Transcript The World Economy Today

ECON 303
Intermediate Macroeconomics
Instructor:
Bernard Malamud
–Office: BEH 502
Phone (702) 895 –3294
Fax:
895 – 1354
»Email: [email protected]
Website: www.unlv.edu/faculty/bmalamud
Office hours: TR 12-1 pm; 2:30 – 3:30pm; and by
appointment
Macro News
2007 CPI Inflation: 4.1 %, highest in 17 years!
– Core CPI up only 2.4%.
2007 Housing Construction: Down 25%
– Clark County Home Sales: New – 45%
Existing – 40%
December Index of Industrial Production: No gain
December Index of Leading Indicators: Down 0.4%
December Unemployment Rate: 5.0%, up from 4.7%
December Retail Sales: Down 4%
Index of Consumer Sentiment: Down 18%, Nov - Nov
S & P 500
– December 31, 2007  1468
– January 17, 2008 [Philadelphia Beige Book]  1333
January 22, 2008: 75 Basis Point Fed Funds Rate Cut
Macro News
2008 CPI Inflation: ~1 %, lowest in 40 years!
– Core CPI up 2.4%.
2007 Housing Construction: Down 25%
– Clark County Home Sales: New – 45%
Existing – 40%
December Index of Industrial Production: - 5 ½ %
December Index of Leading Indicators: Down 0.4%
December Unemployment Rate:6.7%, 7.2% up from
5% last year
December Retail Sales: Down ~4%
Index of Consumer Sentiment: Down ~30%,Nov - Nov
S & P 500
– January 8, 2008  901 vs. December 31,2007  1468
January 22, 2008:75 Basis Point Fed Funds Rate Cut to 4%
Latest Target FFRATE: 0 - .25%
Today’s Headlines
IMF: Global Stimulus Package
•Timely
Timely
Targeted
Temporary
Robust
(as there is an urgent need for action)
· Large
(because the drop in demand is large)
· Lasting
(as the recession will likely last for some time)
· Diversified
(as there is uncertainty regarding which
measures will be most effective)
· Contingent
(to indicate that further action can be taken)
· Collective
(all countries that can should expand G-T given
the severity and global nature of the downturn)·
•Sustainable
(to avoid debt explosion in the long run and
adverse effects in the short run).
Stimulus Program Proposals:
Re-emergence of Fiscal Policy
Grants/loans to states
“Shovel-ready” infrastructure
– Unintended consequence…hold back
Military spending
Green investment
– Environment, energy
Tax cuts
– Investment tax credit
– Sales tax rebate
Automatic stabilizers
– $Trillion deficits as far as eye can see
Obama Speech: January 8, 2008
“We could lose a generation of potential and promise, as more young
Americans are forced to forgo dreams of college or the chance to train for
the jobs of the future,” Mr. Obama said. “And our nation could lose the
competitive edge that has served as a foundation for our strength and
standing in the world. In short, a bad situation could become dramatically
worse.”
He said he aimed to double the production of alternative energy within
three years, a seemingly ambitious target; computerize all medical
records in the country within five years, a move he said could save
lives, money and jobs; modernize 75 percent of federal buildings and
improve energy efficiency in 2 million homes; upgrade classrooms,
libraries and laboratories in thousands of schools, and expand
broadband access to rural areas .
Mr. Obama blamed the current economic morass — in particularly stark
terms — on “an era of profound irresponsibility that stretched from corporate
boardrooms to the halls of power in Washington.”
“I understand that some might be skeptical of this plan. Our government has
already spent a good deal of money, but we haven’t yet seen that translate
into more jobs or higher incomes or renewed confidence.”
He insisted that only government could “break the vicious cycles that
are crippling our economy,” prevent “the catastrophic failure of
financial institutions,” restart the flow of credit and restore the
regulations needed to prevent such a crisis in the future.
Y = C + I + G + Ex - Im
Course Objectives
Refresh your command of …
Macroeconomic terminology
 eco-talk
Macro Facts
Schools of thought
Course Objectives
Master MODELS
– Demand Side Models  AD
Multiplier
IS – LM
– Supply Side Models  AS
Wage setting – Price setting
Phillips Curve
– Role of Expectations … in theory and practice
– Stabilizing an Unstable Economy
Understanding the current crisis
Macro - variables
Output … Real GDP … Growth Rate
Unemployment
Inflation … CPI, GDP Deflator
Macro Time Frames
Short-run … sticky price
Medium-run … price adjusts
Long-run … economic growth
Where We’re Heading
Develop tools to address macro questions:
– What drives expansions and recessions?
– What holds inflation in check?
– Can the unemployment rate be too low?
What causes unemployment?
– Why do growth rates differ across
countries?
Where to Find the Numbers
http://research.stlouisfed.org/fred2/
www.bls.gov/data/
www.economist.com
www.bea.doc.gov
http://www.gpoaccess.gov/eop/
www.oecd.org
The Federal Funds Rate and Its “Real” Value
Real interest rate
= Nominal rate – Expected Inflation
Facilities: Primary dealers, commercial paper
TermAssetBackedSecuritiesLoanFacility(TALF)
•CITI
Financial crisis of 2007–2008
Specific issues
By country
Legislation and policy
Company failures
Government bailouts
and takeovers
Company acquisitions
United States housing market correction · World food price crisis · Energy crisis (Central Asia) ·
Subprime mortgage crisis (timeline, List of writedowns) · Global financial crisis · Automotive
industry crisis · List of entities involved (Bankrupt or acquired banks, Bankrupt retailers) ·
2008 East Asian meetings
Belgium · Iceland · Russia
Banking (Special Provisions) Act 2008 · Housing and Economic Recovery Act of 2008 · Economic
Stimulus Act of 2008 · Emergency Economic Stabilization Act of 2008 · Troubled Assets Relief
Program · Term Asset-Backed Securities Loan Facility · 2008 United Kingdom bank rescue
package · China Stimulus Plan · Obama stimulus plan
New Century Financial Corporation · American Freedom Mortgage · American Home Mortgage ·
Bernard L. Madoff Investment Securities LLC · Lehman Brothers (bankruptcy) · Mervyns ·
NetBank · Terra Securities (scandal) · Sentinel Management Group · Washington Mutual ·
Icesave · Kaupthing Singer & Friedlander · Yamato Life
Northern Rock (nationalisation) · IndyMac Federal Bank · Fannie Mae (takeover) · Freddie
Mac (takeover) · AIG · Bradford & Bingley · Fortis · Glitnir · Hypo Real Estate · Dexia ·
Landsbanki · Kaupthing · ING Group · Citigroup · General Motors · Chrysler
Ameriquest Mortgage · Countrywide Financial · Bear Stearns · Alliance & Leicester · Merrill
Lynch · Washington Mutual · Derbyshire Building Society · Cheshire Building Society ·
HBOS · Lehman Brothers · Wachovia · Sovereign Bank · Barnsley Building Society ·