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cession bar after 2025 will be even wider than what the graph shows and the recession more severe than the last one but you take my point if the debt service curve is going down then going down more slowly then going up instead of down then going up more quickly this is what the graph must look like and if debt service goes up and up productivity will improve and the economy will show vigor for a while at least i took the eight data values for 2014 and 2015 the slowly down and slowly up drift in the curve and used those eight values to create a trend line in excel the trend line runs into the past and future to show where debt service will be and where it would have been if those eight values determined the path of debt service graph 7 household debt service and the 2014 2015 trend the original eight values are shown in red at the end of the blue line just at the bottom of the u shaped trend line going forward the u shaped trend provides an estimate of the future path of the blue line the future path of household debt service going backward the u shaped line is not an exact match to the blue line during its rapid 2007 2013 fall but the lines are close enough to make you stop and think and that means the right side of the u curve the side that imagines the future is likely also a pretty good estimate time will tell in the meanwhile i have to look i have to see if i understand what s going on i have to see if i understand the economy i made a screen capture of household debt service in the 1990s so we can look at the dip bottom and recovery dbr of that time it is shown here in place in the 1990s as a dotted green line in a black box overlaid on the original blue line graph 8 capturing the dip bottom and recovery of the 1990s i took that image of the 1990s with the green dots there took that image and scaled it up by a factor of 2 5 that is 2 5 times as tall and 2 5 times as wide then i moved it so that the dip of the 1990s lines up with the 2007 2013 dip on the blue line graph 9 looking at current conditions as 2½ times the size of the 1990s conditions the green dots the 1990s data scaled up by a factor of 2 5 the green dots make a very good match to the 2007 2013 downtrend of the blue line a very good match the green dots also suggest that the debt service recovery will happen sooner than excel s u curve says this makes me stop and think excel s u curve is based on the most recent two years of debt service data only two years of it but the most recent two years perhaps the debt service recovery will not come as quickly this time as it did in the 1990s that seems a reasonable conjecture excel s u curve seems to me a better bet than my scaled up green dots from the 1990s so i grabbed the image of the 1990s again and stretched it still 2 5 times as tall but this time 3 times as wide three times the duration i fitted the green overlay to the blue line as before graph 10 looking at current conditions as 3 times the duration of the 1990s conditions the scaled up green dots from the 1990s align with the 2007 2013 fall of the blue line as before and this time the green dots of the 1990s recovery align quite nicely with excel s u curve what does it mean really really it means nothing it s a prediction still if the prediction turns out to have been correct it means maybe i do have a pretty good handle on the economy time will tell it all comes down to prediction on my part you don t expect the economy to pick up you don t expect vigor you don t expect productivity to rise i look at debt service in the 90s and say that pattern is being repeated right now no you say the economy is different since the crisis and you are right different it is maybe things won t pick up this time maybe the economy will stay as flat as my recent blogger stats but everything i read tells me that people are tired of this washed out recovery which is less a recovery than a continuing depression people are tired of it people are ready for recovery nobody believes me when i say vigor but everybody s ready for it it will happen it won t happen because of my charm and wit but it will happen it will happen because people are ready for it nobody was ready yet in 2010 everybody wanted it but everybody knew vigor was unrealistic today people don t say vigor is realistic but everybody wants it we re not saying vigor is possible but we re hungry for it you know what that is that s expectations expectations have turned can vigor be far behind the excel file for the first three graphs makes use of the fred series ophnfb_pc1 nonfarm business sector real output per hour of all persons percent change from year ago quarterly seasonally adjusted posted 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...
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