Dangling epsilons

Whenever I look at an estimation equation like this: from this paper, I wonder what’s in that dangling epsilon term. In this equation we have Y’s on the left hand side. And I think to myself, “what kinds of things produce Y’s (or changes in Y’s)”. Now, Y is GDP and from my intro macro […]

Foreclosure deadweight?

Mike suggested for those interested in the foreclosure issue this paper. That paper says this paper estimates the deadweight costs of foreclosures. No it doesn’t ((This is one of those cases where something is so blindingly obvious that I think to myself that I must be missing something at a fundamental level. If this is […]

Question for those that want to stick it to the banks

Some seem to really dig plans for the housing market that stick to the banks. I’m down; I dig redistributional policy and we should encourage people to do what’s best for them and their families (even if its bad for the banks for “the system”). I just took a peak at the CalPERS annual statement […]

Increase inflation AND combat structural issues

Inflation is below target. Increasing output and decreasing or stagnant inflation is an indication that inflation expectations are becoming unanchored. That’s bad. Inflation should not spend too long, too far from its implicit target of 2%. Structural unemployment is high right now. Instead of just dumbly extending UI benefits and scratching our heads on why […]

Did you know?

After Kockerlakota dared suggest there are substantial structural problems in the labor market (right wing scum!), the very next paragraph was: Given the structural problems in the labor market, I do not expect unemployment to decline rapidly. My own prediction is that unemployment will remain above 8 percent into 2012. Persistently high unemployment of this […]


All the heat on the issue of AD policy overshadowed and even delegitimized discussion of policy to deal with structural issues in the labor market. Suppose the latter policies were cheaper economically and politically. In this case, while the benefits are smaller (only 1/3rd of unemployment would be addressed according to RA) the cost/benefit analysis […]

Setting expectations

Evans and Honkapohja’s work on learning in macro is important. Watch this to get a sense for what they’re doing: But learning dynamics are not well understood empirically. Prof. Evans describes the dynamics under adaptive learning. Under rational expectations the economy would just pop to the good equilibrium. Under other learnings schemes the dynamics would […]

Quit picking on Japan!

Here’s the per capita GDP for the G8 countries (relative to the USA): You can take two lessons from this chart. 1) Japan hasn’t had bad monetary policy relative to, say, the continental European countries or 2) Monetary policy just doesn’t matter in the long-run Also, the more you stare at these real GDP per […]

What is structural unemployment?

There seems to be a disconnect between how economists (and Fed economists in particular) use this term and how bloggers (and left bloggers in particular) use it. Some definitions: “The unemployment resulting from wage rigidity and job rationing is sometimes called structural unemployment.” — Mankiw’s intermediate text “Frictional unemployment [w.a. where the only other kind […]

A DSGE primer