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eared to validate friedman s prediction at angry bear back in may 2012 robert asked a question did samuelson and solow claim that the phillips curve was a structural relationship did they claim that it showed a permanent tradeoff between inflation and unemployment james forder says no this is an important post for me robert s post nick rowe and sumner and williamson and nunes and many others point to milton friedman s put down of the phillips curve that put down it seems was the birth of an alternative to keynesian economics that alternative was based on samuelson and solow being wrong about the trade off but there are doubts about that that s what robert s post is about and that s why his post is important robert writes paul krugman john quiggin and others including me robert writes have argued that the one success of the critics of old keynesian economics is the prediction that high inflation would become persistent and lead to stagflation that s the key point for me one success parlayed friedman predicted stagflation and when his prediction came true friedman became like a religious icon but see i have a different explanation of stagflation than friedman so if friedman is right i must be wrong i don t think i m wrong posted by the arthurian at 4 00 am 15 comments thursday august 15 2013 outperforming our potential andrew bartels shows that the 2013 comprehensive revision didn t have much effect on rgdp source andrew bartels i look at it this way graph 2 real gdp red and potential gdp blue a tale of 2009 dollars versus 2005 dollars real gdp after the revision is better than potential gdp before the revision now that s one helluva change how much inflation did it take to push real gdp above potential like that graph 3 2009 based deflator converted back to 2005 100 shows prices almost 9 higher by 2009 between 8 and 9 percent maybe tomorrow they ll revise potential gdp to the 2009 base posted by the arthurian at 4 00 am 5 comments labels 2013 revision wednesday august 14 2013 going thru the motions this is the graph i created at fred to gather the data i needed in order to duplicate lars christensen s simple index calculation graph 1 the fred source data from mine of the 12th to simplify my life i ll chop off all the years before 1990 and just look at data since 1990 the same as christensen did graph 2 same data since 1990 only now i can apply the calculations that lars applied to the data i have the average value for each series and the standard deviation for each series in the excel file i ve been using for the past few posts the first step of christensen s calculation was to subtract the series average value from each data value for all the datasets i ll just do that in fred graph 3 for each series subtract the series average value the most obvious change on graph 3 is that the white plot window is not as wide as on graph 2 there s a lot more description for the vertical axis and it crowds the plot window but the relevant change is that each line is now centered on the zero level and that means all the lines are centered on each other they re all a little lower as a result you can tell because the highest value on the vertical axis is now 40 instead of 50 the second step of christensen s calculation is to divide by the standard deviation of each series this is where the amplitude the up and down variation of each series gets reduced and they all get similarized this impresses me the greater the amplitude variation of a line the greater the standard deviation and the more the variation is reduced by the division you can tell by the way people use standard deviation all the time that it must be pretty important but this is the first time i ever saw it used in a significant way that i could understand anyhow graph 4 for each series now divide by the standard deviation now the vertical axis values have been reduced to a high of 3 and a low of 5 that is far less than in the previous graphs the orange and green lines no longer travel to the extremes we saw in the previous graphs the lowest value on graph 4 is actually in the red line quite a difference posted by the arthurian at 4 00 am 5 comments labels standard deviation tuesday august 13 2013 i have to look at the spreadsheet 2 picking up where we left off yesterday i wanted to use a zoho spreadsheet so you could click on cells in the sheet and look at the formula bar to see what the calculations are but the zoho sheet makes the blogger screen jump down to the spreadsheet and as a blogger i won t stand for that my next choice was to use google drive but the series values are quarterly and that sometimes means there are too many pieces of information for the google drive spreadsheet to handle the graphs don t come out right so excel it is that means i can show you the graphs and i can show you images of cell calculations if it comes to that but if you want the live action of a spreadsheet you ll have to download the excel file and get into it yourself or you can read the story i tell here and take my word for it i don t have excel on the computer where i do my blogging i ve been using open office calc which can read and write excel files but open office messes up the x axis labeling on excel graphs and i prefer not to manipulate excel created graphs on this computer because of it and i have some nice visual basic routines i ve been developing to format my excel graphs to standardize the size and appearance of those graphs but those routines don t work in open office i don t know how to make them work in open office so again excel it is working in excel on the old computer i tried to duplicate lars christensen s graph from memory from the fred data using what i understood of christensen s calcs from looking at it on the blogging computer in excel my first step was to look at the fred data it should look the same as the fred graph in yesterday s post graph 1 if it didn t i would want to check my work for errors i was happy with it so the next step was to duplicate lars christensen s graph graph 2 lars christensen s graph graph 3 my version of christensen s graph oh i should make my horizontal gridlines faint the two graphs are a pretty good match christensen gets more vertical than i do the space between his horizontal gridlines is near twice what mine is mine got squeezed between the title and legend above and the x axis labels below the plot area no amount of multiplying by the series standard deviation can make up for that but you can see on both graphs the one line is pretty well centered upon the other and the overall up and down offsetting is about the same red versus blue on both graphs but i m leaving things out of the story the first time i tried to duplicate christensen s graph i was way off for some reason i thought i had to standardize the ngdp values the same way christensen was standardizing the other values so all my lines were centered on the zero level and that didn t look like the graph i was trying to duplicate so i had to go over it again before i got it right i had to do it on the old computer i had to look at christensen s file in excel and see which numbers he used in the graph before i got it right he takes his index value standardized s p 500 less standardized dollar index and to it adds the average value of the ngdp series this brings the index numbers up centering them on the ngdp numbers it gets the numbers away from the zero level there are additional adjustments christensen subtracts 1 5 from the index plus ngdp average for even better vertical alignment of the two series then he multiplies this centered number by the ngdp standard deviation and divides by the index standard deviation to scale the index numbers to about the same size as the ngdp numbers he ends up with an index he calls the ngdp market indicator which has about the same up and down range of values as ngdp and is centered on ngdp for greatly improved visual comparison okay i get it lars is centering and scaling his index numbers so that he may better see similarities and differences between the index and the ngdp numbers he sees the size and the location of the up and down pattern as separate from the pattern itself and you know what i did have to look at the spreadsheet posted by the arthurian at 4 00 am 0 comments labels standard deviation monday august 12 2013 i have to look at the spreadsheet picking up where we left off yesterday ue links to an article by lars christensen to try to illustrate the connection between the markets and ngdp christensen writes i have constructed a very simple index to track market expectations of future ngdp he describes the index shows a graph and links to a spreadsheet the spreadsheet is great for me if i want to understand what the calculation is i have to look at the spreadsheet so you know where this post is going christensen s spreadsheet is a fred download excel file containing percent change from year ago values for gnp for the s p 500 stock price index and for the real trade weighted u s dollar index oh that s funny he used gross national product instead of gdp but labels it nominal gdp i wonder if that affects his graph shouldn t be much difference but it might be worth a look if i get to it anyway the first four columns of the spreadsheet look to be direct from fred christensen has relabeled the columns which makes sense usd index does sound a lot better than twexmpa_pc1 and it s clear at least if you re familiar with the fred excel format it is clear which data is which i like it maybe i ll start relabeling that way thanks lars down at the bottom of those first four columns except the date column lars figures the average value for each dataset and below that for each dataset the standard deviation using the stdevpa worksheet function that function calculates the standard deviation based on the entire population according to the openoffice help i found myself checking the range of values provided to the average and stdevpa functions doing the thomas herndon thing making sure there were no obvious dumb errors on the sheet christensen s spreadsheet looks okay to me in the next three columns christensen calculates standardized values this is what interests me how these calcs are done what effect they have and why i might want to do the same thing sometimes lars figured each standardized value as the original value less the dataset average value with the difference divided by the dataset standard deviation value if i have the dataset 1 2 3 the average value is 2 if i subtract 2 from each value in the dataset i get 1 0 1 and i have centered the dataset on the zero level i m wondering why christensen s graph doesn t show values that are centered on the zero level maybe that will become clear later on if i then divide each number in 1 0 1 by some value i make the numbers in the dataset smaller but they stay in proportion they also stay centered on the zero level unless i m having a brain fart that s lars christensen s standardization calculation pretty simple i can remember it but what does it look like i m getting to that i assembled the data for download from fred all quarterly data graph 1 the fred source data the red line is percent change from year ago gnp all of em are percent change from year ago the red line almost entirely hides the blue line which is gdp yeah not much difference there the green line is the s p 500 the orange line is the dollar index the gnp and gdp values start in 1948 the s p 500 values start in 1958 the dollar index values start in 1974 christensen s graph starts in 1990 if i have the chance to victimize christensen for anything it will likely be for chopping off the early years actually i m always on the lookout for changed behavior on graphs for if finance was once small but is now large one ought to be able to see evidence of that change and its consequences on lots of graphs and as christensen s graph in particular shows a very simple index to track market expectations of future ngdp and as expectations are perhaps a more significant force now than in the past we might be able to see the rise of expectations as a transition toward greater similarity in more recent times this would be a neat thing to see you can see on graph 1 that the green line has about twice the up and down spread that the orange line has and that both have a great deal more spread than the red and hidden blue lines i think dividing these series each by its own standard deviation will similarize the up and downs of the different series i think that was christensen s reason for dividing by the standard deviation number so i have some things to look at and some things to look for tomorrow we look posted by the arthurian at 4 00 am 0 comments labels standard deviation sunday august 11 2013 the crisis is results ue has a brief criticism of ngdp targeting and links to the article at pieria too many wrong vowels in that name somehow in the peoria article ue writes that the theoretical case behind ngdpt is quite weak i agree ue writes ngdpt could be vulnerable to a lucas critique style criticism where an attempt to exploit the observed relationship between rgdp and ngdp results in a breakdown as happened in the 1970s and we create stagflation in other words an increase in mv may just lead to an increase in p not y yeah that s my objection not the lucas critique part screw that the we just get inflation part there s no clear connection between increasing the q of m and increasing real output these market monetarists must have milton friedman turning in his grave the sumnerian thought is that real growth is always and everywhere a monetary phenomenon that s my objection not ue s ue thinks it may simply not be the case that an increase in the available stock of money translates into an increase in income at all a ttempts to increase the quantity of money in circulation will simply end up increasing bank reserves okay that s a good argument supported by the evidence but ue s objection is relevant only to the time of crisis mine is relevant to the time we re not in crisis ue recognizes the difference he writes in normal times the central bank can influence the cost of money and therefore indirectly affect py by affecting which activity is profitable or feasible but in times of crisis monetary policy cannot flog a dead horse and resurrect a stagnant economy i always argue from the normal economy not the crisis economy everybody else always argues from the crisis economy i know it s the crisis that brought the economy to everyone s attention but you can t look at the crisis and solve the problem because the problem existed before the crisis the problem created the crisis the crisis is results posted by the arthurian at 4 00 am 0 comments labels standard deviation saturday august 10 2013 10 181 world bank series added to fred this is one of them in the third white space from the bottom halfway between 80 and 120 draw a horizontal line that s gdp ...
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