The CEPR Business Cycle Dating Committee recently concluded that there is not yet enough evidence to call a business cycle trough in the Eurozone. Instead, the committee has announced a 'prolonged pause' in the recession. This Vox Talk discusses the possible directions that this situation could lead to and questions whether the Great Recession has harmed the Eurozone’s long-term growth prospects to the extent that meagre growth could become the 'new normal'.
The simplest business cycle dating algorithm declares recessions over after two consecutive quarters of positive GDP growth. By that metric, the Eurozone recession has been over since 2013Q1. This column argues that growth and improvements in the labour market have been so anaemic that it is too early to call the end of the Eurozone recession. Indeed, if this is what an expansion looks like, then the state of the Eurozone economy might be even worse than economists feared.
The CEPR Business Cycle Dating Committee met on 11 June 2014 to determine whether the Eurozone is out of the recession that started after 2011Q3. The duty of the Committee – comprised of Philippe Weil (Chair), Domenico Giannone, Refet Gürkaynak, Monika Merz, Richard Portes, Lucrezia Reichlin, Albrecht Ritschl, Barbara Rossi, and Karl Whelan – is to date peaks and troughs of the Eurozone business cycle, marking recessions and expansions – a role similar to that of the NBER Business Cycle Dating Committee in the US.
Lights, camera ... income!: Estimating poverty using national accounts, survey means, and lights
Maxim Pinkovskiy, Xavier Sala-i-Martin27 February 2014
How many people are poor worldwide? This column explains that the answer depends on whether one uses survey of national-accounts data to anchor country distributions of income. It then argues that night-time lights suggest that national accounts offer a better estimate. Developing world poverty may be as low as 4.5% in 2010, much lower than the path constructed by surveys.
How many people are poor, and how fast are they leaving poverty? The World Bank (Chen and Ravallion 2001, 2010) says that a quarter of the people in the developing world lived on an income of less than $1.25 a day (the threshold of absolute poverty defined by the lowest poverty lines in developing countries), down from about 40% in 1992.
A penny spent is a penny earned (by someone else): Measuring GDP
S Borağan Aruoba, Francis X. Diebold, Jeremy J Nalewaik, Frank Schorfheide, Dongho Song03 December 2013
GDP can be estimated by measuring either expenditure or income. Since a penny spent is a penny earned, both methods should give the same answer, but there is substantial measurement error in both estimates. This column presents a new method of measuring US GDP that blends these two estimates. According to the new measure, GDP growth is about twice as persistent as the current headline measure implies. The new measure also makes the current recovery look stronger, especially in 2013.
David N. Weil, J. Vernon Henderson, Adam Storeygard
“A growing number of economists say that the government should shift its approach to measuring growth. The current system emphasises data on spending, but the bureau also collects data on income. In theory the two should match perfectly – a penny spent is a penny earned by someone else. But estimates of the two measures can diverge widely, particularly in the short term...”
[Binyamin Appelbaum, The New York Times, 16 August 2011]
Why have developing-country data on real incomes been revised so much?
Martin Ravallion26 March 2010
The World Bank’s estimate of China’s real GDP per capita was revised down by 40% in 2005. This column explains how economic growth impacted price structures in developing countries -- impacts that had not been factored into how old PPPs were updated prior to new price surveys. It argues that large revisions could be avoided by using better economic models for predicting PPPs.
The International Comparison Program (ICP) collects the survey data on prices across countries that are used to estimate Purchasing Power Parity exchange rates (PPPs for short). These are then used to make international comparisons of real incomes and for other purposes, including measuring global poverty and inequality.
Did financial globalisation make the US crisis worse?
Enrique G. Mendoza, Vincenzo Quadrini14 November 2009
Can we blame financial globalisation for the severity of the current crisis? This column says that financial integration spread the negative banking shock that originated in the US across countries, thereby making the US better off at others’ expense.
The global financial crisis that started with the meltdown of the US subprime mortgage market in 2007 was preceded by a protracted period of growth in debt and leverage ratios in an environment of increasing world financial integration, low real interest rates, and growing US external deficits. Figures 1–3 show that, since the early 1980s, in tandem with the early stages of financial globalisation, credit in the US economy grew substantially and an increasing fraction of this credit boom was fuelled by foreign lending.
Business cycles become less synchronised over time: Debunking “decoupling”
Andrew K Rose01 August 2009
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that, contrary to much current commentary, there is no downward trend in synchronisation.
Want faster European growth? Learn to love creative destruction
Nicholas Crafts11 July 2008
Standard policies to redress Europe's productivity problems keep politicians in their comfort zone: support for the “knowledge economy” and more R&D. More progress would come if they accepted and facilitated the “dark side” of productivity improvement – the exit of high-cost producers and re-deployment of labour.
Paul Krugman once observed that 3% per year is about as good as it gets for GDP growth in advanced economies. While the United States has achieved this since 1995, the EU15 have fallen well short – averaging only 2.3%.
Ireland switched from 5% growth in 2007 to negative growth in 2008. Ireland’s leading macroeconomist discusses that causes and consequences for national policy. A thorough reform of tax and spending policy is the answer, even if it violates the Maastricht limits in the short run.
Last week, the Economic and Social Research Institute (the most respected economics institute in Ireland) forecast that GDP growth in Ireland will be negative in 2008 at -0.4 %. This represents a sharp decline from 5.3 % growth in 2007 and a long sequence of high growth rates since the mid 1990s. Moreover, the movement in the terms of trade (especially important for a highly open economy) is also negative, such that the recession in real income will be -2.6 % in 2008.
Whither macroeconomics? The surprising success of naïve GDP forecasts
Jon Faust31 January 2008
The US Federal Reserve makes monetary policy based on necessarily imperfect economic forecasts. Recent research shows that the Fed is quite adept at assessing current economic conditions, but forecasting the future remains disappointingly difficult.
Over the past ten days, the U.S. Federal Reserve has lowered its policy interest rate 125 basis points based largely on its assessment of the need to battle strong recessionary forces. This comes after a December 12 meeting at which the Fed lowered rates a mere 25 basis points, still hoping to “foster maximum sustainable growth and provide some additional insurance against risks.1” To some, this rapid change in sentiment might seem surprising.