January 2019

Call me “something”

The three charts below depict some alternative situations. The first illustrates the effect on real output and prices of a positive (productivity) supply shock with unchanged (constant AD) monetary policy. The second shows the effect on real output and price of an AD shock, flowing from an expansionary monetary policy that pushes AD up, while the third chart illustrates what has been a frequently used simplifying textbook assumption, to wit, that supply is demand determined. The next charts show the real-world counterparts. They all come from the last quarter of the 19th century when the economy was on a gold… Read More

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Blogger Kevin Erdmann has issued a rarity: an important book that should re-shape the macroeconomic and monetary-policy debates and policies. The book is— “Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy” published by Rowman & Littlefield. In a nutshell, Erdmann argues that the West Coast of the US, New York City and Boston have become powerful generators of jobs, but those same regions have suffocated new housing production through endless regulation, NIMBYism, crony-development schemes, and property zoning. The predictable result is an explosion of housing prices and rents. It was this choking off of… Read More

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Two Labor Markets: The “Strong” & the “Weak”

“We need the concept of a natural rate of unemployment … we need to have some sense of whether unemployment is high, low or just right,” Jay Powell says (at AEA). Keep on looking Mr. Powell, you won´t find it. As the panel indicates, a “low” unemployment rate can be a feature of both a “strong” and a “weak” labor market. In all other dimensions, this labor market is relatively weak. Employment has grown much less. Wage growth has been much more subdued. Meanwhile, on average, inflation is similar (1.6% yoy now versus 1.7% then). The participation rate well reflects… Read More

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