Macroeconomic Features of the Pandemic · 2 days ago · Macroeconomic Features of the Pandemic...
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Macroeconomic Features of the Pandemic Governor’s Council of Economic Advisors August 18, 2020 Joseph M. Santos Professor of Economics Ness School of Management and Economics South Dakota State University 1 / 55
Transcript of Macroeconomic Features of the Pandemic · 2 days ago · Macroeconomic Features of the Pandemic...
Macroeconomic Features of the Pandemic
Governor’s Council of Economic AdvisorsAugust 18, 2020
Joseph M. SantosProfessor of Economics
Ness School of Management and EconomicsSouth Dakota State University
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Marketplaces
Creative disruptions, macroeconomic shocks, sectoral shifts, and demographic trends
Policy Spaces
Growth, financial stability, fiscal, foreign-exchange, monetary, and trade policies
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Marketplaces
Creative disruptions, macroeconomic shocks, sectoral shifts, and demographic trends
Policy Spaces
Growth, financial stability, fiscal, foreign-exchange, monetary, and trade policies
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Macroeconomic Shocks
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12
14
16
18
20
Trilli
ons o
f D
olla
rs
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 1: Gross Domestic Product, in Levels
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−30
−20
−10
010
Com
pounded A
nnual R
ate
of C
hange (
%)
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 2: Gross Domestic Product, in Growth Rates
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05
10
15
20
25
Trilli
ons o
f D
olla
rs
2000q1 2005q1 2010q1 2015q1 2020q1
Net Exports Government Investment Consumption
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 3: U.S. Gross Domestic Product − Expenditures
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−.2
0.2
.4.6
.81
1.2
1.4
1.6
1.8
Annual P
erc
enta
ge C
hange
2017 2018 2019
Source: Bureau of Economic Analysis.
Figure 4: Expenditure Contributions to Real GDP Growth
Consumption Investment Government Net Exports
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−25
−20
−15
−10
−5
05
Annual P
erc
enta
ge C
hange
2017 2018 2019 2020
Source: Bureau of Economic Analysis; 2020 data refect second quarter annualized growth.
Figure 5: Expenditure Contributions to Real GDP Growth
Consumption Investment Government Net Exports
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46
810
12
14
16
18
20
22
Perc
enta
ge o
f Labor
Forc
e
2000m1 2005m1 2010m1 2015m1 2020m1
U3 U6
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 6: Civilian Unemployment Rates
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60
61
62
63
64
65
66
67
68
Perc
enta
ge o
f A
dult P
opula
tion
2000m1 2005m1 2010m1 2015m1 2020m1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 7: Labor−Force Participation Rate
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05
10
15
20
25
Media
n W
eeks U
nem
plo
yed
2000m1 2005m1 2010m1 2015m1 2020m1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 8: Median Duration of Unemployment Spells
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05
10
15
20
25
Thousands o
f P
ers
ons
2000m1 2005m1 2010m1 2015m1 2020m1
Job Openings Unemployed Persons
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 9: Job Openings and Unemployed Persons
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01
23
45
67
Mill
ions o
f C
laim
s
01jan2006 01jan2008 01jan2010 01jan2012 01jan2014 01jan2016 01jan2018 01jan2020
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 10: Initial Claims for Unemployment Benefits
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05
10
15
20
25
Mill
ions o
f C
laim
s
01jan2006 01jan2008 01jan2010 01jan2012 01jan2014 01jan2016 01jan2018 01jan2020
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 11: Continued Claims for Unemployment
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−1
01
23
4
Annual In
flation R
ate
(%
)
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Same−quarter−growth in personal consumption expenditures price index; Federal Reserve Bank of St. Louis (FRED).
Figure 12: Inflation Rate
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Sectoral Shifts
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24
68
10
12
14
16
Trilli
ons o
f D
olla
rs
2018m1 2018m7 2019m1 2019m7 2020m1 2020m7
Services Durable Goods Nondurable Goods
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 13: Personal Consumption Expenditures
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−.5
0.5
11.5
22.5
33.5
4
Trilli
ons o
f D
olla
rs
2000q1 2005q1 2010q1 2015q1 2020q1
Nonresidential Residential Other
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 14: Gross Private Domestic Investment Expenditures
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02
46
810
12
14
16
18
Com
pounded A
nnual R
ate
of C
hange (
%)
2007q3 2009q3 2011q3 2013q3 2015q3 2017q3 2019q3
Average Hourly Earnings Employment Cost Index
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 15: Employee Compensation
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−5
05
10
Com
pounded A
nnual R
ate
of C
hange (
%)
2010q1 2012q3 2015q1 2017q3 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 16: Nonfarm Labor Productivity
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Monetary Policy
R Star Is Born
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Monetary Policy
R Star Is Born
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Taylor Rule
ffrtarget = f
(inflation gap, output gap, r ∗
)
Where ffrtarget is the target federal funds rate.
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Taylor Rule
ffrtarget = f
(inflation gap
+, output gap, r ∗
)
Where ffrtarget is the target federal funds rate.
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Taylor Rule
ffrtarget = f
(inflation gap, output gap
+, r ∗
)
Where ffrtarget is the target federal funds rate.
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Taylor Rule
ffrtarget = f
(inflation gap, output gap, r ∗
+
)
Where ffrtarget is the target federal funds rate.
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Taylor Rule
ffrtarget = f
(inflation gap, output gap, r ∗
)
Where ffrtarget is the target federal funds rate.
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01
23
45
67
Perc
enta
ge
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 17: Federal Funds Rate
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−10
−5
05
Perc
enta
ge o
f P
ote
ntial R
eal G
DP
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 18: Output Gap
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−1
−.5
0.5
Annual In
flation R
ate
Min
us 2
−P
erc
ent T
arg
et (%
)
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 19: U.S. Inflation Gap
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0.5
11.5
22.5
33.5
Perc
enta
ge
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Holston, Laubach, and Williams (2016).
Figure 20: Natural Rate of Interest (R−Star)
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−6
−4
−2
02
46
8
Perc
enta
ge
2000q1 2005q1 2010q1 2015q1 2020q1
Effective Federal Funds Rate Taylor Rule
Source: Author’s calculations, FRED and Holston, Laubach, and Williams (2016); Taylor rule data until Q1 of 2020.
Figure 21: Federal Funds Rate and Taylor Rule Rate
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Monetary Policy
The Big Easing
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Monetary Policy
The Big Easing
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12
34
5
Trilli
ons o
f D
olla
rs
2000m1 2005m1 2010m1 2015m1 2020m1
Reserves Currency in Circulation
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 22: Monetary Base
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0.5
11.5
22.5
33.5
Trilli
ons o
f D
olla
rs
2000m1 2005m1 2010m1 2015m1 2020m1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 23: Total Reserve Balances Maintained with Federal Reserve Banks
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Table 1: Unconventional Monetary Policy Tools
Policy Tool Description
Quantitative Easing Purchase Treasury and agency MBSCommercial Paper Funding Facility* Purchase eligible commercial paperPrimary Dealer Credit Facility Lend to primary dealersMoney Market Mutual Fund Liquidity Facility* Lend to money-market mutual fundsPrimary Corporate Credit Facility* Purchase eligible corporate bonds, primary marketSecondary Corporate Credit Facility* Purchase eligible corporate bonds, secondary marketTerm Asset-Backed Securities Loan Facility* Lend against asset-backed securitiesMain Street Loan Facilities* Lend to small and mid-sized businessesMunicipal Liquidity Facility* Purchase eligible short-term municipal notesPaycheck Protection Liquidity Facility Lend against Paycheck Protection Program-loansSwap Lines and Repurchase Facility Lend to foreign central banks
Asterisk denotes U.S. Treasury capitalization. Source: Wells Fargo Securities.
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68
10
12
14
16
18
20
22
24
26
Perc
enta
ge o
f G
DP
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 24: Monetary Base, Share of GDP
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−5
05
10
15
20
25
30
35
40
Sam
e M
onth
Gro
wth
Rate
(%
)
2000m1 2005m1 2010m1 2015m1 2020m1
M1 M2
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 25: Money Stock
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11.2
1.4
1.6
1.8
Incom
e V
elo
city
2010q1 2012q3 2015q1 2017q3 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 26: Velocity of the M2 Money Stock
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Fiscal Policy
Extra Credit
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Fiscal Policy
Extra Credit
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05
10
15
20
Trilli
ons o
f D
olla
rs
2000m1 2005m1 2010m1 2015m1 2020m1
Personal Income Social Benefits
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 27: Personal Income and Social Benefits to Persons
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05
10
15
20
25
30
35
Perc
enta
ge o
f D
isposable
Incom
e
2000m1 2005m1 2010m1 2015m1 2020m1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 28: Personal Saving Rate
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30
35
40
45
50
55
60
65
70
75
80
Perc
enta
ge o
f G
DP
2000q1 2005q1 2010q1 2015q1 2020q1
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 29: Federal Government Debt Held by the Public
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−10
−5
05
Perc
enta
ge o
f G
DP
1970 1980 1990 2000 2010 2020
Source: Federal Reserve Bank of St. Louis (FRED).
Figure 30: Federal Budget, Share of GDP
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Some Debt Arithmetic
debt ↑ ⇔ deficit ↑
debt ↑ ⇔ interest rates ↑
debt ↑ ⇔ GDP ↓
Where debt and deficit are relative to GDP.
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Some Debt Arithmetic
debt ↑ ⇔ deficit ↑
debt ↑ ⇔ interest rates ↑
debt ↑ ⇔ GDP ↓
Where debt and deficit are relative to GDP.
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Some Debt Arithmetic
debt ↑ ⇔ deficit ↑
debt ↑ ⇔ interest rates ↑
debt ↑ ⇔ GDP ↓
Where debt and deficit are relative to GDP.
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Some Debt Arithmetic
debt ↑ ⇔ deficit ↑
debt ↑ ⇔ interest rates ↑
debt ↑ ⇔ GDP ↓
Where debt and deficit are relative to GDP.
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Table 2: Stabilizing Budget-to-GDP Ratios
Assume the federal government debt-to-GDP ratio is 0.80.
GDP Growth Interest Rate Stabilizing Budget Actual Budget
6.0% 1.0% -4.0% -4.59%3.0% -2.4% -4.59%5.0% -0.8% -4.59%
3.0% 3.0% 0.0% -4.59%5.0% 1.6% -4.59%7.0% 3.2% -4.59%
Sources: Federal Reserve Bank of St. Louis FRED and author’s calculations.
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Fiscal Policy
States’ Plights
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Fiscal Policy
States’ Plights
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.85
.9.9
51
1.0
51.1
1.1
51.2
Gro
ss C
hange a
fter
Peak
01jul2007 01jan2008 01jul2008 01jan2009 01jul2009 01jan2010 01jul2010
Alaska Arizona Michigan Nevada
New York North Dakota South Dakota US
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 31: Gross State Product after December−2007 Peak, Select States
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11.5
22.5
3
Gro
ss C
hange a
fter
Peak
01jan2008 01jul2008 01jan2009 01jul2009 01jan2010 01jul2010 01jan2011
Alabama Alaska Arkansas Idaho
North Dakota South Dakota US Utah
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 32: Unemployment Rate after December−2007 Peak, Select States
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.91
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Gro
ss C
hange a
fter
Tro
ugh
01jul2007 01jul2009 01jul2011 01jul2013 01jul2015 01jul2017 01jul2019
Alaska Connecticut North Dakota South Dakota
Texas US Washington Wyoming
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 33: Gross State Product after June−2009 Trough, Select States
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.2.3
.4.5
.6.7
.8.9
11.1
1.2
Gro
ss C
hange a
fter
Tro
ugh
01jul2007 01jul2009 01jul2011 01jul2013 01jul2015 01jul2017 01jul2019
Alabama Alaska Louisiana Michigan
Nebraska South Carolina South Dakota US
Source: Author’s calculations and Federal Reserve Bank of St. Louis (FRED).
Figure 34: Unemployment Rate after June−2009 Trough, Select States
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Figure 35: CARES Act State Aid per CapitaSource: U.S. Treasury and FRED; population counts based on 2019 data.)
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Thank you.
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