President Obama's trip to China has returned to scrutiny the role of China's currency and macroeconomic policies in perpetuating global imbalances. [0] [1] [2]

Figure 1: Log real value of RMB (blue, left axis), and Chinese trade balance in billions USD at annual rates (red, right axis) from Chinese statistical sources, and twelve month trailing moving average (maroon). Source: IMF, International Financial Statistics, ADB, NBER and author's calculations.

Various observers have continued to ascribe a central role to real RMB appreciation to effect global rebalancing. I think it's useful to remember that, given a Chinese trade balance in excess of 260 billion USD, appreciation can only have a certain impact. From Cheung, Chinn and Fujii (forthcoming):

...using a single equation error correction model, allowing for coefficient shifts with Chinese accession to WTO, leads to a statistically insignificant estimate of the price elasticity. In

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There's been some discussion of how the GDP estimates for 2009Q3 might be revised downward in light of the September trade release [1]. e-Forecasting has presented its latest estimates up to October, and Macroeconomic Advisers through September. Macroeconomic Advisers writes:

...The increase in September was more than accounted for by a large positive contribution from nonfarm inventories (slower inventory paring in September than August). The level of monthly GDP in September was 0.9% above the third-quarter average at an annual rate. Average monthly increases of 0.3% per month during the fourth quarter support our latest tracking forecast of 3.3% growth in the fourth quarter.

The series are plotted below.

Figure 1: Real GDP in billions Ch.2005$, SAAR (blue bars), Macroeconomic Advisers 10/17 release (green), and e-forecasting 11/19 release (red). NBER defined recession dates shaded gray, assuming end occurs at 2009M06. Source: BEA 2009Q3 advance release, ...

Travis Berge and Oscar Jorda of the University of California, Davis have an interesting new paper on statistical criteria for distinguishing economic expansions from recessions.

Berge and Jorda evaluate rules of the form that would declare the economy to be in a recession when some indicator Yt falls below a specified threshold c, for example, saying that the economy is in a recession whenever GDP growth comes in below -0.6%. For any choice of the threshold c, there is some observed fraction of observations for which the economy wasn't in a recession and yet Yt was less than c (the false positive rate), and a fraction of the time when the economy was in a recession and Yt was less than c (the true positive rate). By choosing a lower value for c, there will be fewer false positives and fewer true positives.

The receiver operating characteristics curve

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Let supply and demand for widgets (y) be given by the following two equations, respectively:

(1) yt = αt + β x t + ε t

(2) yt = γ + δ x t + Γ z t + u t

Where x is the relative price of widgets, z is a government procurement policy for widgets, and ε and u are serially uncorrelated mean zero errors, E(ε u) = 0. Note that there is a time varying constant in the supply equation, α t.

How would one analyze the impact of a public policy, such as an increase in government procurement of widgets to place in public places, on the total number of widgets consumed?

First, solve the system for the endogenous variables. Suppose I want to know the reduced form expression for the quantity of widgets purchased. The invert the second equation, solving for x, and substituting into the first

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From NOAA's National Climate Data Center:

larger graph

From Temperature Anomaly FAQs:

The term "temperature anomaly" means a departure from a reference value or long-term average. A positive anomaly indicates that the observed temperature was warmer than the reference value, while a negative anomaly indicates that the observed temperature was cooler than the reference value.

The reference value used to create this graph was the average over the 1901-2000 period.

By Dian L. Chu, Economic Forecasts Opinions also at USA Today, WSJ One Spot, NPR, Current, Florida Today, Seeking Alpha (Editor's Pick), zero hedge, iStockAnalyst, StraightStocks , Daily Markets U.S. President Barack Obama has begun a nine-day tour of Asia at a time when the U.S. economy is struggling to emerge from a deep recession. But nothing looms bigger than China, the largest holder of

Why are the prices of so many commodities rising in an economy that seems to remain quite weak?

% change butter35 coffee21.8 cocoa20.2 copper89.1 corn-8.3 cotton38.6 gold32.1 hogs2.7 oats13.4 oil63.2 lead81.9 palladium75.9 platinum61.7 silver59.1 steel-0.9 sugar73.6 tin22.5 wheat-26.6 zinc55.4 average37.4 euro12

The table at the right summarizes the percent change between January 6 and November 11 in the cash prices of 19 commodities reported in the Wall Street Journal (downloaded via Webstract). The average commodity in this list has appreciated 37% since the start of the year.

A recent paper by Ke Tang and Wei Xiong documents an increasing tendency for commodity prices to move together over the last few years. A decade ago, what happened to oil prices was largely unrelated to movements in most other commodity prices. The graphs below show how the correlations between oil prices and

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Be afraid; be very afraid.

From "'Created or saved' doesn't add up", by Joseph Lawler:

...[t]he "created or saved" numbers are meaningless. The administration purposefully devised the metric to be nebulous. Without a counterfactual, showing the trend of unemployment in the absence of the stimulus, it is impossible to know how many jobs the stimulus saved.

But this is completely counter to what I learned in economics, and how, for instance, the CBO conducts analysis. I assume Mr. Lawler doesn't dispute the impartiality of the CBO (but who knows?). Here's the way real macroeconomists conduct analysis:

As the President has discussed, analysis done within the Administration has shown how his tax cuts have substantially offset the series of adverse shocks that have been buffeting the economy. Simulations of a conventional macroeconomic model show that, without the tax cuts, the level of real GDP would have been about 2 percent lower in the

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Last April I described new research on the role of oil prices in the recent recession. Here's an update on what's happened since then.

In a paper presented at the Brookings Institution last spring, I examined the post-sample forecasting performance of an equation originally published in 2003, which relates real GDP to past values of GDP and oil prices. I noted in April that if you had known in October 2007 the values of GDP through 2007:Q3 and what was about to happen to oil prices through 2008:Q2, you could have used that historical relation to predict the value of U.S. real GDP for 2008:Q3 with an accuracy better than 99.5%.

Solid line: 100 times the natural log of real GDP. Dotted line: dynamic forecast (1- to 9-quarters ahead) based on coefficients of univariate AR(4) estimated 1949:Q2 to 2001:Q3 and applied to ...

Bill Bonner (Daily Reckoning) – In 1949, the Soviets and the Allies divided Germany into two parts. One part followed a traditional capitalistic path to reconstruction. The other part took the socialist road. Remarkably, they kept this test going for 40 years.

Of course it was misery for many of the test subjects. People were so eager to get out of the East German control group, they risked their lives jumping over the barbed wire. Then, when the wall was down, the population of East Germany collapsed…more than one out of every ten people moved to the West!

But it was a great experiment for economists. Too bad they didn’t learn anything.