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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Does high unemployment mean that there's nothing to worry about in terms of inflation?

Since I'll be trying to answer this question quantitatively using some equations, I'll begin with some notation. Let ut denote the unemployment rate as of the end of a particular quarter t; currently ut = 9.8 for t corresponding to 2009:Q3. I'll presume that the question we're interested in is what sort of inflation rate we should expect over the next two years, and so I'll let πt+8 denote the average inflation rate (quoted at an annual rate) over the next 8 quarters as measured by the price index for personal consumption expenditures (data from FRED). Of course at the current time (t = 2009:Q3) we don't yet know what the value of πt+8 is going to be-- that's what we're trying to predict.

One way to come up with a prediction is to

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p style="text-align: left;"By Claus Vistesen: Copenhagenbr //pp style="text-align: left;"(please click on pictures for better viewing)br //pp style="text-align: left;"br //pp style="text-align: center;""Being a Keynesian means being a Keynesian in emboth/em the good and bad times."/p p style="text-align: center;"emAndres Velasco (Finance Minister in Chile) [1]/em/p pbr //ppIt has been a while since I last had a thorough look at Chile (a href="http://chileeconomy.blogspot.com/2008/10/chiles-economy-in-perspective-october.html"here/a and a href="http://chileeconomy.blogspot.com/2008/08/economic-growth-in-chile.html"here/a); more specifically, the last time I had Chile under the loop was in October 2008 and thus around the time when the global economy was about to enter two quarters (Q4-08 and Q1-09) of absolute horror. Whether we are past the worst at this point in time is debatable and I am, personally, skeptical with regards the narrative of second derivatives and green shoots, but it is hard to deny that it does represent a narrative and a fairly strong one too. In this context I thought ...

Note: This is a beta version. I will probably be going over it a couple of times before I am completely happy with it. Moreover, please note that all pictures can be seen in a bigger format by clicking on the which will open a new window or tab

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"Being a Keynesian means being a Keynesian in both the good and bad times."

Andres Velasco (Finance Minister in Chile) [1]

It has been a while since I last had a thorough look at Chile (here and here); more specifically, the last time I had Chile under the loop was in October 2008 and thus around the time when the global economy was about to enter two quarters (Q4-08 and Q1-09) of absolute horror. Whether we are past the worst at this point in time is debatable and I am, personally, skeptical with regards the narrative of second

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Here's an update of US imports and export behavior. The trade collapse remarked upon a couple of months ago is still in play.

Figure 1: Log goods import ex.-oil from NIPA (blue), and log goods exports ex.-agricultural goods (red), all in Ch.2000$, SAAR. NBER recession dates shaded gray. Source: BEA, GDP 2009Q1 preliminary release of 28 May 2009, NBER, and author's calculations.

The annualized drop in non-oil goods imports was 60.5% in 2009Q1 (log terms), while that of non-agricultural goods exports was 51.5% (both in log terms).

The misprediction by the standard (i.e., old fashioned) macroeconometric models (see [1]) documented in an earlier post persists. The model is given by:

Imp = α 0 + α 1 y + α 2 r

Where Imp is real imports, y is real income, and r is the real value of the dollar.

I estimate an error correction version of this

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div style="text-align: justify;"span style="font-weight: bold;"TARP repayment will drive hit to earnings for common/spanbr /Merrill Lynch /BAM notes that when TARP pfds were issued in Oct, related warrants caused a portion of the investment to be allocated to paid-in-capital (“PIC”) with this balance set to slowly accrete to preferred stock over 20 quarters. Repayment of TARP by GS, JPM and MS will force a reversal of remaining warrant value (through pfd dividend line).br /br /span style="font-weight: bold;"Warrant repay will drive Equity hit, but likely 3Q event/spanbr /They also expect each Co. will pay the government to extinguish attached warrants, but uncertainty remains as to valuation (e.g. what volatility will be used in valuing?). Whatever the value, they expect it to be a hit to common equity (without going through the Pamp;L) sometime in 3Q. The numbers are significant (anywhere from $700mn to $1bn+, by our calculation), but given the strong capital ...

I've been thinking about trying to convey exactly how startling the drop in U.S. imports has been. First, take a look how much non-oil goods imports (in real terms) have dropped, relative to, for instance, GDP.

Figure 1: Log GDP (blue, left scale), log goods import ex.-oil from NIPA (red, right scale), estimated from trade release (purple, right scale), all in Ch.2000$, SAAR. 2009q1 estimate is based on actual January and February data and March estimate incorporating continued 5% decline from February. NBER recession dates shaded gray. Source: BEA, GDP final release of 26 March 2009, February trade release, NBER, and author's calculations.

The annualized drop in these imports was 36.5% in 2008Q4 (log terms). In addition, with non-oil imports dropping about 5% (non-annualized, in logs) in the first two months of 2009, 2009Q1 imports seem set continue the drop. In Figure 1, I've assumed that the

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