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ith ball and believes that the fed was correct to let it go no lehman brothers did not precipitate the financial crisis the better metaphor is that lehman was the first trailer in the park to be destroyed by the tornado whether it lived or died was not going to stop the financial forces that had been decades in the making and unleashed when the credit bubble popped i agree with ann rutledge a principal with new york based r r consulting and co author of two books on structured finance she noted it wasn t a mistake to let lehman fail it was a mistake to let it live so long i haven t yet tackled ball s monograph perhaps that would be a good project for my money and banking students in block 5 labels finance monetary policy no comments sunday july 17 2016 lies damned lies and ireland s gdp being an academic economist can be humbling while it involves learning lots of esoteric stuff it also makes one much more aware of how much one doesn t know but i know this much is true the total amount of goods and services produced in ireland did not increase by 26 3 in 2015 but that s what ireland s central statistics office has reported it s not entirely clear how they came to such a literally incredible figure for real gdp growth the expenditure approach to calculating gdp adds up purchases of new final goods and services in four categories consumption c investment i government purchases g and net exports nx i took the data from table 6 of their release and normalized each component to 100 in 2010 to illustrate how the change is driven by large jumps in i and nx news reports have focused on activities of multinational corporations particularly on inversions which involve transferring their legal headquarters to ireland in order to take advantage of its low corporate tax rates that may be correct but its not an entirely satisfying explanation gdp is supposed to measure the value of goods and services produced in a country the legal domicile of the corporations producing it is irrelevant ownership of capital both physical machinery equipment and structures and also intangible forms intellectual property etc also is irrelevant so the fact that multinational corporations like to hold ip in ireland for tax reasons shouldn t matter in principle gross national product gnp adds up the total value of goods and services produced with resources owned by a country s citizens since many multinational corporations operate in ireland it has higher gdp than gnp because some of its gdp is produced using foreign owned capital the same data release showed a shocking increase of 18 7 in ireland s gnp last year the information released by the cso is not very detailed the ft alphaville s matthew klein bloomberg columnist leonid bershidsky and seamus coffey at the irish economy blog have made useful attempts at sorting things out clearly the way the cso is calculating gdp is failing to correspond to the concept statistical agencies need to provide estimates calculated in a consistent fashion so it wouldn t have been appropriate for them to suddenly decide to calculate it differently because they got a strange number but the methods for estimating gdp are not etched in stone if legal and accounting maneuvers of multinationals are distorting some of their source data they need to find a way of correcting for it standards for national accounts are coordinated internationally and it is not clear whether the problems in this report are due to something the cso is doing or a more general methodological issue which happens to be most apparent because of ireland s unique circumstances statistical agencies update their methods and revise their estimates regularly e g in 2013 the us bea did a comprehensive revision that began the treatment of development of intellectual property as a component of investment see this earlier blog post i hope the cso will release more information to help everyone better understand what s gone wrong with their figures that will be a first step towards correcting the method used to estimate gdp and producing a revised set of figures one which will not show a 26 increase in real gdp in 2015 update procedures mandated by eurostat are mostly to blame writes colm mccarthy labels europe macroeconomics 2 comments tuesday april 19 2016 hysteresis in a new keynesian model i ve posted a draft of my research paper hysteresis in a new keynesian model on my website the paper proposes a way of modelling hysteresis and integrates it into a new keynesian macro model the widely noted rightward shift of the beveridge curve relationship can be interpreted as evidence of less efficient matching between employers and workers in the labor market in the paper i argue that less efficient matching is related to the increased duration of unemployment spells seen during the last recession and its aftermath there are several reasons why matching may be less efficient with a higher proportion of long term unemployed a loss of information as workers informal networks may dry up over time a stigma associated with long term unemployment i e it acts as a negative signal decreased search effort by long term unemployed i cite empirical evidence for 2 and 3 in the paper the paper does not take a stand on the mechanism causing the relationship between matching efficiency and duration of unemployment the model includes a diamond mortensen pissarides search and matching labor market framework where hires h are a function of the number of vacancies v posted by firms and unemployed u workers hysteresis is modeled with the assumption that matching efficiency a is a decreasing function of the average duration of unemployment spells rearranging the matching function to solve for efficiency and setting alpha to 0 5 we can see that a decrease in efficiency coincides with the increase in the duration of unemployment spells with hysteresis the response of unemployment to a negative productivity shock is smaller initially but more persistent as shown by the impulse response functions the reason for this is that in the absence of hysteresis firms can adjust their labor by sharply decreasing their vacancy posting with hysteresis the response of vacancies is less dramatic because firms take into account the fact that hiring will be more difficult in the future due to the decline in matching efficiency the model also considers demand shocks which take the form of shocks to the discount factor and monetary shocks deviations from the taylor rule with similar results overall hysteresis acts as a mechanism that increases the persistence of the response of macroeconomic variables to shocks since macro models struggle to generate endogenous persistence this may be one of the main selling points of the paper hysteresis also generates movements in the natural rate of unemployment which i proxy by computing the amount of unemployment that would occur if wages and prices were flexible taking as given the evolution of matching efficiency a from the baseline model the green line shows the change in the natural rate in response to a negative productivity shock note this is a revised version of the draft circulated last fall as my job market paper labels macroeconomics 4 comments tuesday march 1 2016 carbon taxes as an economist one of the biggest frustrations of discussions over climate policy is that we know pretty well what to do tax carbon or set up a system of tradable permits which has similar effects and that doing so will not be harmful to the economy people and firms respond to incentives and a carbon tax will motivate people to find the lowest cost ways to reduce emissions people are clever and the cost of reducing emissions will likely be much less than many envisioned eduardo porter s column about british columbia s carbon tax is yet another illustration of this he writes in 2008 the british columbia liberal party which confoundingly leans right introduced a tax on the carbon emissions of businesses and families cars and trucks factories and homes across the province the party stuck to the tax even as the left leaning new democratic party challenged it in provincial elections the next year under the slogan axe the tax the conservatives won soundly at the polls their experience shows that cutting carbon emissions enough to make a difference in preventing global warming remains a difficult challenge but the most important takeaway for american skeptics is that the policy basically worked as advertised british columbia s economy did not collapse in fact the provincial economy grew faster than its neighbors even as its greenhouse gas emissions declined it performed better on all fronts than i think any of us expected said mary polak the province s environment minister to the extent that the people who modeled it predicted this i m not sure that those of us on the policy end of it really believed it labels global warming microeconomics no comments monday february 8 2016 productivity pessimism i m hoping i ll have a chance to read robert gordon s new book soon though one of the ironies of being a college professor is that the job doesn t seem to leave much time to read fortunately gordon presents a condensed version of the argument in a recent bloomberg view column where he explains that he doesn t expect a return to the rapid productivity growth of the mid 20th century he writes the 1920 70 expansion grew out of the second industrial revolution when fossil fuels the internal combustion engine advanced metals and factory automation came together to produce electric lighting indoor plumbing home appliances motor vehicles air travel air conditioning television and much longer life expectancy the third industrial revolution computers and the internet is less significant in his view although revolutionary the internet s effects were limited when compared with the second industrial revolution which changed everything the former had little effect on purchases of food clothing cars furniture fuel and appliances a pedicure is a pedicure whether the customer is reading a magazine or surfing the web on a smartphone computers aren t everywhere we don t eat wear or drive them to work we don t let them cut our hair we live in dwellings that have appliances much like those of the 1950s and we drive in motor vehicles that perform the same functions as in the 1950s albeit with more convenience and safety our main measure of technological progress is total factor productivity tfp growth which is sometimes called the solow residual because it is calculated as a leftover by subtracting from output growth the portions that can be explained by changes in capital and labor that is it is the growth that would occur even if there was no change in the factors of production turning points in tfp growth can be hard to identify because the data are somewhat volatile from year to year and have a cyclical component with hindsight economists identified a productivity slowdown around 1973 and a resurgence with information technology playing a leading role in the mid 1990s however tfp growth has generally been weak since 2005 raising the question of whether the it led productivity boom is over data bureau of labor statistics this san francisco fed letter from last year discusses some of the reasons for the productivity slowdown gordon s book was the subject of an eduardo porter column and a paul krugman review update 2 25 in an interview with ezra klein bill gates argues against gordon s view labels growth macroeconomics 5 comments wednesday december 2 2015 fight for our principles principles of macroeconomics that is since it is under attack from noah smith who argues for eliminating introductory macroeconomics classes in a blog post he writes why should undergrads learn macro in their first year of econ if they go on to be econ majors they can easily start out with intermediate macro and not miss anything important if they just take the first year econ sequence and then go into the business world what do they really need to know i think this badly misunderstands what we re trying to accomplish in a introductory level course principles of macroeconomics is not about preparing students for business careers though business students certainly should take it as should everyone else the two main benefits of taking an introductory macroeconomics course are first it prepares students to be more knowledgeable and effective citizens among other things students come away from the class able to interpret data like unemployment inflation and gdp that they read about in the news they learn some basic facts about taxation and government spending that can help them evaluate claims made by politicians the federal reserve is pretty mysterious to most people students learn what it does and how monetary policy works and the basics of how a banking financial crisis can occur this seems particularly valuable in a time when the fed is facing political criticism which is at least partly based on its widely misunderstood response to a financial crisis second working with economic models develops thinking and mathematical skills smith makes the point that the models we teach in an intro class have their flaws as do the models we teach in phd level classes though i still think they re quite useful for thinking about a number of issues but the act of manipulating a model and working out how assumptions are linked to conclusions helps students become sharper thinkers and this stays with them long after they ve forgotten the specifics of any particular model at my current station i m teaching a one semester introductory course that covers both micro and macro topics but i had a full semester macro principles course at my previous stop an outline of what i did is posted here the time students have in college is a very scarce resource and the opportunity cost of any college class is very high but i think principles of macroeconomics is almost always a good choice though perhaps i m a little biased labels pedagogy 1 comment older posts home subscribe to posts atom for permanent links click on the post titles about me bill c i am an assistant professor of economics at colorado college my primary research interests are in the area of open economy macroeconomics view my complete profile twitter tweets by bill_craighead econ blogs etc adam smith s lost legacy aid watch easterly angry bear antonio fatas atlantic business channel bank underground baseline scenario bayesian heresy beat the press brad delong brad setser cbo director s blog calculated risk capital ebbs and flows j joyce capital gains and games center for global development china financial markets chris blattman clive crook clouded outlook conservable economist council of econ advisors crisis talk world bank curious capitalist time dani rodrik data points economy com david cay johnston dealbook donald marron eiu daily data point echoes econ academics 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