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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This is a slightly revised version of a piece that appeared on the Washington Post's The Hearing today.

In her testimony before the Joint Economic Committee today, Dr. Romer, Chair of the CEA, presented an explication of the progress of the financial crisis and the economic downturn, the anticipated effects of the measures undertaken and planned, and the outlook going forward. On most points, we're in agreement, so I'll only highlight some key issues of interest.

The outlook

I would characterize the description of the economic outlook as guardedly optimistic. We can't say much more, since Dr. Romer -- in line with historical practice -- did not provide specific forecast numbers associated with her testimony. She did indicate that the CEA forecast is in line with the Blue Chip forecast, of -2.1% annualized growth in 2009Q2 and leveling off in 2009H2. What specifically "in line" means is up for some debate; in

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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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From "Trade-Finance Pinch Hurts the Healthy," WSJ, 12/22/08:

The global financial crisis is drying up the financing that firms depend on for trade. That's making the global recession nastier and deeper than it otherwise would be.

As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.

The Deteriorating Trade Outlook

Here's the IMF's recent forecasts for exports -- from October and then November -- for world trade, disaggregated into advanced and developing country groupings.

Figure 1: Real goods and services exports by country group. Source: IMF, World Economic Outlook Oct. 2008; Nov. 6 WEO update.

These developments in trade financing suggest that

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A lot of what has happened to GDP growth over the past few quarters has, in a mechanical sense, depended upon developments in the external accounts. In this post, I examine whether mismeasurement of import prices might have induced mismeasurement of economic output. This idea was prompted by hearing a presentation of Nakamura and Steinsson a couple months ago. The abstract:

Product replacement is frequent in the micro-data that underlie U.S. import and export price indices. Also, prices change infrequently in these data. In constructing price indices, price adjustments that occur at the time of product replacements tend to be dropped. If price adjustments disproportionately occur at the time of product replacements then price adjustments are disproportionately unobserved. We show that this "product replacement bias" has distorted the measured long-run relationship between import and export prices and the exchange rate by a factor of between 1.7 and 2.1. Accounting for

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