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nuary 35 2012 476 december 38 november 35 october 51 september 41 august 35 july 39 june 37 may 31 april 38 march 36 february 44 january 51 2011 571 december 44 november 38 october 41 september 53 august 54 july 52 june 50 may 45 april 54 march 46 february 37 january 57 2010 361 december 51 november 43 october 47 september 43 august 35 july 39 june 31 may 9 april 8 march 12 february 23 january 20 2009 79 december 17 november 10 october 14 september 20 august 3 july 7 june 4 april 1 march 1 february 1 january 1 links the 12 pages pdf html scribd money as credit paul krugman john mason gavin kennedy crisis timeline 1 crisis timeline 2 statistical abstracts measuringworth bea economic accounts bls inflation jobs flow of funds debt st louis fed fred money stock 1947 58 economagic usgovernmentspending top tax rates recession dates corp taxes 2006 irs tax data pk sources historicalstatistics org historical charts perot charts mark wieczorek the secret economist econompic john williams sgs crystal bull aquinum s razor flavianopolis william f hummell ecometry the l curve businomics blog on banking crises cybereconomics tim duy like a father to me worthwhile canadian the skeptical optimist nextblog better of thought action the troublesome economist the candid blogger blended purple frozen arctic tundra truth addicts anon jbpeebles mayday books dredd blog dolor s rants the 40 year old freshman thinking on the margin redonomics broad oak unsettling economics irrational expectations theory2life prac spoiler tips vin s read more faq s image host a very nice menu www w3 schools bloogger help image test and t2 blogger sentral html color codes google translate link within a page supreme court jester dave ross 1 dave ross 2 organize your stuff interesting jim kardi teknomo numerical ignorance mental workout g scaled data g normalized data tufte data analysis arthurian website about me contact labels real is a calculation 1 2 3 4 5 6 7 1966 1970s growth 1986 2000 2013 revision 400k smoothing a call for better argument a little r n r accelerated repayment of debt accidental discoveries adjusting debt for inflation artish b is greater than a b h finte behavioral ec best put downs bullard s earthquake c d of wealth calculating labor share civ civilization coinage coping cost and productivity cost push cost push inflation credit efficiency crisis chronicles cycle of civilization debasement debt debt and context debt and inflation debt and recovery debt bulge debt good and bad debt is not credit debt productivity debt to gdp debt to gdp in comments def credit def debt def economic activity def financial cost def gdp def general equilibrium def inflation def inside money def investment def issue and reissue def laffer limit def outside money deflation demand pull inflation disarray dpd echoes economic forces economics v the economy eroc erosion of debt evolution of the excuse expectations factors failure s embrace fallacy of composition fcm fed policy federal spending feedback loops final spending financial cost financialization five words five digit years forget about debt fpi fred free banking era full disclosure fun with the mpc gang8 gds gold shortage gresham s law gross domestic spending growth rate calc growth phase growth historical revisionism hoarding hodrick prescott household debt hover craft how to pay for it humor because you might not know if i didn t say i couldn t sleep iceberg inflation introduction is it ego captain jerry says krugman laffer curve limits long and variable loops malaise matched set fekete math problems medium of account military spending milton friedman mmt money multiplier more debt than money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman showing posts with label loops show all posts showing posts with label loops show all posts friday march 24 2017 the federal funds rate and economic growth by lowering rates central banks accelerate growth and by raising rates they slow it that s standard practice but richard werner says central banks have it all wrong werner says central bank policy depends on a negative correlation between interest rates and economic growth it doesn t work that way he says if you plot the nominal gdp growth rate against nominal interest rates say a scatter plot you will find a positive correlation a positive correlation he says not negative if werner is right this is a major conceptual shift i watched a werner interview two weeks ago and did some reading every day since i ve been drawing his scatterplot it fascinates me i ve started writing about it half a dozen times until now my response has died every time it is a difficult response to write due to both the major conceptual shift and the if werner is right for starters werner s choice of data troubles me if you plot the nominal gdp growth rate and nominal interest rates you see both going high during the great inflation because of the great inflation you see both going low after the financial crisis because of the financial crisis nominal gdp grew rapidly during the great inflation because of inflation at the same time policy and creditors pushed interest rates up to very high levels because of inflation inflation caused both growth and interest rates to rise to high levels and then to fall when inflation receded movement in the same direction that s a positive correlation more recently a different set of special circumstances arose the financial crisis and the great recession drove economic growth to unusually low levels in response our central bank dropped interest rates to the floor again unusual circumstances created a positive correlation this time low growth and low rates these positive correlations arise from sources other than the relation between economic growth and interest rates if you mix such times with normal times in a single picture of the economy you distort the norm and create a hotbed of doubtful gdp interest rate correlations to add an overall trend line to such a mix of data would be absurd to be sure i don t see richard werner showing trend lines on his scatterplots but i do see him proclaim the scatter plots on the left hand side of the graph show a distinct positive correlation i do see him proclaim the positive correlation of both curves is obvious and i do see him proclaim instead of the proclaimed negative correlation interest rates and economic growth are positively correlated werner doesn t need to show a trend line the positive correlation is obvious he says he doesn t need to show the trend line to see it but he does not by his power of vision manage to escape the absurd me yeah i show the trendlines does a positive correlation exist in the normal economy perhaps but if we re going to look into it we should exclude the data since the financial crisis and we ought to strip inflation out of the numbers we will be looking at for starters now you know what we re doing today i thought i might be confused about what werner is saying so i checked he is not speaking of what people in general think about central bank operations he refers explicitly to the views expressed and the actions taken by central bankers recently central banks have been lowering rates while proclaiming that this is a measure to stimulate the economy he disputes their story to the contrary empirical evidence shows that interest rates and economic growth are positively correlated werner uses a scatterplot to show correlation oddly however his scatterplot of u s data does not use the short term interest rate that our central bank uses to influence the economy werner uses a long term rate in his scatter to test the idea that central banks influence growth by changing rates it seems to me the scatterplot should use the same short term rate that is used by the fed granted the scatterplot might show a positive correlation for any interest rate you pick but if you re going to challenge the federal reserve on interest rate policy shouldn t you use the same interest rate that the federal reserve uses for my scatterplot data then i will use real gdp and the inflation adjusted fedfunds rate my inflation adjusted fedfunds calculation is similar to bill mcbride s from a dozen years back i ll use the effective federal funds rate less percent change from year ago of the cpi graph 1 fedfunds blue and inflation adjusted fedfunds red quarterly data the area between the red and blue lines that s all inflation these days the fed prefers pce to cpi but i ll be cutting these days off the chart and the fed only switched from the cpi to the pce in 2000 my scatter data goes back to the 1950s i m sticking with cpi for this calculation here then is the source data for my scatter plot graph 2 quarterly growth of rgdp blue and the inflation adjusted federal funds rate red the graph runs from 1953 before the fedfunds data starts to the end of 2008 i ll trim it down a little more in excel when i can see the data on second thought i ll grab all of the data for download in case i have a use for it to see the path of the data but eliminate the jiggies i m figuring hodrick prescott values for the two data sets my objective is to preserve the shape of the data but make that shape more readable so my smoothing constants are low non standard values here are the smoothed data red and the original values gray graph 3 smoothing the real fedfunds data graph 3 shows the interest rate the source data is gray the smoothed data is red the value of the smoothing constant is 4 as the legend indicates the same details apply to graph 4 graph 4 smoothing the rgdp data i put the two smoothed series together in a scatterplot with gdp on the horizontal and interest on the vertical tried to make the dots pretty connected them with thin gray lines and added a linear trend line in black here is the result graph 5 rgdp and the real fedfunds rate with a linear trend line smoothed data the rgdp values shown on the horizontal axis are for quarterly data the center of the dot cluster call it the average growth rate appears to be somewhere between 0 5 and 1 0 it s a low number because it is a quarterly rate annual rates would be ballpark four times bigger that would give an average real growth rate between 2 and 4 per year which sounds about right the straight black trend line tilts upward to the right doesn t look like much but it probably slopes more than you think the trendline formula says the slope is 0 4876 that s almost 0 5 if the slope was 0 5 y would go up by half of x and the trend line would go up six inches for each foot it goes to the right that s almost as steep as a flight of stairs steeper than it looks for some reason whenever i see a trend line on a scatterplot the trend line is straight a glance at the scattered dots should tell you there s no chance the trend is a straight line but straight line trends are commonly used on scatterplots maybe that has to do with the way economists think i made a copy of graph 5 and changed the trend line to something other than a straight line just to see how it looks it looks like poirot s moustache graph 6 rgdp and the real fedfunds rate with a polynomial trend line the trend line is in the same place and it still slopes up to the right but along the way it curves up and down i can t tell you much of what those curves might mean but i can tell you the trend is not a straight line i wanted a better look at changes in the scatterplot trend i thought i might split the cluster down the middle and get a trendline for each half then i got bold and decided to split economic growth into four overlapping subsets so i could see four overlapping trend lines i inserted four new columns into the spreadsheet alongside the smoothed data i used formulas to put values into these columns based on growth rate limits i picked for each subset this gave me the values in chronological order with blank cells where the values were outside the limits then i made a scatterplot and it was garbage excel doesn t do what i expect when there are blank cells intermixed with the values but i didn t know that yet so i tried again this time i subsetted the interest rate data instead of the growth rates this time all the blank cells were interpreted as zero values i got a whole lot of dots at the zero level and i couldn t get rid of them that s when i figured out the blank cells must be the problem the question then was how to convert one column of numbers into four columns based on specified value limits without having blank cells mixed in with the data the answer of course was vba i wrote a routine to arrange the data in a way that satisfied both excel and myself and at last i got a look at the trends of the subsetted data graph 7 the scatter data split out as low growth high growth and intermediate levels i got four overlapping trend lines these lines occupy the same general location as the overall trend line shown on graph 5 the trend lines taken together show a positive correlation similar to the overall trend lower on the left higher on the right however three of these four trend lines are downsloping they show negative correlation they contradict the overall trend and they contradict richard werner after a pointless argument with myself that lasted much too long i decided to write more vba to subset the scatter data on interest rate values this time rather than growth rate values the code writer complained that he already did the work and why should he have to do it again the econ hobbyist pointed out that the central bank changes the interest rate on purpose so the interest rate subsets must be more informative than the growth rate subsets and the code writer should have known which data to subset the first time around the code writer gave us the finger but he eventually admitted that his outrage was no more than a way to postpone the inevitable the matter was finally settled when the blogger pointed out that he had to stop blogging so that the code writing could commence i looked at graph 7 and divided up the vertical axis to make four overlapping groups then i copied the code i used to make graph 7 and tweaked it for 8 the code revision took less time than the argument here s what i got graph 8 the scatter data split out as low high and two intermedia...
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