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.
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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), as reported. Source: http://www.policyuncertainty.com.

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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 several ways to calculate the growth rate over the course of the year. They will almost invariably differ, perhaps substantially, when GDP is either growing very rapidly or shrinking very rapidly. And there is no “right” way. If one wants to calculate the most recent growth experience, one might stress q/q. If one wants to look at a longer horizon, then one might want to use the quarterly y/y. If one thinks quarterly series are very noisy, one might want to look at annual y/y.

Note: SAAR denotes Seasonally Adjusted at Annual Rates.

Additional Note: One could average the q/q annualized growth rates over the four quarters of 2017 to try to get 2017 q4/q4 growth rate. This calculation leads to an approximation, which gets worse the more variable growth rates are (unless growth rates are calculated as log-differences — which is part of the reason economists like to express variables in logs and log differences…).

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.

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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: BEA 2017Q4 3rd release, CBO (2018), and author’s calculations.

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Guest Contribution: “Can Media and Text Analytics Provide Insights into Labour Market Conditions in China?”

Today we are pleased to present a guest contribution written by Jeannine Bailliu, Xinfen Han, Mark Kruger, Yu-Hsien Liu and Sri Thanabalasingam (all Bank of Canada). This research may support or challenge prevailing policy orthodoxy. Therefore, the views expressed in this paper are solely those of the authors and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank.

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