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Wednesday, July 18, 2018

The Yield Curve Provides Limited Economic Information

Chart: U.S. Treasury 2/10-year slope

The relentless flattening of the Treasury yield curve has been a topic of ongoing debate -- is this a signal that a recession is near? The key to interpreting the flattening is that bond market participants are not paid to to anticipate economic outcomes (outside the corner case of the inflation-linked market), rather to anticipate the path of short-term rates (and the term premium). The flattening yield curve tells us that market participants (on average) believe that we are near the end of the rate hike cycle, but that does not necessarily mean that a recession is imminent.

Mathematical Articles Rendering Issues On iOS

I tried looking at one of my articles that uses mathematical symbols (using MathJax) on my iPad, and the article is failing to load. (The article loads fine on my computer browser.) This is annoying, but I am hoping it is just a temporary problem that Apple can fix (since the articles loaded properly earlier). If anyone knows anything about this, please let me know...

Wednesday, July 11, 2018

The Kalecki Profit Equation And Forecasting

Having run through the Kalecki profit Equation (link to the first part of a two-part primer), I just want to make some brief remarks about how it ties into the notion of forecastability (description). Should we be able to expect to forecast the business cycle?

(This article is fairly brief, and re-iterates points I have made in other articles. Travelling and major home renovations have cut into my writing time recently.)

Tuesday, July 10, 2018

Podcast On Bloomberg Odd Lots

I was interviewed by Tracy Alloway and Joe Weisenthal for a Bloomberg Odd Lots podcast on government bond auctions. I gave a basic overview of the operations involved (MMT style), as well as rambling on about the interest rate effects.

I did the interview when I was working on my Kalecki Profit Equation primer, and I discovered that a lot of macro description involves nattering on about circular income flows. My feeling is that what differrentiates (good) macroeconomics from micro is the awareness of circular income flows.

One of the themes of the podcast is the interesting question: why doesn’t increased supply cause bond yields to rise? I am currently on the road, but may return to that question later.

Wednesday, July 4, 2018

Primer: The Kalecki Profit Equation (Part II)

This article continues the discussion of the Kalecki Profit Equation (link to Part I). The Kalecki Profit Equation is an account identity (a statement that is true by definition) that determines the level of aggregate business sector profits in terms of other national accounts variables. The full equation is somewhat imposing, so the strategy employed here is to build up the equation by starting off with a simplified model economy that results in a brief equation, then adding new terms progressively. The previous article noted that investment creates a pro-cyclical self-reinforcing loop between it and profits. This article discusses two factors that normally act to moderate the business cycle: the fiscal deficit, and the external sector.

Wednesday, June 27, 2018

Primer: The Kalecki Profit Equation (Part I)

The Kalecki profit equation -- named after the economist Michal Kalecki -- describes how aggregated profits are determined by national accounting identities. (Note that Jerome Levy came up with a similar approach earlier; the equation is sometimes referred to as the Kalecki-Levy profit equation.) The results are perhaps not obvious if we look at profits from a bottom up perspective. From the perspective of business cycle analysis, the key point to note is that net investment is a source of profits. Meanwhile, since firms invest in order to grow profits, we get a self-reinforcing feedback loop. From a policy perspective, we see that governmental deficits also add to profits, which implies that increasing deficits add to profits in a recession, helping put a floor under activity.

Sunday, June 24, 2018

Summer Schedule

Going to a summer schedule; I aim to publish one article per week, probably on Wednesday. The theme is likely to on business cycles, as that is my expected next project. As noted earlier, the draft of the breakeven inflation analysis book is essentially finished, but it will be edited and formatted in August/September.

One thing I have discovered is that I am no longer getting email notifications about comments; I need to consult my dashboard to see new comments. I just made a couple of late responses to comments...