Data and code to implement here. Video of a lecture presentation of the research here. Effects of index-fund investing on commodity futures prices, International Economic Review , 56 February : Coauthored with Jing Cynthia Wu. Working paper version here , data and replication code here.
Prospects Weekly: The up-tick in market tensions have caused CDS rates to rise sharply
Monetary Policy Forum , pp. Initiative on Global Markets, Chicago Booth. Working paper version here , executive summary here. Edited by Jeffrey Miron. Washington, DC: Cato Institute. Coauthored with Michael T.
- Anglo-Iranian Relations since 1800.
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Macroeconometrics: Developments, Tensions, and Prospects by Kevin D. Hoover - acoreqokyx.ga
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Working paper version here and a description of the paper written for a general audience can be found here. Co-authored with Tatsuyoshi Okimoto. Engle, pp. Description of the paper for a general audience here. Articles summarizing this paper for a more general audience:  causes ;  consequences. Also available are data and software to reproduce any of the results in this paper. Ciorciari and John B. Taylor, Stanford: Hoover Institution Press, Working paper draft available here. Book can be ordered from Amazon here. An article summarizing this paper for a general audience is available at Econbrowser.
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Articles summarizing this paper for a more general audience:  , . For an illustration of how these estimates relate to developments in January , see this analysis. Econometric Reviews , , vol 26, no , pp. Click here to download computer code used in the analysis. Click here to download computer code and data sets used in the analysis.
Co-authored with Anna Maria Herrera. Click here to see a copy of the paper or to download data and programs. Co-authored with Michael Davis. Paper can be downloaded as can the data and software used in the study. What Is an Oil Shock? Journal of Econometrics, April , vol. A working paper version can be downloaded as can the data and software used in the study. Co-authored with Oscar Jorda. Working paper version can be downloaded. Co-authored with Dong Heon Kim Working paper version can be downloaded as can the data and software used in the study.
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Hoover, Boston: Kluwer Academic Publishers, Time Series Analysis, Princeton Univ. Press, Click here to order from amazon. Here is a list of items that have updated or corrected from the earlier printings. If you have other suggestions to add to this list, please let me know. Click on pictures at right to order Japanese translation two-volume set. Engle and D. McFadden, North-Holland, Maddala, C. Second, it can be hugely expensive and highly disruptive to shift production out of China, especially if there is uncertainty about whether other countries will provide the quality and efficiency for which China is known.
There are anecdotal reports that some companies, having shifted production from China to Vietnam, are not happy with their decision, with some even returning to China. Plus, there is likely concern that the United States could impose tariffs on other countries. Indeed the United States has threatened tariffs on Mexico and discussed possible action against Vietnam—both countries that have been seen as potential sites to which facilities can be shifted.
The drop in outbound investment has many explanations. These include Chinese government efforts to curtail capital outflows in order to stabilize the currency, US government restrictions on inbound investment in technology companies, and uncertainty about trade and other aspects of the US-China relationship. The majority of the negative yielding debt was issued by three countries: Germany, France, and Japan.
This unprecedented situation raises a number of questions. One of them I often hear is this: How is it possible for negative yields to exist? Why would any investor purchase a bond that offers a negative yield? The answer is that many large institutions need to keep some part of their portfolios in safe assets where there is no risk of capital loss. Given that they cannot simply stuff cash in a mattress, they are willing to accept a negative yield on bonds for which there is no risk of capital loss or default.
Yields on bonds are negative for several reasons. These include low and declining expectations of inflation, low expectations of economic growth, strong demand for safe assets at a time when business investment is weak, and expectations that the European Central Bank ECB will resume purchases of government bonds. Some observers see the negative yields as evidence of a bubble in the bond market. Others, however, believe that stark demographics have contributed to a long-term trend of very low inflation, thus ensuring that bond yields will remain low or negative for some time to come.
Yields on US government bonds remain positive, in part a reflection of faster economic growth and higher inflation than in Europe and Japan. The reality, however, is that although US yields are positive, they are actually negative when adjusted for inflation. The yield on the year bond is currently 1. Thus the real yield on the bond is roughly In other words, investors expect that, after inflation, they will lose some of their capital when purchasing US government bonds.
It is not the first time this has happened. A long-term bond yield is, theoretically, a prediction about the future of short-term rates. Thus a negative real yield means that investors expect future short-term rates to be lower than the rate of inflation. This implies that they expect the Federal Reserve to cut rates in the future in order to offset weak or negative economic growth.
Is it possible that nominal US yields will fall into negative territory? If investors were to become more pessimistic about US growth and inflation, and if the Federal Reserve reverts to asset purchases as part of an effort to ease monetary policy during a future recession, then yields could fall quite quickly. Moreover, trade uncertainty has boosted the attractiveness of safe assets. US Treasuries are seen as especially safe along with German and Japanese government bonds. If the trade war worsens, one can imagine a scenario in which money flows more rapidly into US Treasuries, suppressing yields and boosting the value of the US dollar.
Actually, this is already happening with US bond yields falling and the US dollar rising. Until about 30 years ago, most recessions in industrial countries came about due to economic overheating and the commensurate tightening of monetary policy. A decline in demand led to a surge in inventories and the need to cut back production, contributing to a recession. In recent decades, however, this has not been the case. Rather, recessions have mostly come about due to financial imbalances. This reflects the shift away from a goods-based economy toward a less volatile services-based economy, implementation of information technology thereby enabling better inventory management, and better central bank management of inflation expectations.
What will cause the next recession? Financial imbalances remain a possibility, especially as the world has loaded up on corporate debt. But the next recession might come about due to a collapse of investment in light of trade wars and trade uncertainty. It is worthwhile to recall the Smoot—Hawley tariff in the midst of the Great Depression. While economists mostly agree that the Smoot—Hawley tariff did not cause the Depression, they also agree that it exacerbated the downturn significantly.
The tariff, which was legislated by the US Congress in , caused import prices to rise by more than 40 percent. It was followed by retaliatory action by other countries. It led to a 66 percent decline in global trade. While the tariff actions recently taken by the United States and China are not as dramatic, they are the most significant protectionist actions since the Great Depression and are already having a negative impact on global economic activity. When the next recession comes, will central banks be able to act? Yes, but with interest rates already low, central banks are constrained to a degree never before seen.
Would lower interest rates do anything when they are already historically low or negative? Possibly not, especially in countries where rates are close to or below zero. And would quantitative easing asset purchases make any difference if business investment is held back by trade uncertainty? However, it is likely that quantitative easing would not be as impactful as in the last recession, especially given that financial market stress is not likely to play as large a role in the next recession as it did in the last one. Finally, would governments engage in fiscal stimulus? That is a political question and is already a source of debate in Germany.
Still, in an environment of historically low interest rates and stifled business investment, fiscal policy could be the best solution to a downturn absent a reversal of the trade war. Notably, fiscal stimulus in China is already having some positive impact there. The US government released its latest employment reports last week.
There are two reports: one based on a survey of establishments and the other based on a survey of households. The establishment survey findings 29 revealed that , new jobs were created in August, the lowest in three months and relatively low compared to growth over the past year. Monthly job growth has averaged , in , down from , in Thus it appears that the job market is decelerating. That said, it should be noted that job growth continues to exceed the level needed to absorb new entrants into the labor market.
Thus it remains a healthy and very tight job market. Employment in the mining industry, which includes oil and gas production, fell for the third consecutive month as relatively low energy prices took a toll on employment in the industry. The manufacturing sector produced only 3, new jobs after producing only 4, in the previous month.
We already know that manufacturing output is declining, so the weakness in employment is no surprise. There were only three industry categories that saw strong job growth. These were professional and business services such as Deloitte , which was up 37,; health care, which was up 36,; and government, which was up 34, The third category was boosted by temporary hiring in anticipation of conducting the decennial census. Excluding the surge in government employment, job growth was fairly modest.
In addition, survey results reveal that average hourly earnings were up 3. Thus despite the tightness in the job market, we are not seeing an acceleration in wages. This is a surprise and a puzzle for economists. It demonstrates that, contrary to past experience, the tightness in the job market is not creating inflationary pressures. There is a debate among Federal Reserve leaders as to whether the weakness in wages will be sustained or is only a temporary phenomenon. If temporary, then higher inflation remains a risk and the Fed should be cautious about easing monetary policy.
If, however, the weakness of wages is here to stay, then the Fed can more confidently ease monetary policy. The findings of a separate survey of households 30 indicate that the unemployment rate remained steady at 3. The number of people participating in the labor force grew much faster than the growth of the working age population. The result was that the participation rate increased to match a level last seen in February and the second-highest level since The participation rate had steadily fallen since the start of this century but stabilized around The tariffs imposed last week target apparel and other consumer goods, auguring an increase in consumer prices in the months ahead.
Chinese retaliatory tariffs also went into effect, specifically targeting soybeans and other farm products. The two sides were set to hold high-level meetings this month. However, China has indicated that the United States must halt new tariffs in order for talks to proceed. In response to the WTO action, equity prices and bond yields fell as investors became more pessimistic about a resolution of the trade dispute.
The value of the Chinese renminbi fell to the lowest level in more than 10 years, approaching 7. Specifically, the central bank cut the required reserve ratio RRR for banks, 35 thus enabling them to boost the volume of lending. This was the third time this year that the RRR has been cut.
Global Economic Prospects 2015
Lately, the central bank has allowed the renminbi to decline in value. It also boosts the competitiveness of Chinese exports to other countries. And, it irritates the United States, which recently labeled China a currency manipulator. This is especially true in light of reports that a trade deal is highly unlikely any time soon. However, it should be noted that monetary policy tends to act with a lag.
Therefore, it may take some time before results are seen. It mostly focused on microeconomics, analyzing how buyers and sellers in a given market act when there is a paucity of information. It examined the impact on output, demand, pricing, and investment. As a student focused on macroeconomics, I found the class to be interesting but not especially relevant to the topics that interested me. Boy was I wrong! Today, uncertainty is arguably the dominant factor driving the global economy and the principal factor creating the risk of recession.
Imagine you are a US-based technology company that produces goods in China. If you know with metaphysical certainty that the United States will impose a 25 percent tariff on all Chinese imports next week, that those tariffs will remain in place for a decade, and that the United States will not impose similar tariffs on other countries, you might not be happy, but you can make an informed decision. You might decide to invest heavily in shifting production from China to Vietnam or you might invest heavily in technologies meant to reduce your costs. You could even decide to do nothing, hoping that US consumers will not be especially price sensitive.
The point is that with a degree of certainty, you can decide on an action. This, by the way, describes the current environment, and it that has already caused countless companies to put major investments on hold. And, finally, this uncertainty has contributed to the slowdown in economic growth around the world. It can be argued that the uncertainty about tariffs has done more damage than the tariffs themselves. However, the tariffs have only recently risen to a level that will be onerous to consumers and businesses. Thus, the direct impact of tariffs is likely to be much greater in the months ahead than was true in the past year.
Lately, uncertainty has become greater. Amid this, investor sentiment has gone back and forth, with asset price volatility being relatively high. Many business leaders have started to express frustration. They are extremely averse to uncertainty and would most likely prefer the certainty of onerous tariffs to uncertainty about everything.
Where does this end? Finally, uncertainty extends beyond the realm of trade. The uncertainty about how trading relations will evolve has created uncertainty about how central banks will react. But fitting trade policy uncertainty into this framework is a new challenge. We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives. When the United States announced it would impose new tariffs on China, the Chinese central bank allowed the renminbi to depreciate.
It did this by not intervening in currency markets in order to prop up the value of the renminbi. The central bank simply stopped intervening in the market, allowing market forces to determine the value of the currency. In fact, the IMF now agrees with this assessment. The IMF has not. Rather, the IMF has issued a report saying that China ought to allow the value of its currency to decline in the face of increased trade restrictions. That is what exchange rates are for. In principle let the market decide.
It sets the stage for the United States to impose sanctions. Yet the tariffs already implemented are far more onerous than any sanctions that could be introduced. Still, the label shook Chinese officials, leading to a quick stabilization in the value of the currency. Now, with the IMF backing up China, it becomes more likely that China will feel it can let the currency fall further with impunity.
In August, the renminbi fell 3. The only thing that has changed is that the central bank has not intervened to prop up its value. A further decline in the value of the renminbi is expected to partly offset the impact of rising tariffs and help to improve the competitiveness of Chinese exports. China has responded by imposing new tariffs on imports from the United States. The Chinese tariffs, combined with a rising value of the US dollar, will significantly hurt US export competitiveness. The dollar has lately been strong despite an easing of monetary policy by the Federal Reserve.
In Argentina, a crisis is brewing largely because of the results of the recent primary election—incumbent President Mauricio Macri, who is held in esteem by the investment community, was defeated by the Peronist candidate, Alberto Fernandez. Fernandez is expected to return Argentina to populist policies if he wins the general election later this year. The election result led to a very sharp drop in the value of the peso as investors sought to take money out of the country. While investors were not pleased, many indicated that this helps to reduce default risk and buys the government time.
It also alleviates stress in anticipation of the election. Fernandez has criticized the austerity plans of Macri but has not offered an alternative. That is why investors tend to be wary of Argentine debt, pricing it accordingly. The current default came about because Argentina was not able to sell a sufficient volume of short-term paper to fund repayment on maturing debt.
Argentina subsequently chose to postpone repayment. This constitutes default under our criteria. If investors expected the economy to grow at a reasonable pace, then there would be greater optimism about the ability to service debts. It is the lack of growth, driven in part by a lack of investment, that continues to spook investors. View in article. Trading Economics website , accessed September 18, Trading Economics website , accessed September 20, Trading Economics website , accessed September 17, John T. Nicholas R. Data sourced from the Trading Economics website , accessed September 10, Trading Economics website , accessed September 10, Bonds , Trading Economics , accessed September 3, The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting and thought-provoking content for external and internal audiences.
See something interesting? Simply select text and choose how to share it:. Weekly global economic update has been added to your bookmarks. Weekly global economic update has been removed from your bookmarks. An article titled Weekly global economic update already exists in the bookmark library. Social login not available on Microsoft Edge browser at this time. Welcome back. Still not a member? Join My Deloitte. Weekly global economic update By Dr. Ira Kalish. Article 24, September, Ira Kalish United States.
The Fed takes cautious steps The Fed responds to shortage in short-term funds Saudi Arabia oil attacks could create a supply shock India cuts corporate taxes Week of Sep 16, Week of Sep 09, Week of Sep 02, View in article Trading Economics website , accessed September 18, View in article Trading Economics website , accessed September 20, View in article Trading Economics website , accessed September 17, View in article John T. View in article Nicholas R.
View in article Data sourced from the Trading Economics website , accessed September 10, View in article Trading Economics website , accessed September 10, View in article Ibid. View in article Bonds , Trading Economics , accessed September 3, View in article Show more Show less. Deloitte Global Economist Network The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting and thought-provoking content for external and internal audiences.
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