Macroeconomic Patterns and Stories

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Springer Science & Business Media, Nov 21, 2008 - Business & Economics - 360 pages
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The story of this book began with my dif?cult transition from teaching international economics and econometrics in Economics Ph. D. programs at Harvard and UCLA to teaching in the MBA programs at the Anderson School at UCLA. On the basis of 20 years of apparent teaching success in Ph. D. education, I arrived at the Anderson School in 1990 with a self-image as a star teacher, but I was greeted with highly disturbingmediocreteachingevaluations. Facedwithadatasetthatwasinconsistent with my view of reality, I did what analysts usually do – I formulated a theory why the data were misleading. Here is how I thought about it. Two aspects of the course – content and amu- ment – drive numerical course evaluations. If you rank courses by the average of the content score and the amusement score, then the component that can be measured most accurately will determine the ranking. Do you understand why? It is what - eraging does: it eliminates the noise. Suppose, for example, that a student cannot tell anything about the content, and the content score is simply a random number, varying from student to student. Those random numbers will average out across students to about the same number for each course. As the average course content score is about the same for every course, it is the amusement score that will drive the rankings.
 

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Contents

Introduction We Are PatternSeeking StoryTelling Animals
3
Do Both Patterns and Stories
5
12 We Can Also Analyze
7
In that Order
9
I think I Can Help
10
It Will Help You More Than Them
11
The Key Pattern
12
171 Updated Displays
13
122 Contributions to GDP Growth
177
1221 Normal Trend Contributions to GDP Growth
180
1222 Abnormal Cumulatives
182
Its a Consumer Cycle Not a Business Cycle
183
124 Eight Consumer Cycles a Disarmament Downturn and an Internet Rush Comeuppance
186
1241 The 1953 Department of Defense Downturn
190
1242 The 2001 Internet Comeuppance
191
125 Housing False Positives and False Negatives
195

19 Conclusion
16
Growth Unemployment Inflation and Interest Rates
17
Gross Domestic Product
19
2111 Adjustments to GDP
20
2113 GDP Works Fine for us
22
213 Whats Gross About Gross Domestic Product?
24
215 What Does SAAR Mean?
27
216 What Is an Annualized Compound Rate of Growth?
28
What Does Growth of Real GDP Look Like?
30
223 How Much Is 10 Trillion? Does Dividing by Employment Help?
34
The Index Number Problem and Chain Indexes
35
The Seasonal in GDP Is Very Large
36
The Components of GDP C+I+G+XM
39
311 National Income and Employee Compensation
40
32 How Is GDP Actually Measured?
42
C I G X M?
44
331 Which Are the Most Volatile Components of GDP?
45
GDP and National Income
49
Employment
51
Current Employment Statistics
52
It Takes Three
55
Current Population Survey
56
413 Initial Jobless Claims
59
42 Industry Composition of Payroll Jobs
62
Inflation and Interest Rates
65
51 A Price Is a Ratio
66
53 Two Views of Inflation
67
531 Homework
69
54 Interest Rates on ShortTerm US Government Securities
70
The Price of Durability and the Compensation for Waiting
72
551 A Look at the Data
73
56 Interest Rates on LongTerm US Government Securities and Monetary Policy
74
Theory
76
562 Real Returns on OneYear and TwoYear Treasuries
80
57 What Determines the Shape of the Yield Curve?
82
572 Why Is the Yield Curve Sometimes Steep and Sometimes Inverted?
83
573 What Determines the Level Not the Slope of the Yield Curve?
85
Q and A from BLS Web Site Regarding the CPI
86
Risk Characteristics of Bonds
88
Summary
90
Extrapolative Forecasting
91
62 Forecasting and Regression Toward the Mean
94
63 Persistence Momentum
96
64 Pictures that Help to Understand the Numbers
99
A Recession Symptoms
101
Unwanted Idleness Recessions and Recoveries
102
Unemployment
104
712 Identifying the Recessions in the Unemployment Data Is Childs Play
105
Capacity Utilization in Manufacturing
107
Hours per Week in Manufacturing
108
Normal Growth Sputters Spurts Recessions and Recoveries
109
Recession Comparison Charts
111
812 Real GDP
113
82 Idleness
115
822 Capacity Utilization in Manufacturing
116
823 Hours per Week in Manufacturing
117
83 Other Indicators
118
832 Employment in Manufacturing and Construction
119
84 Numbers
121
Who Struggles and Who Does Well in Recessions?
123
91 Job Losses in Recessions Affect Some Sectors More than Others
124
911 The 2001 Recession Was an Anomaly
130
912 With that Anomalous 2001 Recession What Will the Next Recession Be Like?
132
92 Many Sectors Lose Profits in Recessions
133
Part III B Recession Stories
136
Idleness Stories
137
101 How Do Economists Explain Unwanted Idleness?
140
1011 The Job Cycle Is Mostly Construction and Manufacturing
143
103 Soaking the Rich When Times Are Bad
146
104 Making Do with the Old Car
149
105 A Pyrrhic Victory of Hope Over Reason
150
Supply and Demand Models of Unemployment
152
Cycle Stories
155
111 The HarrodSamuelson MultiplierAccelerator Model
158
112 Some Acceleration Facts
160
113 The Supply Chain BullWhip
162
114 Rush to Exploit New Ideas
164
1142 The Simple Agronomy of an Idea Rush
167
1143 Kondratieff Long Waves
169
115 Ponzi Schemes and Asset Bubbles
170
1151 Housing Bubbles
171
C Recession Early Warning Signs
172
Clues Temporal Ordering of Components of GDP
175
121 Help from Sherlock Holmes
176
Our Collective Bipolar Disease
196
127 Numbers If the Pictures Are Not Enough
197
1272 A Summary Table
199
128 Summary
201
More Clues Episodic Forecasting with Components of Conference Boards Index of Leading Indicators
203
132 Forget that Expectations Variable
205
133 Only a Few of Those Components Predict Oncoming Recessions
207
134 Combining the Components into an Overall Index
211
Description of Leading Indicators
214
Recession Causes
217
The Art of Drawing Causal Inferences from Nonexperimental Data
218
142 Cause Intervention
221
1421 Our Hypothetical Interventions Are Very Few
222
143 There Are Many Roadblocks in the Way of Causal Inferences
223
1431 We Can Pretend to Draw Causal Inferences Even If We Cannot Do It
225
144 Use Biological Not Mechanical Metaphors
226
In Search of Recession Causes
231
151 What Are We Looking for?
232
152 Fiscal Policy Seems to Both Cause and Prevent Recessions
235
1522 Federal Taxation Might Matter
238
153 The Causal Path Through Houses and Cars
239
1531 Housing Predicts Recessions
240
1532 Consumer Durables Spending Predicts Recessions
242
1533 Housing and Consumer Durables Are Predicted by Interest Rates
244
1534 Not So Fast
246
1535 The Fed Raises ShortTerm Interest Rates at the Ends of Expansions
248
The Wealth Effect or Not?
254
1537 Two Stories of How Monetary Policy Causes Recessions
255
Two More Causes
258
Expansions With and Without Spurts
260
The Life Cycle of US Expansions Sputters and Spurts
263
161 Production and Employment During Expansions
264
1612 Labor Markets Sometimes Tighten Twice During Expansions
266
1613 Cycles in Hours and Unemployment
267
1614 Spurt Comparison Graphs
273
162 What Caused the Spurts?
274
1621 A Big Fiscal Stimulus Has Three Times Rejuvenated a Sputtering Economy
275
1622 The Reagan Spurt Was Helped by Falling Interest Rates Falling Oil Prices and a Falling Value of the Dollar Which Stimulated Exports
277
1623 Animal Spirits and the Mad Dash for the Web Drove the Clinton Spurt
279
Presidents and Fed Chairmen
280
The Longer Run Savings Investment Government Borrowing Foreign Lending and Your Home
281
Savings and Investment
282
1712 Flows and Not Stocks
284
1713 Savings Depends on What Consumption Is
285
172 Do We Save Enough?
288
1723 Do We Save Enough?
290
Savings Investment
291
1731 US Savings and Investment
292
1732 What If There Is a Big Tax Cut and Public Savings Declines?
295
174 Crowding Out Ricardian Equivalence or Twin Deficits in the 1990s?
297
Government
299
182 Its Transfers
300
1821 Transfers Are Done also by State Governments
302
1822 Those Transfers Are Mostly Social Security Medicare and Medicaid
303
1823 The States Do Not Run Deficits
305
184 The Outstanding Federal Debt Is Great Enough to Be Worrisome
307
TrickleDown Social Responsibilities
308
1851 Being a GrownUp
309
1852 The Debate over the Privatization of Social Security Is Confusing All of Us
310
The External Deficit and the Value of the Dollar Hus in Charge?
313
The Current Account The Capital Account
314
192 What Determines the Value of the Dollar and the External Deficit?
318
1922 The Real Exchange Rate
319
1923 The Demand and Supply of US Dollars
321
Good or Bad?
322
193 How Can the US External Deficit Close?
323
Foreign Investors Go Elsewhere
325
More US Savings
326
The Ups and Downs of Real Estate Values Can You Rely on Your Home To Pay For Your Retirement?
329
202 It Is Not Real Until You Realize It
332
203 What Determines the Price and What Determines the Value of Your Home?
335
2032 Do not Confuse the Rental Market and the Ownership Market
336
2033 Survivor Investing Can Temporarily Disconnect Earnings and Valuations
337
2035 Fundamental Valuation Depends on the Growth of Earnings and the Discount Rate
339
2036 A House Has a pe Ratio Too
341
The Very Persistent Gap Between Values and Prices
343
Its a Volume Cycle Not a Price Cycle
344
Homework re the LA Market
349
Home Ownership Data from the Survey of Consumer Finances
350
Rents or Asset Prices in the CPI?
351
There Is no Such Thing as a Housing Shortage
352
Supply Restrictions Do not Guarantee that Prices Can Only Go Up
353
Index
355
Copyright

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About the author (2008)

Edward E. Leamer is Chauncey J. Medberry Professor of Management, Professor of Economics, and Professor of Statistics at the University of California, Los Angeles. He is the author "Macroeconomic Patterns and Stories" and other books.