Jeffrey Frankel Harpel Professor of Capital Formation & Growth Economic Outlook:
Wettern, Joern, Contributing Editor has reference to this Academic Journal, PHwiki organized this Journal Jeffrey Frankel Harpel Professor of Capital Formation & Growth Economic Outlook: The Road Ahead April 20, 2010 7:00 a.m. – 9:00 a.m. Toronto Board of Trade The US recession The global economy International as long as ecasts as long as 2010 The G-20 in 2010 The problem of global imbalances Addenda on the crisis of 2007-2009 Origins of the financial crisis Policy response: How did we avoid a Great Depression Intellectual implications as long as the field of economics Topics The US Recession The US recession started in Dec. 2007 according to the NBER Business Cycle Dating Committee. In May 2009, the recessions length passed the postwar records – 1973-75 & 1981-82 = 16 months One has to go back to 1929-33 as long as a longer downturn. Also the most severe, by most measures: rise in unemployment rate, job loss, output loss .
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June 2009 (II) or later > 18 months [not yet declared] US employment peaked in Dec. 2007, which is one reason why the NBER BCDC dated the peak from that month. 8 million jobs were lost over the next two years. Payroll employment series Source: Bureau of Labor Statistics Payroll employment series Source: Bureau of Labor Statistics, April 2010 Jobs peak Jobs trough My favorite monthly indicator: total hours worked in the economy It confirms: US recession began Dec. 07, turned severe in Sept. 08, when the worst of the financial crisis hit (Lehman bankruptcy )
US employment fell fully in proportion to GDP, unlike the labor hoarding pattern of the past. In Germany, by contrast, the recession has shown up only in GDP, not at all in employment. Source: OECD Economic Outlook, April 2010 Unemployment in the US has risen above Europe as long as the first time in decades
Most indicators began to improve in mid or late 2009 Interbank spreads Output Stock market Consumer confidence & spending Even housing measures have bottomed out. The labor market has been terrible. But even it has responded with lags no worse than usual. OECD Econ.Outlook, April 2010 Evidence that the banking sector returned to normal by late 2009. Start of US sub-prime mortgage crisis Lehman failure OECD Economic Outlook, April 2010 Evidence that the banking sector returned to normal in late 2009.
% % Corporate bond rates have come back down too. OECD Economic Outlook, April 2010 Now < interest rates in the (mild) 2001 recession. According to the OECD, equities are not overpriced: P/E ratios are about normal. (though I wonder if they have gone back far enough in computing the average.) Source: Jeff Frankels blog, Nov. 2009 The usual cyclical pattern of recovery began in 2009, Q II: 1. Leading indicators come first. 2. Output indicators come next. 3. Labor market indicators come last. The economic roller coaster went into free-fall in the 3rd quarter of 2008. Total hours worked in the US economy (an indicator that does not lag as far behind as unemployment) began to turn upward in October 2009 Source: New series from BLS covering the entire private economy. 4/8/2010 Employment Lags Behind GDP In this recession U.S. job loss has been especially bad, but the lag in recovery behind GDP has not been unusual. Recession of Mar. 2001 Nov. 2001 Recession of Dec. 2007 National income has been more reliable than GDP, even though they are supposed to measure the same thing. Recession of July 1990 March 91 Recession of Mar. 2001 Nov. 2001 Recession of Dec. 2007 Danger of a W-shaped recession Dem in addition to growth in the last 3 quarters came in large part from: fiscal stimulus, & ending of firms inventory disinvestment. Both sources of stimulus will run down in 2010. We must hope consumption & investment are catching fire. Furthermore, there could always be new shocks: Another Icel in addition to or Dubai or Greece Hard l in addition to ing as long as the $ Geopolitical/oil shock I put the odds of a double dip recession as rather small, but big enough to have persuaded the NBER BCDC in our April 8 meeting to wait longer be as long as e declaring the 2009 trough. The global economy quickly followed the US into recession, Source: OECD Economic Outlook, April 2010 in addition to now back out again (starting 2009, QIII) Unemployment is as long as ecast to come down only slowly (typical of financial crashes) Source: OECD Economic Outlook, April 2010 The countries with the big housing bubbles suffered the most severe recessions measured by unemployment Source: IMF World Economic Outlook, April 2010 IMF World Economic Outlook, April 2010 Unlike the U.S. & Spain, where job loss >> GDP loss, other countries like Germany & Japan had it the other way around. Unlike the U.S. & Spain, where job loss >> GDP loss, other countries like Germany & Japan had it the other way around.
De-coupling turned out to be real after all at least with respect to East Asia, which has rebounded very strongly over the last year, after a sharp loss of exports over the preceding year, from 2008 QI to 2009 Q I. Chinas growth has not only returned to its blistering pace of > 10% but by now is a source of global growth because China is now a much larger share of the world economy than in the 1980s or 90s. India, Indonesia, & other Asian countries also weathered the global recession well, in addition to are growing strongly. RGE Global Economic Outlook Q2 2010 Draft, as long as release April 20 Roubini Global Economics Real GDP (% chg, y/y) Country 2009 2010 USA -2.4 2.8 Japan -5.2 2 Eurozone -4.1 0.9 UK -5 1.1 G7 -3.4 2.2 Advanced Economies 1 -3.4 2 Asia 2 3.6 6.9 Asia ex-Japan 5.8 8.2 Latin America 3 -2.1 4.3 EMEA 4 -3.5 3.1 BRICs 4.9 8.3 BICs 5 7 9 World -0.8 3.7 1 Includes USA, Canada, Japan, UK, Eurozone, Sweden, Denmark, Australia & NZ. 2 Includes Japan, China, India, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Korea, Taiwan & Thail in addition to . 3 Brazil, Argentina, Mexico, Chile, Peru, Colombia & Venezuela. 4 Turkey, Russia, Kazakhstan, Ukraine, Czech Rep., Hungary, Slovakia, Pol in addition to , Romania, Bulgaria, Egypt, Saudi Arabia, UAE, Israel, Nigeria, S. Africa 5 Brazil, India & China; or BRICs excl. Russia. Global Growth Forecasts
Five leading as long as ecasts of growth in 2010 Source: Michael Mussa, Global Economic Prospects as long as 2010 in addition to 2011, PIIE, April 8, 2010 The G-20 in 2010 Canada & Korea will host the summit meetings in June & November, respectively. The true significance of the G-20 in 2009 A turning point: The more inclusive group has suddenly become central to global governance, eclipsing the G-7, in addition to thereby at last giving major developing/emerging countries some representation, after decades of fruitless talk about raising emerging-market representation in IMF. The G-20 accounts as long as 85% of world GDP.
Implications of the 2008 financial crisis as long as macroeconomics In 2007-08, the global financial system was grievously infected by toxic assets originating in the United States. Many ask what fundamental rethinking is necessary to save orthodox macroeconomic theory. Some answers may lie with models that have been applied to the realities of emerging markets. Purists may be reluctant to seek help from this direction. But they should not fear that the hardy root stock of emerging market models is incompatible with fine taste. What are some of these models Asymmetric in as long as mation Credit rationing (Stiglitz ) Need as long as collateral (Kiyotaki & Moore, Caballero ) Leverage cycle (Geanakoplos) The credit channel (Bernanke & Gertler ) Balance sheet effects (Calvo ) Bank runs & multiple equilibria (Diamond & Dybvyg; Velasco ) Speculative attacks (Krugman; Obstfeld; Morris & Shin ) Moral hazard & incentive incompatibility (Dooley ) Not used, as long as now
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