306CoursePaperv4
US Economic Outlook
ECO30
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Dr. Berdell: Macroeconomic Outlook and Theory Review
I) Topic
Present your analysis of the near-term prospects for the US economy. Which factors and policies will be the most important determinants of the future course of the economy? Forecasts of the economy are always based on theoretical and methodological presuppositions; hence this paper calls for your reasoned personal opinion. To construct and support that opinion you will need to identify and discuss the relevant data as well as set out and justify the theoretical perspective from which you are viewing the data. Your choice of which theoretical perspective(s) to adopt will likely depend upon the type of problem you are analyzing.
The following section presents the criteria by which papers will be assessed. Section III emphasizes the importance of proper references and avoiding plagiarism. Section IV sets out a variety of important variables to consider and some sources where the data and associated commentary may be found. Section V discusses how you can use the Keynesian macro-econometric FairModel.
II Evaluation Criteria
1. Clarity of Forecast and Cyclical Positioning
a. Is there a clear forecast table in the appendix and does the paper make good use of it?
b. Has the economy been expanding/contracting?
c. What are the chances that it is presently at a turning point?
2. Identification and Depth of Sources
a. Are sources acknowledged and properly cited? Does the bibliography or list of references coherently and consistently document these sources?
b. Is there a mix of sources from original gov. releases, commentary from the press, and academic theories and research?
3. Coverage and Interrelation of Sectors
a. Is there coverage of:
i. leading-coincident indicators
ii. labor market conditions
iii. GDP growth and its components
iv. indicators of inflation and borrowing costs
v. productivity and profitability measures
vi. exchange rates and external linkages
b. How clearly and concretely are developments in these parts of the economy are interrelated?
4. Use of Competing Theories, Models and Forecasts
a. Are the contending theoretical approaches covered in the text considered?
b. Are additional required/recommended sources utilized?
c. Are private or public sector forecasts presented?
d. Are FairModel or other model results considered?
e. Are the structure and assumptions of the Fairmodel presented?
5. Cohesion, Coherence and Innovation of the Analysis
a. Does the work elaborate a consistent thesis or does each section seem detached and without a unifying theme? It is clearly and well written?
b. Are there innovative aspects of the analysis or its presentation?
III) Length and Proper References
The paper should contain 6-10 pages of text, double spaced. You may either insert or attach at the end a variety of tables and graphs you think important. These tables and graphs must be numbered and discussed in the text. Never attach or insert an object which you do not talk about in the paper! Do remember that I expect a list of references at the end of the paper, and proper citation of material throughout.
I am not greatly concerned about which style of references you use so long as it is a well-respected standard and consistently used. An easy style of references is Turabian Author Date. DePaul’s Writing Center
http://condor.depaul.edu/writing/writers/citations.html
has a link to a page for the Turabian style. On this page you need to click the Author Date Tab
http://www.press.uchicago.edu/books/turabian/turabian_citationguide.html
You must use quotation marks or indentation to indicate text written by others and avoid plagiarism:.
“..a major form of academic dishonesty involving the presentation of the work of another as one’s own. Plagiarism includes but is not limited to the following:
a. The direct copying of any source, such as written and verbal material, computer files, audio disks, video programs or musical scores, whether published or unpublished, in whole or part, without proper acknowledgement that it is someone else’s.
b. Copying of any source in whole or part with only minor changes in wording or syntax, even with acknowledgement.
c. Submitting as one’s own work a report, examination paper, computer file, lab report or other assignment that has been prepared by someone else. This includes research papers purchased from any other person or agency.
d. The paraphrasing of another’s work or ideas without proper acknowledgement.
Plagiarism, like other forms of academic dishonesty, is always a serious matter. If an instructor finds that a student has plagiarized, the appropriate penalty is at the instructor’s discretion. Actions taken by the instructor do not preclude the college or the university from taking further punitive action including dismissal from the university” (DePaul Student Handbook).
In this assignment you GAIN points by citing a wide range of authors and sources so plagiarism would be totally counterproductive! Do indeed mention discussions you have had with class mates if they have influenced your views or if you are sharing material. Each student must write their own paper.
IVA) Some Variables and Sources to Consider
Leading Indicators
Review the behavior of the leading, lagging and coincident indicators.
Source: The Conference Board
‘Nowcasting” indicators of GDP: Economy.com,
Chicago FRB CFNAI
https://www.chicagofed.org/publications/cfnai/index
Atlanta FRB ‘GDP now’
https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1
The Labor Market
Review the behavior of the unemployment rate, employment rate, and labor participation rate.
Sources: “THE EMPLOYMENT SITUATION” monthly by the Bureau of Labor Statistics (BLS
http://www.bls.gov/
). Also available via Economy.com US Economic Indicators.
The Atlanta FRB has a very good visual presentation of labor market indicators
https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1
https://www.frbatlanta.org/chcs/labor-market-distributions.aspx
Productivity
Review the behavior of productivity and its relation to output and employment growth.
Sources: The BLS has excellent resources on productivity.
www.bls.gov/bls/productivity.htm
Covers labor productivity and is closely related their labor costs page that will appear below.
www.bls.gov/mfp/home.htm
Covers multifactor productivity.
The San Francisco FRB
http://www.frbsf.org/economic-research/indicators-data/total-factor-productivity-tfp/
for real time estimates of total productivity growth. (Tracking productivity in real time is unfortunately a very problematic undertaking, for a discussion see
https://www.newyorkfed.org/research/current_issues/ci12-8.html
)
Output and Demand Components
Review the growth of output and its components: C, I, G, (X-IM).
Sources: The all-important “GROSS DOMESTIC PRODUCT” report from the Bureau of Economic Analysis (BEA
http://www.bea.gov/
). Also available via Moody’s Economy.com US Economic Indicators.
The Atlanta FRB “now casts” this table for the current quarter as GDPNow.
https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1
The New York Fed also has a GDP ‘now cast’ but with less detail than the Atlanta Fed
https://www.newyorkfed.org/research/policy/nowcast
Inflation
Review the movement of the GDP deflator and Personal Consumption Expenditure deflator found in the “GROSS DOMESTIC PRODUCT” report.
Review the movement of the “Consumer Price Index”. Also available via Economy.comUS Economic Indicators.
The San Francisco FRB has a good inflation site
http://www.frbsf.org/economic-research/indicators-data/pce-personal-consumption-expenditure-price-index-pcepi/
Review the movement of the “Employment Cost Index” from the BLS. Also available via Economy.com US Economic Indicators.
Exchange Rates and International Payments
Review the movement of the US Current Account See the BEA’s “Balance of Payments” report (BEA
http://www.bea.gov/
).
Review the movement of $ Exchange Rates. See The FRED data base under exchange rates, especially the Trade Weighted Exchange Rates found at the end of the list.
Monetary Policy
Review the movement of the FRB’s Discount Rate and “Selected Interest Rates”.
You may wish to consult the “Summary of Commentary on Current Economic Conditions (Beige Book)” and “Federal Open Market Committee Meeting Minutes”.
(See
http://www.federalreserve.gov/monetarypolicy/default.htm
)
Fiscal Policy
Review the contribution of G (government spending) growth to the growth of output. See the GDP reports table 2 which tells us the contributions of different types of spending to GDP growth. To look at the issue of the Full Employment Budget Deficit and the effect of automatic stabilizers go to the Congressional Budget Office
www.cbo.gov
. Look for their ‘Update to the Budget and Economic Outlook’ it has a section examining the
“Deficit or Surplus With and Without CBO’s Estimate of Automatic Stabilizers, and
Related Estimates, as a Percentage of Potential Gross Domestic Product”. The most influential think tank following fiscal policy is Brookings:
https://www.brookings.edu/topic/federal-fiscal-policy/
IVB) Sources Mentioned Above and Other Handy Links
Economy.com (used to be called Dismal Scientist.) Go to the library databases and find Economy.com . In addition to their economic commentary (which you can search for say “GDP report” or “productivity” ) it is worth examining their FRB links, Taylor Rule calculator, and Stock Market Calculator. They have a companion site FreeLunch.com that allows you to graph many variables not available via the Conference Board.
FRED The Federal Reserve Board’s Economic Data Base.
http://www.research.stlouisfed.org/fred2/
Our text mentions this rather frequently at the ends of chapters and it is an excellent source verymuch like Economagic.
Look at both and see which one you prefer.
FairModel (
http://fairmodel.econ.yale.edu/
)
A large but very standard Keynesian macro-econometric model. You can use it to produce a forecast of the economy and to examine the impact of changes in monetary and/or fiscal policy. You can also examine the impact of oil price shocks etc. Discussed below.
CBO
http://www.cbo.gov/
For the Government’s Economic Forecast for the next 10 years see the CBO. The Congressional Budget Office prepares the forecasts of the NAIRU, Y potential and Y the underlie the President’s Budget. Their current forecast for the US economy is available from their home page. The methodology behind these forecasts is discussed in some detail in documents found in the “Budget and Economic Outlook” section of their publications.
BEA
http://www.bea.gov/
The Bureau of Economic Analysis generates the GDP report.
Economic Trends
http://www.clevelandfed.org/Research/
The Cleveland FRB’s overview of the US economy.
Many or perhaps all of the links mentioned above are listed on the American Economic Association’s Resources for Economists web page devoted to Forecasting and Consulting
http://rfe.org/
V The Keynesian FairModel as a point of reference:
There is a very well known Keynesian model of the US economy that traces its intellectual roots back to the Keynesian heydays of the 1950’s and 60’s at Yale University. It is Ray Fair’s FairModel at
http://fairmodel.econ.yale.edu/
. We will discuss its structure and equations when we cover chapters 11-15 of the text. I suggest that you refer to its key equations in your paper, and indicate why a classical economist would not agree with their specification. The model generates a ‘base’ forecast of the US economy’s growth, unemployment, financial balances and a host of other variables that you need not consider. You should know what the model’s forecast is and why you agree or disagree with it.
You may also use the Fair Model to indicate what will happen to the economy under different scenarios (for instance what will happen if monetary or fiscal policy is altered.
Updated instructions on running the fairmodel will be posted in D2L.
VI Generic Outline
This is a generic outline. It is typical for the economic outlook papers written by banks and other institutions year in and year out. You should deviate from it in order to emphasize issues that are especially important right now or to accommodate one or two issues that caught your interest and you want to emphasize. You should find some place to explain whether you are using a Keynesian or a Classical approach to understanding the economy. Perhaps you have decided to draw from both traditions. You could reorder the material and insert a section or two. You obviously can’t write about everything that I mention in the generic outline, but you should say something that speaks to the major headings: Labor, Demand, Financial Markets, Supply and International. The main text (sections I to VI below) should be 5-7 double spaced pages. Only attach graphs and tables at the end that you talk about in the paper. Attaching random material not discussed in the body of the paper will lower the paper grade.
I) Introduction: Where is the US economy in the cycle? (Starting an expansion? Ending an expansion? When was the last “turning point” of the US economy?) Are the forecasts for the US economy split between optimists and pessimists, or do they all seem to say pretty much the same thing? What growth rate do you think is likely for the US economy in the forecast period? (This will be based on your reading and synthesis of professional forecasts.) What are the key issues that you want to draw special attention to in the sections that follow?
II) Labor Market Developments: What has been happening to the growth of jobs and wages? (Strong? Weak?) What are forecasters expecting? What about unemployment and participation rates? Are there some other important things about the labor market you encountered that you want to note?
III) Demand. The GDP report, especially table two “Contributions to GDP growth”, will tell you exactly which sources of demand have accounted for recent growth. The Atlanta FRB GDPNow forecast (or Nowcast) will tell you what seems to happening right now. The Dismal Scientist will also do this and forecast into the future. The forecast sources document on D2L has additional sources. Have you read anything about why particular components of spending (C, I, G, NX) have been weak or strong? You may want to say that you will come back to some of them later. (For instance, NX net exports reappear later in this generic outline.) Fiscal Policy affects spending directly through G and affects consumption via taxes.
IV) Financial Markets and the FRB. What has FRB monetary policy been and what is it expected to be in the near future? What have some important interest rates been and how are they expected to change? Have stock prices been rising or falling recently? Have you read anything about whether changes in the stock market have affected consumption or investment? Do you happen to have a strong opinion on what direction stock markets are headed?
V) Supply Side and International Linkages. Does the economy appear to be near or away from its potential output? How fast is potential output growing (due to the growth of productivity as well as labor and capital)? US exports and imports can be important influences on the economy. Have they been large recently? Is the US dollar expected to get stronger, weaker, or stay about the same in the near future?
VI) Conclusion. Which of the aspect of the economy you discussed above seem to be most important or interesting to you and why?
VII) References. A good mix of a few government reports, some economic outlooks from financial institutions, and newspaper articles you cited in the paper.
VIII) Tables and Figures. The first thing here should be your forecast table. An old version is posted on D2L. Your forecast table should have updated forecasts of some important variables from several sources. At the top of your table should be your forecast clearly labeled as yours. Your forecast could be an average of the forecasts you copied from professional sources, or you may have a forecast that is remarkably different than the consensus.
You should attach at least a few additional graphs or tables. These should be numbered (Figure One, Figure Two, etc.). Each figure should be discussed in the paper and should have had an important influence in shaping your thoughts or the argument of the paper. Attaching random material will significantly reduce your grade. Be selective and thoughtful.
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