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Blog Post - Views on the Economy and the World

The Significance of Gold’s Record $2,000 Price

| Aug. 24, 2020

The price of gold reached an all-time record high of $2,000 per ounce this month.  Mainstream economic thinking has treated gold as a side-show since the world went off the gold standard. Nevertheless, the recent spiking in the price signals some important trends. It is not merely “sound and fury signifying nothing,” as sometimes seems true of financial markets.

There are three ready explanations for the historic increase in the price of gold: (i) monetary policy, (ii) risk, and (iii) a spreading desire for an alternative to the dollar as a safe haven.  Each of these explanations contains some truth.

Blog Post - Views on the Economy and the World

The Impact of the Pandemic on Developing Countries

| Aug. 03, 2020

The Covid-19 pandemic has had differentiated impacts across countries. This is true even among the set of Emerging Market and Developing Economies (EMDEs), which share the disadvantages of more poverty, less adequate health care, and fewer jobs that can be done remotely, compared to Advanced Economies.

Blog Post - Views on the Economy and the World

Defining recessions when negative growth is too common or too rare

| June 20, 2020

This post follows up on “What Determines When a Recession is Recession?” which pointed out some drawbacks of defining a recession by two negative quarters of growth.

In some countries there is another, more fundamental, basis for questioning the two-quarter rule for determining recession, or any GDP-based rule. Some countries experience sharp slowdowns or periods of diminished economic activity and yet their long-term trend growth rates are either so high or so low that the negative-growth rule does not capture what is needed to describe the cyclical state of the economy. For such countries, the problem is that perhaps there is nothing special about the number zero.  This is particularly true for the global economy considered as a whole.

Blog Post - Views on the Economy and the World

What Determines when a Recession is a Recession?

| June 18, 2020

The Business Cycle Dating Committee of the National Bureau of Economic Research declared on June 9 that US economic activity had peaked in February 2020, formally marking the start of the recession.

We all knew about the recession already and even the likely date when it started.  Looking at the numbers gave the same answer as “looking out the window.”  Measures of employment had fallen sharply from February to March.  Real personal consumption expenditures (PCE) and real personal income less transfers (which are numbers that the NBER Committee looks at) both peaked sharply in February as well.  Official measures of GDP only exist on a quarterly basis, but the economic freefall in late March was enough to pull first-quarter GDP growth down to an annual rate of -4.8 %  (relative to the last quarter of 2019). Why did the NBER wait until now to declare something that had already been so clear?

A woman wearing a facemask walks past a shuttered shop reading “love triumphs fear” amid the coronavirus pandemic in Queens, New York City.

Johannes Eisele/AFP via Getty Images

Analysis & Opinions - The Guardian

The US Is Officially in Recession Thanks to The Corona Virus Crisis

| June 16, 2020

On 8 June, the business cycle dating committee of the National Bureau of Economic Research declared that economic activity in the US had peaked in February 2020, formally marking the start of a recession. But we already knew that we were in a recession that had likely begun around that date. So, why does the NBER’s formal declaration matter?

It is no secret that measures of employment fell sharply from February to March. Real (inflation-adjusted) personal consumption expenditure (PCE) and real personal income before transfers both peaked in February as well. Official measures of GDP are released only quarterly but the economic free-fall in late March was enough to pull first-quarter GDP growth down to an annualized rate of -4.8% (relative to the last quarter of 2019).