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that the economy has yet to recover back to its potential the only real difference from earlier assessments is that cbo has slightly lowered its estimate of potential for comparison the next chart shows the recovery back to potential in the 10 quarters following the 1981 82 recession the difference between the two charts is striking and is why one can say that the current recovery is a recovery in name only in the second graph the reagan years graph real gdp quickly works its way back up to potential gdp in the first graph it does not despite the fact that cbo has slightly lowered its estimate of potential as taylor says mmm they do that cbo they have to lower potential gdp if real gdp fails to work its way back up to potential because cbo assumes that any gap between actual gdp and potential gdp that remains at the end of the short term two year forecast will close during the following eight years the two lines have to meet in ten years so if real gdp refuses to go up potential gdp has to come down as the creepy guy in beverly hills cop said how nice john cochrane looked at taylor s graphs and said we usually bounce back to the trend line now we re not well he s right about that in a speech to the union league club of chicago pdf 6 pages james bullard said the fomc has adopted an explicit numerical inflation target this is an important development as it may prevent the u s from repeating the mistakes of the 1970s in which a misreading of the size of the output gap led the fed to maintain easy monetary policies for far too long i have argued that the large output gap benchmark in which current economic performance is continually compared to the bubble influenced mid 2000s may not be realistic instead one may want to interpret the recent u s experience as a one time permanent shock to wealth in other words bullard is saying that we shouldn t draw potential gdp way up high like it shows on the first of taylor s graphs we should draw it lower to make a reasonable target that real gdp can reach let s set our sights lower he says as taylor noted that is what s happening we looked at it yesterday posted by the arthurian at 4 00 am 0 comments tuesday november 26 2013 historical revisionism okay i got a few vintages of potential gdp from alfred going back as far as 1991 i got 1991 i got every five years from 1995 to 2010 and i got 2013 these are real values inflation adjusted values and as it turns out there are all different measures of correction for inflation used for the various vintages the readme page in the alfred file says the 1991 series uses 1982 dollars the 1995 series uses 1987 dollars the 2000 series uses 1996 dollars the 2005 series uses 2000 dollars and the 2010 and 2013 series use 2005 dollars why make it simple right the first thing i want to do is convert everything to the same dollars so that when i put them on a graph it s apples to apples i did the work in a google drive spreadsheet this time i got quarterly data but the vintage series are expressed in dollars of some year not some quarter so i m taking an average of quarterly values for each base year value that i will need i m using the current gdp deflator values to convert the vintages for example for the data given in 1982 dollars i m dividing by the 1982 value of the current deflator series and multiplying by the 2005 value of the current deflator series for data given in 1987 dollars i m dividing by the 1987 value of the current deflator series and like that so i end up with everything in 2005 dollars based on the most recent data on prices i tell you these things because my method makes sense to me but i don t know if it would make sense to economists or to others here s the graph graph 1 from the in uniform dollars sheet of this google drive spreadsheet if you have trouble telling one series from another on this graph it helps to know that the data series end in date order see how that red line splits off low and ends around the year 2000 that red line is the 1995 series and it is shadowed by the 1991 series which ends a few years earlier those two series by the way were based on economic performance and economic thinking before the macroeconomic miracle of the latter 1990s by the year 2000 evidently economists had factored the miracle years into their thinking all of the potential gdp series shown for the year 2000 and after group together at a much higher performance level than the 1991 and 1995 series were the numbers influenced by the improved economic performance i would say so yes if you put your mouse cursor on the red line and follow it back to where it joins the others you can see that the numbers changed as far back as 1982 the 1995 prediction still shows no performance improvement but the 2000 prediction shows a performance improvement that goes all the way back to 1982 the four later series that all showed improved economic performance through the 1980s and 1990s suddenly break apart in the mid 2000s you can see the little golden stub of the 2000 series in the crotch there where the others veer apart that golden stub stops too soon but the next estimate by date the 2005 estimate green runs even higher than the 2000 estimate and shows no indication of weakening that estimate the green one was made before the global financial crisis the next estimate the purple one made after the onset of the global financial crisis is as much lower than the golden stub as the green line is above it and what could have caused this change the global financial crisis perhaps the most recent estimate of potential gdp the 2013 estimate is lower yet and i think you can see it lower than the others as far back as 2005 two or three years before the crisis isn t that odd posted by the arthurian at 4 00 am 4 comments labels historical revisionism monday november 25 2013 how to change the past i ve fiddled with hodrick prescott trend lines a bit and one thing i noticed is that they have a sorry kind of foresight they can predict the future but only in hindsight i did a post a while ago a post named hindsight actually in which i showed this fred graph graph 1 natural log of the inflation adjusted change in total credit market debt owed then i showed the same graph in excel with a hodrick prescott trendline added in graph 2 same as graph 1 with hodrick prescott trend thru 4th quarter 2007 i stopped the trend line at the high point of the blue line and wrote i stopped the hp calc at that point so that the later decline did not drag down the earlier years numbers so that the later decline did not drag down the earlier years numbers the hp calc is entered in excel as an array formula it takes as input a whole series of fred data for graph 2 i fed it data from 4th quarter 1952 to 4th quarter 2007 for graph 3 i fed it data from 4th quarter 1952 to 4th quarter 2012 that s the only difference graph 3 the blue line is the same as on graph 2 but the red line continues to 4th quarter 2012 notice that the red line no longer reaches up to the high blue peak the red line bends down early now around 2004 and begins the plunge while the blue line is still trending up to its high peak the trend line anticipates the future adding data for the years after 2007 to the hodrick prescott calculation changed the results we got for a few years before 2007 if that s not a sorry kind of foresight i don t know what is another example this from a second look at the heteconomist post graph 4 percent change in the non federal portion of tcmdo blue and the h p trend red the red line on graph 4 is a hodrick prescott trend of the debt data through 2007 graph 5 shows the same debt data and the h p trend again but this time the trend is based on all the data through 2012 graph 5 same as graph 4 except the h p trend is figured through 2012 on graph 4 the red line trends upward for the last few years before the 2007 end on graph 5 the red line runs flat until about 2004 when it starts to fall the decline since 2004 on this graph is the result of figuring in data for 2008 2012 look at it from the start of 2008 and it appears that the future changes the past the excel files on google drive nonfederal debt growth xls for the change in non federal debt graph dtcmdo rel gdpdef xls for the log of change in tcmdo graph both files contain kurt annen s vba code for the hodrick prescott calculation posted by the arthurian at 4 00 am 3 comments labels hodrick prescott sunday november 24 2013 bogmbase and ambsl they re not identical but the growth rates are similar both show lower growth before the early 1980s higher growth after seems to be a downtrend between the 1970 and 74 recessions and a low spot after 1974 during the great inflation oddly rumor was the growth of money caused the inflation posted by the arthurian at 4 00 am 0 comments saturday november 23 2013 looking at graphs it s what i do i m going to double down here on the idea that it s a simple monopoly and the fed as monopolist controls price and lets quantity float geerussell the quantity of money base money i m going to say it is controlled by the fed they target interest rates but to reach their target they control the q of m open market operations they call it graph 1 fedfunds blue and the growth rate of base money relative to gdp the red line on this graph considers base money in the context of gdp i think it s reasonable to say a bigger economy needs more money a smaller economy needs less and that s true not in real terms but at actual prices nominal terms the red line shows the percent change from a year before of base money relative to ngdp i m using bogmbase not ambsl they two seem to give quite different results i don t know why except the a in ambsl stands for adjusted a future post perhaps with interest rates generally trending up for the first half of the graph the trend of the red line is rather flat and definitely negative base money grew more slowly than gdp and little or no effort was made to boost basemoney growth with interest rates generally trending down for the second half of the graph the trend of the red line is again flat but about three percentage points higher than before by eye the trend runs a bit above zero now meaning that basemoney is growing faster than gdp look at it a different way graph 2 gdp blue and bogmbase red indexed to mid 1984 money grew slower than gdp before the index date and faster after posted by the arthurian at 4 00 am 4 comments friday november 22 2013 a simple six letter substitution marx i am not a marxist keynes i was the only non keynesian there exactly sometimes an idea gets simplified and popularized and changed so much that when it is attributed back to its source the source refuses to accept the credit the so called keynesians of the 1960s had already moved away from what keynes said they were inventing their own crap and calling it keynesian later then after they got crushed by inflation they came back with a new name the new keynesian economics i didn t know what that was i didn t know any of that history then but when i heard that name that s when i came up with the name that became the name of this blog posted by the arthurian at 4 00 am 1 comments thursday november 21 2013 free association michael leddy after a bad storm the weather is not destructive or unforgiving or violent it doesn t care about us it just is me summing inflation adjusted deficits the economy works the way it works without regard to our preferences the economy doesn t give a damn what we want to be true america s adam smith in the roaring 80s in the great depression economists wrote about unemployment as if it were a bad hailstorm then the keynesian revolution gave some hope that nations could do something about the economic blizzards that had previously been considered as random as the weather posted by the arthurian at 4 00 am 1 comments wednesday november 20 2013 a new style for fred posted by the arthurian at 8 46 pm 0 comments do i detect a change in thinking joshua wojnilower 5 december 2012 in normal times pre ior the fed could either control the interest rate or the monetary base but not both typically the fed elected to target the interest rate adjusting the monetary base in response to the actions of treasury and private banks now that the fed is paying ior and ioer it actually can control both the monetary base and the interest rate separately joshua wojnilower 18 november 2013 a quick comment on the effective federal funds rate during the period you highlight under the permanent floor system currently employed by the fed explained brilliantly by scott fullwiler the rate of interest on reserves currently 0 25 is expected to serve as a lower bound floor for the effective fed funds rate this expectation is based on the notion that no firm would sell loan a reserve at a price below that attainable by simply depositing the reserve at the central bank as your chart shows the effective federal funds rate has consistently been below the rate of interest on reserves over the period in view and a new graph graph 1 four discontinued series the purple line and three hidden by it and one current series green showing the floor created by interest on reserves at 0 25 and the effective fedfunds rate in the basement since january 2009 posted by the arthurian at 4 00 am 2 comments tuesday november 19 2013 the incomes flowing to the financial sector come at the expense of the rest of the economy in a post that s much too long and far too political john quiggin writes society as a whole would be better off if the financial sector were smaller and received much smaller returns yes indeed posted by the arthurian at 4 00 am 0 comments monday november 18 2013 real accumulated federal deficits relative to rgdp back on 10 november i showed federal deficits corrected for inflation graph 1 federal deficits corrected for inflation from the inflation adjusted deficits spreadsheet i said i want to add up the numbers and see what the accumulating total looks like if i add up federal deficits i get the federal debt so if i add up inflation adjusted federal deficits i get the inflation adjusted federal debt i want to see what that looks like by the end of the post i had done just that graph 5 from that post renumbered graph 2 the sum of inflation adjusted deficits as a measure of inflation adjusted debt from the inflation adjusted deficits spreadsheet what this gives me is a picture of the federal debt accumulated since 1947 adjusted for inflation but it looks nothing like what you usually see when people show the federal debt adjusted for inflation here s wikipedia s picture of the federal debt with the numbers deflated so every year is in 2010 dollars graph 3 from wikipedia my graph 2 does not include world war two debt or any debt before 1947 so mine starts at zero where the wikipedia graph in 1947 is already over two trillion bucks but that s not the big difference the big difference is that the lines are not the same shape g...
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