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March 8, 2013

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 06 Mar 2013 12:33 AM PST
How are spending, income and debt affected by minimum-wage hikes?:
Spending, income, and debt responses to minimum-wage hikes, by Daniel Aaronson and Eric French, VoxEU.org: Introduction A central part of President Obama's 2013 State of the Union address is a proposal to gradually raise the federal minimum wage from $7.25 to $9 per hour. Proponents have argued that raising the minimum wage may provide fiscal stimulus by putting money in the hands of people who are likely to spend it (see The New York Times 2013). This argument is sometimes based on findings from our research (Aaronson, Agarwal and French 2012), where we estimate the spending, income, and debt responses to minimum-wage hikes, as well as calibrations presented by the Economic Policy Institute (Hall and Cooper 2012). In this article, we describe our results and discuss the implications for policy. ...
Posted: 06 Mar 2013 12:24 AM PST
Here are the slides from a talk I gave last night:
How Much Should We Worry About Debt, Inflation, and Unemployment? (ppt ) (pdf)
The last slide concludes with:
We face a tradeoff. Attempts to lower unemployment can increase the risk of inflation and increase the debt . The reverse is true as well. Attempts to lower the debt and reduce the risk of inflation can increase unemployment.
In my view, presently we are too worried about inflation and debt, and not worried enough about unemployment.
Posted: 06 Mar 2013 12:03 AM PST
Posted: 05 Mar 2013 11:53 AM PST
There has been a debate in macroeconomics over whether sticky prices -- the key feature of New Keynesian models -- are actually as sticky as assumed, and how large the costs associated with price stickiness actually are. This paper finds "evidence that sticky prices are indeed costly":
Are Sticky Prices Costly? Evidence From The Stock Market, by Yuriy Gorodnichenko and Michael Weber, NBER Working Paper No. 18860, February 2013 [open link]: We propose a simple framework to assess the costs of nominal price adjustment using stock market returns. We document that, after monetary policy announcements, the conditional volatility rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large as well as strikingly robust to a broad array of checks. These results suggest that menu costs---broadly defined to include physical costs of price adjustment, informational frictions, etc.---are an important factor for nominal price rigidity. We also show that our empirical results qualitatively and, under plausible calibrations, quantitatively consistent with New Keynesian macroeconomic models where firms have heterogeneous price stickiness. Since our approach is valid for a wide variety of theoretical models and frictions preventing firms from price adjustment, we provide "model-free" evidence that sticky prices are indeed costly.
Posted: 05 Mar 2013 09:53 AM PST
Anyone have an answer?:
Why Have Americans Become More Positive About Trade?, by Erik Voten: A recent Gallup Poll has found that Americans have become remarkably more positive about foreign trade. Below is the key graph:
Tradegrowth
This is a pretty major shift that could bode well for President Obama's announced plans for a new transatlantic trade deal and the Trans-Pacific Partnership. So why such a big shift? ...
[T]here is also a partisan story to be told here. Back in 2009, 43% of Democrats and 45% of Republicans saw trade as an opportunity for growth rather than a threat to the economy. In 2013. this is 66% of Democrats and 51% of Republicans.  In other words, most of the change has come from Democrats following President Obama's prominent endorsement of new trade deals in the State of the Union address. ... Democrats are now 15 points more favorable towards free trade than Republicans in this poll.
Another fascinating difference with 2009 lies in the income breakdowns. In 2009, 52% of those making more than $75,000 were positive about trade versus only 35% of those making less than 35%.  In 2013, these numbers were 57% and 54% respectively. ...
The patterns are pretty similar if you look at liberal/conservative rather than party identification and education rather than income. ... The question to ask is thus why so many Americans who identify as Democrats (and liberals) and so many Americans with low incomes and/or little education have become more positive about trade?

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