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Stop Talking About Unemployment

Scott Sumner wrote an interesting blog post on his vision of macro. It is a useful way of seeing where Scott stands today. However, we were puzzled. Should unemployment really be the centerpiece variable or should it be stable nominal spending growth at an appropriate level? It seems to us that “unemployment” is a very flaky variable.
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Only inflation on their minds

Summary of new research: Fed Could Allow Higher Inflation as Interest Rates Remain Low, Papers Suggest: U.S. interest rates are likely to stay historically low, which should prompt the Federal Reserve to rethink its approach to inflation. Those are the conclusions of two new research papers by teams of Fed economists published Thursday by the
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Can A Developed Economy Permanently Atrophy?

It is not an encouraging pair of charts: U.S. manufacturing output never returned to 2008 levels, and housing production is off by 45% from pre-2008 Great Recession levels. Yet some macroeconomists, and evidently the U.S. Federal Reserve, see enough signs of labor-market tightening and price action that they say higher interest rates are warranted. A
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The Fed has left many people puzzled over what it wants to achieve by raising rates this March and projecting two more rises this year, plus several more in the two following years. Core PCE inflation is flat. The Fed should not look at headline inflation, PCE or CPI.  Wage growth has possibly picked up a bit,
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Judging by the wrong results

Free from “belonging to the Administration” shackles, Jason Furman weighs in: Criticism is healthy. Fed decisions are partly informed by the public debate over monetary policy, but ultimately the Fed should be judged by its results. It would be a mistake to limit the Fed’s flexibility and independence by passing legislation that would subject monetary
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Productivity is both obvious and a mystery

Productivity is much talked about but very little understood. Of course, it can be very simply stated as amount produced per hour worked. Amount produced is not easy to calculate The huge problem is that in the modern world most of the “hours worked” are in the service sector where the product produced is hardly
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The always-insightful Kevin Erdmann of the Idiosyncratic Whisk blog has just pointed out that combined commercial, industrial and residential loan volume at U.S. commercial banks has been going flat since October of last year. Add on, commercial property values in the U.S. have been flat since August, according to Green Street Advisors. But the U.S.
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The trade deficit doesn’t foretell GDP changes

A banal assertion is often made in the financial press when trade deficit figures are released. If the deficit widens, the financial media will tell you that this is bad for the current-quarter GDP number. If the deficit narrows, you’ll hear the opposite. Once again, the financial media proves itself useless for anything more than
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