Discussions on low interest rates and the zero bound

From the University of Texas at Austin Economics Department:

Dr. Coibion on low interests: “One of the defining features of the current economic crisis has been the zero bound on nominal interest rates….

From the St. Louis fed:

Working Paper #2013-007C;  ” Global Dynamics at the Zero Lower Bound“,    by William T. Gavin, Benjamin D. Keen, Alexander Richter and Nathaniel Throckmorton

Abstract: …We also evaluate how monetary policy affects the likelihood of hitting the ZLB. A policy rule based on a dual mandate is more likely to cause ZLB events when the central bank places greater emphasis on output stabilization.

The cost of fiscal uncertainty on the U.S. economy

New study quantifies the cost of fiscal uncertainty. They find:

Fiscal Policy Uncertainty: Since late 2009, fiscal policy uncertainty has raised the Baa corporate bond spread by 38 basis points, lowered GDP growth by 0.3 percentage points per year, and raised the unemployment rate in 2013 by 0.6 percentage points, equivalent to 900,000 lost jobs.

Read the full report

Estimates of $40,000,000 loss in cattle in S.D. blizzard

state officials estimate a death toll of as many as 20,000 cows. An official number may not be known for weeks as producers continue to search for livestock. But the loss has become about more than the economic devastation, which could linger for years and put some producers out of business. South Dakotans are fiercely self-reliant, but they now feel invisible as they ask federal officials to lend a hand.

http://www.nytimes.com/2013/10/16/us/as-south-dakota-ranchers-face-storms-toll-us-helping-hands-are-tied.html?hp=&adxnnl=1&adxnnlx=1381932922-6WTOQQi4qDmSUMLNVp2P7A

Probability of another recession: 1.34% according to the Federal Reserve Bank of St. Louis

Economists at the St. Louis Fed periodically estimate the probability of a U.S. recession.  The econometric model that they use incorporates monthly data on non-farm payroll employment, industrial production,  personal income,  manufacturing sales,  and trade sales.  The model was fairly successful at predicting the most recent recession in 2008.   See graph below.

 

recessiongraph

U.S. Recession Probabilities

http://research.stlouisfed.org/fred2/series/RECPROUSM156N?cid=33120

2013-07: 1.34 Percent

2013-06: 0.66
2013-05: 0.36
2013-04: 0.58
2013-03: 0.44

Monthly, Not Seasonally Adjusted, Updated: 2013-10-01 8:11 AM CDT

 

Details:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

For additional details, including an analysis of the performance of this model for dating business cycles in real time, see:
Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008, 26, 42-49.
(http://pages.uoregon.edu/jpiger/cp_realtime_2_020907.pdf)

For additional details as to why this data revises, see FAQ 3 athttp://pages.uoregon.edu/jpiger/us_recession_probs.htm.

Econometric study finds that UI benefits extensions caused increased in unemployment rates during great recession

Authors find that the “persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility”

http://www.philadelphiafed.org/research-and-data/events/2013/macroeconomics-across-time-and-space/papers/Manovskii0501.pdf

Authors:

 

Marcus Hagedorny
Fatih Karahanz
Iourii Manovskiix
Kurt Mitman

 

Earnings losses, fringe benefits multipliers, and taxable income

In earnings losses analyses which is relevant: total earnings or total taxable earnings?

A: Total earnings. Taxes and tax laws are subject to change. Additionally, fringe benefit values, such as those obtained from US BLS are based on earnings not taxable income.

Bottom line: tax treatments generally need to be backed out of income numbers when analyzing earnings losses.