-three month term spread (blue bars), as of 9 July 2016. China observation is Five year-three month term spread. Euro ten year rate is for Germany. Source: Economist, data as of April 18. It’s hard to compare across countries, particularly without knowledge of what...

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Is Trump Really Special? Economic Policy Uncertainty Edition

Despite reader Ed Hanson‘s comment: [T]he current Monthly EPU is at an elevated level, but it has been at this elevated level 7 out of the past 9 years. The elevated value is better described as normal for about the last decade. And his concluding admonishment: Perspective, Menzie I still believe that economic policy uncertainty as measured by the news based index (which Ed Hanson was discussing) is elevated. Figure 1: Monthly Economic Policy Uncertainty, news based (blue), baseline (red),...

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Guest Contribution: “Why China won’t yield in Trump’s trade war”

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. This is an extended version of a column Project Syndicate on April 17th. April 20, 2018 — President Trump enacted steel and aluminum tariffs in March, citing national security. China is the intended target, as most other major suppliers were eventually exempted. On April 2, China...

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Annual, Annualized, q4/q4 Growth Rates: A Graphical Depiction

Why do reported growth rates differ for the same variable? Refer to the last three years of GDP data to see… Figure 1: Quarterly GDP, SAAR, FRED series GDPC1 (dark red line), annual, FRED series GDPCA (green bars), in billions of Chained 2009$. 2017 q4/q4 growth rate (red arrow); annual 2017 y/y growth rate (green arrow); 2017Q4 q/q SAAR growth rate (blue arrow); 2016Q1 y/y SAAR growth rate (black arrow). Source: BEA, 2017Q4 3rd release via FRED, and author’s calculations. So, there are...

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Net vs. Gross Investment

Deregulatory moves, both actual and anticipated, have been hailed as spurring business fixed investment [1] Is there content to this assertion? A glance at nonresidential fixed investment seems to be supportive. Figure 1: Private nonresidential fixed investment, in billions of Ch.2009$, SAAR (blue). NBER defined recession dates shaded gray. Source: BEA, 2017Q4 3rd release. However, the standard investment series reported in the NIPA tables pertain to gross investment spending, i.e., not...

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Twin Deficits Redux? CBO Predicts

From the recent CBO Budget and Economic Outlook, the projected current account and implied cyclically adjusted budget balance. Figure 1: Structural/cyclically adjusted Federal budget balance (dark blue), and current account balance (dark red), both as a share of GDP. NBER defined recession dates shaded gray. CBO projection period shaded gray. Projection of structural budget balance estimated by author using June 2017 estimate, adding in legislative changes reported in CBO (2018). Source:...

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Trump v. Treasury

Mr. Trump tweeted today: Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable! — Donald J. Trump (@realDonaldTrump) April 16, 2018 U.S. Treasury reported on Friday: Pursuant to the 2015 Act, Treasury finds that no major trading partner of the United States met all three criteria in the current reporting period. Five major trading partners of the United States, however, met two of the three criteria for enhanced analysis in this...

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