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by the arthurian at 4 00 am 0 comments friday august 19 2016 productivity and debt service this graph shows productivity i have circled the low productivity of the past few years and also the low productivity of the 1990s in the years before goldilocks graph 1 productivity when i take that graph and add household debt service to it you can see that the circled years of low productivity are quite obviously related to the lows in debt service graph 2 productivity and debt service need i say more posted by the arthurian at 4 00 am 2 comments thursday august 18 2016 low debt service plus growing debt equals productivity the red line is productivity shown as percent change from year ago graph 1 household debt debt service blue and productivity red the blue line combines the household debt service ratio and the growth of household debt the two lines don t always match mostly because of the big spike in productivity that we typically get after recessions but set those spikes aside and the lines do at least hint at similarity the red oval mid graph highlights productivity and debt conditions during the goldilocks years the red oval on the right shows debt conditions even lower now than during 1993 1995 so there is plenty of room for things to go up productivity has been low since 2011 as the graph shows but productivity was also low after debt conditions bottomed out in the early 1990s just before the goldilocks years productivity is going to pick up soon posted by the arthurian at 5 11 am 4 comments wednesday august 17 2016 illicit use of the hodrick prescott the hodrick and prescott 1980 1997 filter hereafter the hp filter has become a standard method for removing trend movements in the business cycle literature i m reading notes on adjusting the hodrick prescott filter for the frequency of observations a short pdf by morten o ravn and harald uhlig the paper is 2002 by the president and fellows of harvard college and the massachusetts institute of technology so they re probably right most applications of this filter have been to quarterly data but data is often available only at the annual frequency whereas in other cases monthly data might be published this raises the question of how one can adjust the hp filter to the frequency of the observations so that the main properties of the results are conserved across alternative sampling frequencies their topic is tweaking the hp calculation to allow for different data frequencies i use kurt annen s vba code in excel to do the hp calculation the code creates a function named hp that does all the work all you have to give it is the range of source data and a constant the constant is how you allow for different data frequencies changing the constant changes the amount of smoothing you get when you graph the results the trick is to use the right value for the constant i ve always used the values 100 for annual data 1600 for quarterly data and 14400 for monthly data something i picked up from the eviews user forum a while back i have some old notes on it i shouldn t say i always use those values i always start with those values sometimes i change them for examples of how changing the value of the smoothing constant affects the results see this old post in this recent post i show why for one graph of monthly data i abandoned my usual monthly constant of 14400 in favor of my default annual value 100 the larger value smoothed all the information out of the result like kruger smoothing the head off a statue on seinfeld for quarterly data ravn and uhlig say the value 1600 is commonly used it seems 1600 is the value mr hodrick and mr prescott used in the article that introduced the hp filter but for annual data ravn and uhlig note four different values 100 400 10 and their own personal favorite 6 25 we then show that our recommendations work extremely well on u s gdp data using a value of the smoothing parameter of 6 25 for annual data and 1600 for quarterly data produces almost exactly the same trend this leads us to reconsider the business cycle facts reported in earlier studies as an example we cast doubt on a finding by backus and kehoe 1992 using a constant of 6 25 rather than 100 for annual data the authors produce almost exactly the same trend that they get for quarterly data with a constant of 1600 sounds good but let me ask do you really want to get the same hp trend for the two series on this graph graph 1 quarterly blue and annual red rgdp i don t think so the quarterly trend should show more detail maybe if i m looking at 50 years of data i d want to think of the trend for the data and it should be the same for both annual and quarterly but if i m focused on only a few years of data it s probably because i m looking for more subtle differences and i d want to see more wiggle in the trend for the more wiggly line i m not looking at the 50 year trend i m looking at what s happened since the crisis sometimes there s good reason to want the same trend from data with different frequencies but sometimes there s good reason to want different trends here are the two graphs from my recent post linked above and my thoughts at the time today i want to look at the monthly gdp data from macroeconomic advisers i have their data thru may now graph 2 monthly rgdp since jan 2009 with an unresponsive h p constant the blue line shows rgdp growth from 12 months prior the red line is the hodrick prescott using the constant i d normally use for monthly data i think this constant makes the red line a little too unresponsive there being only about seven years of data here is the same graph with a more responsive hodrick prescott graph 3 monthly rgdp since jan 2009 using a more responsive h p constant now the red line follows the blue more closely it helps us see the up and down pattern in the jiggy blue data we are at a low spot now and evidently rgdp growth has been trending down since the end of 2014 graph 2 shows a trend that is essentially flat graph 3 shows that rgdp growth has been trending down for a year and a half graph 3 is much more informative and its trend line clearly does a better job of showing the path of rgdp than does graph 2 but the thing of it is graph 3 uses the wrong smoothing constant it uses my default annual value on monthly data i chose the annual value on purpose because i wanted about as much smoothing on the monthly data as i normally get on annual data it worked ps i went out of my way to find monthly data for graphs 2 and 3 monthly because it shows more variation it would make no sense to smooth the monthly trend down till it showed as little variation as the annual posted by the arthurian at 7 05 am 2 comments tuesday august 16 2016 the relation between debt service and rgdp growth showing hodrick prescott curves for household debt service and real gdp growth 1980 83 a low level of debt service blue allows rapid increase in rgdp growth 1984 86 rising debt service hinders growth the red line peaks and turns downward 1986 89 reduced growth and reduced borrowing allow debt service to fall 1990 93 falling debt service encourages growth the red line bottoms and turns upward 1994 97 rising growth leads to increasing debt service 1997 99 rising debt service hinders growth the red line peaks and turns downward 2000 06 reduced growth and increased borrowing keep debt service rising 2006 08 reduced growth and reduced borrowing allow debt service to fall 2008 10 falling debt service encourages growth the red line bottoms and turns upward 2010 13 falling debt service encourages growth the red line rises 2013 16 the fall in debt service slows the increase in growth also slows easier to follow if you print out the page and mark it up the excel file contains vba code posted by the arthurian at 5 32 am 0 comments monday august 15 2016 debt service and economic growth some generalizations debt service is a financial cost imposed on the non financial sector on production and consumption to the extent that debt service moves money from the non financial to the financial sector it hinders production and undermines consumption the data on debt service is for households so i will confine my remarks to household expenditure to consumption when debt service is low consumers have more money left over for other things when debt service is high consumers have less money left over for other things when debt service is rising it is an indication that consumer debt is high or that consumer borrowing is on the rise if borrowing is on the rise gdp is probably on the rise if debt is high maybe not when debt service is falling it is an indication that debt has been falling or has been rising more slowly than usual if the latter gdp may be on the rise if the former maybe not posted by the arthurian at 5 11 am 0 comments sunday august 14 2016 reverse engineering the household debt service ratio looking at household debt service as a percent of disposable personal income wondering how income affects the data how debt affects it and how saving affects it at fred the debt service number is given as percent of disposable personal income i figured saving the same way and put the two together on a graph graph 1 debt service blue and household saving red relative to dpi my first impression was that the two lines tend to move in opposite directions away from each other before the 1982 recession but toward each other after it away from each other after the 1991 recession and then toward each other again and then away from each other from the late 1990s to the crisis and then toward and past each other so then i took and put a minus sign in front of the formula for the red line to turn it upside down graph 2 debt service blue and saving with a minus sign red with the red line other side up the red and blue do show signs of matching i got low and then high from 1985 to 1990 low and then high again then higher from 2000 to the crisis and then low the lines don t match well but do show signs of matching makes me wonder what i can do to make them match better i thought about adding consumer debt relative to disposable personal income to the calculation of the red line and then i remembered seeing those formulas that add two terms together after assigning a weight to each and i said yeah i can do that ended up using change in household debt relative to dpi and i just guessed some weights until i got something that looked somewhat like the debt service line and i added a constant to push the red line up closer to the blue here is the result graph 3 using savings and household debt to reverse engineer the debt service ratio oh was i pleased with myself the red line is very jiggy compared to the blue but i expect i can smooth it out by using a hodrick prescott calculation on it now i m picturing a red line that looks even more like the blue except everything happens about two years early so i can lag the red line about two years to make the lines more similar what that means is i ll get a peek into the future my most recent data from q1 2016 will show up as a prediction of debt service for 2018 now it s getting interesting i have to bring the data from fred to excel to do the lagging and the hodrick prescott i got all the data which will let me calculate a number back to 1952 instead of 1980 i love this stuff long story short i figured the hodrick prescott tweaked the weight values a bit by eye and lagged my calculated numbers 8 quarters here s the result back to 1980 graph 4 not perfect but not bad the two year lag is just about perfect for the high area from 2000 to 2009 for the early years the red line should be lagged a little less but look at that big drop after 2008 q1 at the peak the red line is a perfect match to the blue at the bottom by 2012 the lines have crossed the economy slowed down during the big drop i would need a longer lag there at the bottom to push the red line more to the right but the most interesting thing on this graph i think is that it makes a prediction about the path the debt service ratio will take it s going to go up the blue line like the red is going to go up the excel file posted by the arthurian at 4 00 am 7 comments saturday august 13 2016 what i said eleven months back here it is i finally found my old post from september 2015 almost a year ago i m gonna chop off the introductory stuff revise what s left to eliminate references to the introductory stuff and present it again 2½ times longer and 2½ times deeper suppose we take the household debt service graph and stretch the x axis a few years into the future fred lets me do that but when i capture and display the link it reverts back to 2015 anyway here s a screen shot image 1 next i change the blue line to dashed red turn off the recession bars stretch the graph out to the year 2030 again and take another screen shot then i load it into paint net use the magic wand at 20 tolerance to erase the white background and save the file as a gif image 2 then i crop it so it shows just the 1990s and put a black border on it actual size image 3 then i open up image 1 so i have two files to work with in paint net i create a new layer in image 1 i switch back to the cropped gif file make it twice as big no 2½ times as big and copy it then i switch back to image 1 paste the enlarged cropped gif into place flatten and save the file and show you what i got image 4 see how the first few years of the dotted red overlay follow very much the same path as the blue line after the 2007 peak this doesn t guarantee that anything will happen tomorrow of course but the striking similarity of the two downtrends makes me think that the uptrends might also turn out to be similar so we may soon get a few years when the economy seems pretty good again while debt races upward even faster than it did before the crisis if we have the stomach for that when those good years come you know whatever political party is in power will claim all the credit right now though nobody expects a few good years funny thing i had to cut off the last sentence this was the original ending right now though nobody expects a few good years i don t either i didn t expect the good years back in september of 2015 but i do now so that last sentence had to go posted by the arthurian at 4 00 am 0 comments friday august 12 2016 bill mcbride i don t expect a downturn for employment any time soon bill mcbride this graph at calculated risk shows the job losses from the start of the employment recession in percentage terms compared to previous post wwii recessions since exceeding the pre recession peak in may 2014 employment is now 4 3 above the previous peak note i ended the lines for most previous recessions when employment reached a new peak although i continued the 2001 recession too on this graph the downturn at the end of the 2001 recession is the beginning of the 2007 recession i don t expect a downturn for employment any time soon unlike in 2007 when i was forecasting a recession bill...
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