The Unassuming Economist

A new post by Michael W. Klein shares the concern about the possibility of an upcoming recession that “Forecasting the twists and turns of the economy is difficult. One set of indicators used to gauge where the economy is headed draws on information from financial markets since the yields paid by financial assets reflect the collective market view of the future state of the economy. An inverted yield curve — when interest rates on short-term Treasury bonds exceed those on longer-term Treasury bonds — has in the past proven to be a strong indicator of an oncoming recession. While the U.S. economy is not currently experiencing an inverted yield curve, the difference in yields between shorter- and longer-term Treasury bonds has narrowed. The movements in the yield curve, as well as in other financial market indicators, have raised concerns that the current long expansion of the United States economy may be coming to an end.”

Continue reading here. Also see my previous post on forecasting recessions.

A new IMF working paper constructs a new database on fiscal consolidation of 14 Latin American and Caribbean economies over the period 1989-2016. This paper further classifies “the consolidation episodes as “tax-based” or “expenditure-based” depending on whether tax hikes or expenditure cuts account for most of the budgetary impact of the consolidation.”

“The average consolidation size (excluding zero observations i.e. considering that a fiscal policy action occurred) is 0.9 percent of GDP with a standard deviation of about 1 percentage point (Table 1). Expenditure based consolidations are typically larger, although comparisons along this dimension should be made with care given the relatively small number of expenditure-based consolidations.”

On the US:

• How Big is the Wealth Effect? Decomposing the Response of Consumption to House Prices – University of Maryland
• Housing Finance, Boom-Bust Episodes, and Macroeconomic Fragility – University of Missouri
• 50 years later, how close are we to making fair housing a reality? – The Atlantic
• What We Get Wrong About Closing the Racial Wealth Gap – Insight Center for Community Economic Development (coverage by Citylab and Quartz)
• U.S. Homebuying Slows Down, But Not for Hispanics – Citylab
• Stringency of Land-Use Regulation: Building Heights in US Cities – IDEAS
• Unpacking the “housing shortage” puzzle – Brookings
• Home Price Charts Updated – Case-Shiller – Real Estate Decoded
• Smartest Month to Sell a Home by Metro – ATTOM
• US housing: how Fannie Mae and Freddie Mac became rental powerhouses – Financial Times

On other countries:

• [Canada] Canadian Housing Market Still Highly Vulnerable – CMHC
• [Spain] Spain’s Palma to ban holiday rentals after residents’ complaints – BBC

Photo by Aliis Sinisalu

From a new IMF country report:

“The West African Economic and Monetary Union (WAEMU) member countries have experienced growth acceleration since 2012. Relative to an earlier reference period in the 1990s, the WAEMU’s recent strong growth has coincided with an increase in macroeconomic stability and investment, improvement in political institutions, improvement in the terms of trade, and increase in productivity.”

“Real GDP per capita in WAEMU countries has remained mostly stagnant while it has increased in other LIDCs (Figure 2). Income per capita in the WAEMU was close to that of the group of low and middle-income countries or low income developing countries or SSA in the early 1960s. However, since then, in terms of per capita income, WAEMU’s countries have experienced a widening gap relative to other LIDCs. While the share of the WAEMU income per capita in purchasing power parity—PPP—was 108 percent of that of the group of low-income developing countries in the early 1960s, it dropped to 65 percent in 2017.”

Continue reading here.

A new paper finds that “Okun’s Law is valid in Brazil as a whole and in one of the three metropolitan regions studied and there are regional differences in the responsiveness of labor markets to output fluctuations and deviations from their long-term levels.”

This paper also notes the findings from my paper that “The Okun’s coefficient varies substantially from country to country. Idiosyncratic characteristics of national labor markets explain in part this variation. (Ball; Leigh; Loungani, 2012).” […] “According to Ball, Jalles and Loungani (2014) the magnitude of the coefficient also depends on the costs related to the adjustment of employment, which can be either technological costs or costs arising from the employment protection laws; and the number of workers entering and leaving the labor force. Because these factors are different between countries so tend also to be the coefficients.”

Continue reading here.

Ball, Leigh, and Loungani (2012) is available here.

Ball, Jalles, and Loungani (2014) is available here.