Tim Taylor: Interview with Emi Nakamura: Price Dynamics, Monetary and Fiscal, and COVID-19 Adjustments [feedly]

Interview with Emi Nakamura: Price Dynamics, Monetary and Fiscal, and COVID-19 Adjustments
https://conversableeconomist.blogspot.com/2020/05/interview-with-emi-nakamura-price.html

Douglas Clement at the Minneapolis Federal Reserve offers one of his characteristically excellent interviews, this one with Emi Nakamura, titled "On price dynamics, monetary policy, and this `scary moment in history'" (May 6, 2020, Federal Reserve Bank of Minneapolis). Here are a few of Nakamura's comments that caught my eye, but there's much more in the full interview.

On the current macroeconomic situation

It's a scary moment in history. I thought the Great Recession that started in 2007 was going to be the big macroeconomic event of my lifetime, but here we are again, little more than a decade later. ... More than other recessions, this particular episode feels like it fits into the classic macroeconomic framework of dividing things into "shocks" and "propagation"—mainly because in this case, it's blindingly clear what the shock is and that it is completely unrelated to other forces in the economy. In the financial crisis, there was much more of a question as to whether things were building up in the previous decade—such as debt and a housing bubble—that eventually came to a head in the crisis. But here that's clearly not the case.

Price rigidity at times of macroeconomic adjustment

You might think that it's very easy to go out there and figure out how much rigidity there is in prices. But the reality was that at least until 20 years ago, it was pretty hard to get broad-based price data. In principle, you could go into any store and see what the prices were, but the data just weren't available to researchers tabulated in a systematic way. ...

Once macroeconomists started looking at data for this broad cross section of goods, it was obvious that pricing behavior was a lot more complicated in the real world than had been assumed. If you look at, say, soft drink prices, they change all the time. But the question macroeconomists want to answer is more nuanced. We know that Coke and Pepsi go on sale a lot. But is that really a response to macroeconomic phenomena, or is that something that is, in some sense, on autopilot or preprogrammed? Another question is: When you see a price change, is it a response, in some sense, to macroeconomic conditions? We found that, often, the price is simply going back to exactly the same price as before the sale. That suggests that the responsiveness to macroeconomic conditions associated with these sales was fairly limited. ... 

One of the things that's been very striking to me in the recent period of the COVID-19 crisis is that even with incredible runs on grocery products, when I order my online groceries, there are still things on sale. Even with a shock as big as the COVID shock, my guess is that these things take time to adjust. ... he COVID-19 crisis can be viewed as a prime example of the kind of negative productivity shock that neoclassical economists have traditionally focused on. But an economy with price rigidity responds much less efficiently to that kind of an adverse shock than if prices and wages were continuously adjusting in an optimal way.

What's does the market learn from Fed announcements of changes in monetary policy? 

The basic challenge in estimating the effects of monetary policy is that most monetary policy announcements happen for a reason. For example, the Fed has just lowered interest rates by a historic amount. Obviously, this was not a random event. It happened because of this massively negative economic news. When you're trying to estimate the consequences of a monetary policy shock, the big challenge is that you don't really have randomized experiments, so establishing causality is difficult.

Looking at interest rate movements at the exact time of monetary policy announcements is a way of estimating the pure effect of the monetary policy action. ...  Intuitively, we're trying to get as close as possible to a randomized experiment. Before the monetary policy announcement, people already know if, say, negative news has come out about the economy.The only new thing that they're learning in these 30 minutes of the [time window around the monetary policy] announcement is how the Fed actually chooses to respond. Perhaps the Fed interprets the data a little bit more optimistically or pessimistically than the private sector. Perhaps their outlook is a little more hawkish on inflation. Those are the things that market participants are learning about at the time of the announcement. The idea is to isolate the effects of the monetary policy announcement from the effects of all the macroeconomic news that preceded it. Of course, you have to have very high-frequency data to do this, and most of this comes from financial markets. ...

The results completely surprised us. The conventional view of monetary policy is that if the Fed unexpectedly lowers interest rates, this will increase expected inflation. But we found that this response was extremely muted, particularly in the short run. The financial markets seemed to believe in a hyper hyper-Keynesian view of the economy. Even in response to a significant expansionary monetary shock, there was very little response priced into bond markets of a change in expected inflation. ... 

But, then, we were presenting the paper in England, and I recall that Marco Bassetto asked us to run one more regression looking at how forecasts by professional forecasters of GDP growth responded to monetary shocks. The conventional view would be that an expansionary monetary policy shock would yield forecasts of higher growth. When we ran the regression, the results actually went in the opposite direction from what we were expecting! An expansionary monetary shock was actually associated with a decrease in growth expectations, not the reverse! ... When Jay Powell or Janet Yellen or Ben Bernanke says, for example, "The economy is really in a crisis. We think we need to lower interest rates" ... perhaps the private sector thinks they can learn something about the fundamentals of the economy from the Fed's announcements. This can explain why a big, unexpected reduction in interest rates could actually have a negative, as opposed to a positive, effect on those expectations.

The Plucking Model of Unemployment

A feature emphasized by Milton Friedman is that the unemployment rate doesn't really look like a series that fluctuates symmetrically around an equilibrium "natural rate" of unemployment. It looks more like the "natural rate" is a lower bound on unemployment and that unemployment periodically gets "plucked" upward from this level by adverse shocks. Certainly, the current recession feels like an example of this phenomenon.

Another thing we emphasize is that if you look at the unemployment series, it appears incredibly smooth and persistent. When unemployment starts to rise, on average, it takes a long time to get back to where it was before. This is something that isn't well explained by the current generation of macroeconomic models of unemployment, but it's clearly front and center in terms of many economists' thinking about the policy responses [to COVID-19]. A lot of the policy discussions have to do with trying to preserve links between workers and firms, and my sense is the goal here is to avoid the kind of persistent changes in unemployment that we've seen in other recessions.

For more on Nakamura and her work, the Journal of Economic Perspectives has a couple of articles to offer.

• Janice Eberly and Michael Woodford  provide an overview of some of her prominent research in "Emi Nakamura: 2019 John Bates Clark Medalist," in the Winter 2020 issue of JEP
• Nakamura and Jón Steinsson give a sense of how they perceive "Identification in Macroeconomics" and how this is on display in some of their joint work in the Summer 2018 issue of JEP

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Fiscal Relief Needed Now to Stop Massive State Job Loss From Becoming Permanent [feedly]

Fiscal Relief Needed Now to Stop Massive State Job Loss From Becoming Permanent
https://www.cbpp.org/blog/fiscal-relief-needed-now-to-stop-massive-state-job-loss-from-becoming-permanent

The "wait and see" approach that Senator John Thune and some other Republicans recommend for providing more state and local fiscal relief is highly unwise. States and localities furloughed or laid off nearly a million workers last month, new data indicate, and reports of more furloughs this month are widespread.

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NMHC: Rent Payment Tracker Finds 87.7 Percent Paid Rent as of May 13th [feedly]

It appears household rents are holding up so far, but not commercial. However,  CRs note observing that the reports behind the household rents are weighted toward "professionally managed" properties, not smaller landlords, affordable or subsidized properties.

NMHC: Rent Payment Tracker Finds 87.7 Percent Paid Rent as of May 13th
http://www.calculatedriskblog.com/2020/05/nmhc-rent-payment-tracker-finds-877.html

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Bloomberg: China Goes After U.S. Over More Than $1 Billion Owed to UN [feedly]

A  sign, IMO, that continued attempts to isolate China, or suppress its growth and international roles, will leave it no alternative but to challenge the US directly for global leadership. Further, if trumps fascist nationalism persists in angering Europe, AND Asia, China will succeed.

China Goes After U.S. Over More Than $1 Billion Owed to UN
https://www.bloomberg.com/news/articles/2020-05-16/china-goes-after-us-over-more-than-1-billion-owed-to-the-un

text only:

United Nations (AP) -- China is going after the United States over more than $1 billion that the Trump administration owes the United Nations in unpaid dues for its regular operating budget and arrears for the separate budget for the U.N.'s far-flung peacekeeping operations.

The unusual singling out of the U.S. non-payment by China's U.N. mission comes as President Donald Trump continues to accuse Beijing of not being open about the coronavirus when cases were initially reported in December and early January.

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A U.S. Mission spokesperson said China "is eager to distract attention from its cover-up and mismanagement of the COVID-19 crisis, and this is yet another example."

U.N. Secretary-General Antonio Guterres said in early April that the United Nations faced a cash crisis because of non-payment of dues by member states, which has been exacerbated by the coronavirus pandemic.

He said in a letter to the U.N.'s 193 member nations that "unpredictable cash inflows, exacerbated by the global crisis posed by the COVID-19 pandemic, seriously threaten" the U.N.'s ability to do its work. He announced a temporary hiring freeze and urged all countries to pay their past and present dues.

China's U.N. Mission said its acting deputy ambassador, Yao Shaojun, spoke at a U.N. General Assembly's budget committee meeting Thursday titled "Improving the Financial Situation of the United Nations," and stressed the importance of all U.N. member nations fulfilling their financial obligations, citing the U.S. arrears.

"Facing tremendous economic and fiscal pressure from the COVID-19 outbreak, China, the second largest contributor to the UN regular budget and peacekeeping budget, has managed to pay all assessed contributions in full," the mission quoted Yao as saying. "It shows China's concrete support to the cause of the U.N. and the work of the secretary-general."

The United States fund 25% of the regular U.N. budget, while China pays 12%. Of the 193 member nations, 91 had paid their dues in full as of May 13. China paid $336.78 million for the regular budget on May 1

U.N. spokesman Stephane Dujarric said Friday there is still $1.62 billion unpaid for the U.N.'s 2020 regular budget and $2.12 billion outstanding for the peacekeeping budget. He did not give the U.S. arrears.

China's Yao called the United States "the largest debtor," saying it owed about $1.16 billion to the regular budget and $1.3 billion to the peacekeeping budget.

The U.S. Mission spokesperson, who was not authorized to speak publicly, said the United States recently made a payment of $726 million toward its peacekeeping assessment "and per practice will pay the bulk of its assessment at the end of the calendar year."

Because the U.S. fiscal year runs from July to June, not January to December, it has always paid U.N. dues late in the year.

The U.S.-China dispute has been escalating over the pandemic, which has circled the globe causing over 300,000 deaths.

Trump suspended U.S. funding to the World Health Organization in early April, accusing the U.N. health agency of failing to stop the virus from spreading when it first surfaced in China. He said the agency "must be held accountable,'' accusing the WHO of parroting Beijing.

The U.S.-China dispute over the WHO has blocked the U.N. Security Council, the global organizations's most powerful body, from adopting any resolution on the pandemic.

China strongly supports the WHO and has insisted the agency's role in tackling the pandemic be included in any resolution. The U.S. insists on making no mention of the WHO and including a reference to "transparency" on the coronavirus outbreak, which China opposes.

China's U.N. Mission said Beijing has decided to donate $30 million more to the WHO in addition to the $20 million it already gave the agency to support its work on COVID-19.

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Elise Gould: Latest JOLTS data further illustrates the catastrophic COVID-19 labor market [feedly]

Latest JOLTS data further illustrates the catastrophic COVID-19 labor market
https://www.epi.org/blog/latest-jolts-data-further-illustrates-the-catastrophic-covid-19-labor-market/

his morning, the Bureau of Labor Statistics released the latest Job Openings and Labor Turnover Survey (JOLTS) data for March, which further confirms what we already know: The labor market deteriorated quickly through the month of March. As a reminder, JOLTS data are for the whole month (not just mid-month, like the monthly employment numbers). JOLTS shows a net decline of 9.3 million jobs in March, while the monthly employment numbers showed a loss of 870,000. The difference is due to the labor market collapse in the last half of March.

Total separations hit an all-time high of 14.5 million in March. The increase from February of 8.9 million was nearly 13 times faster than any other point in the history of the survey, which dates back to 2000. Separations occurred across nearly all sectors of the economy, but the largest losses were found in leisure and hospitality, other services, retail trade, and education and health services.

The number of layoffs more than account for the total number of separations. Between February and March, layoffs increased by 9.5 million, hitting 11.4 million in March. In April 2009—the worst month of the Great Recession for layoffs—there were nearly 2.7 million layoffs, or 2% of the workforce. Layoffs in March were more than four times larger than the worst month in the Great Recession.

The layoffs rate—the number of layoffs during the entire month as a percent of total employment—hit 7.5%, more than three times larger than the series high. As with separations, the largest numbers of layoffs occurred in the service sectors. There were nearly 4.9 million layoffs in leisure and hospitality, almost all in accommodation and food services. There were more than 1.1 million layoffs in retail trade and 1.2 million layoffs in education and health services.

JOLTS

On the flip side, workers are quitting their jobs at much lower rates than in the pre-pandemic economy: quits dropped by 20% in March, from 3.4 million to 2.8 million. This is not a good sign—a large number of quits signifies a healthy labor market where people can leave their job to find one that is better for them. One likely reason quits didn't drop even further is because people had to, for example, leave a job to take care of a child whose school closed as a result of the virus.

Job openings fell precipitously from 7.0 million on the last business day of February down to 6.2 million on the last business day of March. While this drop of -813,000 was the largest one-month drop in the history of the survey, it's a bit surprising it didn't fall further given other labor market indicators. Hires also fell in March from 5.9 million to 5.2 million, again the largest drop on record. Nearly all sectors experienced a drop in hires, with the exception of construction.

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Economic Update - 2020 May Day Protests and Demands [feedly]

Economic Update - 2020 May Day Protests and Demands
https://economicupdate.podbean.com

A special program: interview with Kali Akuno, leader of Cooperation Jackson in Mississippi. As a leader of national May Day actions, he discusses their size, diversity, motivations and goals (including planned monthly national actions). He analyzes organizational challenges and prospects. Finally, he explains why he believes this May Day was a major strengthening of the US left.  

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Seven states saw increases in unemployment claims last week: Many workers who are not usually eligible have filed for unemployment [feedly]

Seven states saw increases in unemployment claims last week: Many workers who are not usually eligible have filed for unemployment
https://www.epi.org/blog/seven-states-saw-increases-in-unemployment-claims-last-week-many-workers-who-are-not-usually-eligible-have-filed-for-unemployment/

Another 2.6 million people filed for unemployment insurance (UI) benefits last week (not seasonally adjusted), bringing the total to more than 33 million workers filing for UI benefits in the past eight weeks during the coronavirus pandemic.

While most states saw a decline in UI claims filed relative to the prior week, seven states saw increases in UI claims. Connecticut saw, by far, the largest percent increase in claims (726.5%) compared with the prior week, followed by South Dakota (30.6%), Florida (26.9%), Washington (13.7%), Georgia (5.7%), New York (2.7%), and Wisconsin (1.8%).

Connecticut had a record-high 298,680 initial UI claims last week—more than any other state—followed by Georgia (241,387) and Florida (221,905). This comes after several states, including Florida and Georgia, have allowed restaurants and similar businesses to reopen, indicating that state policymakers are risking a greater outbreak with very little of the economic benefits they had expected.

Figure A and Table 1 below compare UI claims filed last week with the prior week and the pre-virus period, in both level and percent terms. It also shows the cumulative number of unemployment claims since March 7 and that number as a share of each state's labor force. In three states, over a third of the workforce filed an initial claim during the past two months: Georgia (35.8%), Kentucky (35.8%), and Hawaii (33.4%).

Figure A

Every state, especially many in the South, is continuing to see astonishingly high numbers of claims relative to the pre-virus period. Last week, Connecticut saw the largest percent increase in claims (11,471%) compared with the pre-virus period, followed by Georgia (4,409%). Eight of the 10 states that had the highest percent change in initial UI claims relative to the pre-virus period are in the South: Georgia, Florida, Kentucky, Mississippi, Louisiana, North Carolina, Oklahoma, and Virginia.

The data we have provided so far has not included people who applied for Pandemic Unemployment Assistance (PUA)—the new federal program that extend unemployment compensation to workers who are not eligible for regular UI but are out of work due to the pandemic, such as gig workers and people who left their jobs to care for a child. Today's news release from the Department of Labor (DOL) provided our first look at the number of workers who have applied for PUA in each state. In the last two weeks alone, more than 1.8 million workers in 29 states have filed for PUA. Table 2 displays the limited information we have so far on initial state-level PUA claims. In the last two weeks, California reported the most PUA claims (434,397), followed by Michigan (224,057), North Carolina (142,302), Massachusetts (139,290), and New Jersey (127,334).

To mitigate the economic harm to workers, the next federal relief and recovery package should extend the across-the-board $600 increase in weekly unemployment benefits well past its expiration at the end of July. The package should also include substantial aid to state and local governments, worker protections, investments in our democracy, and resources for coronavirus testing and contact tracing, which is necessary to reopen the economy. The Heroes Act, introduced by Democrats in the House of Representatives on Tuesday, would provide critical relief and recovery measures for U.S. workers and is an essential step forward.

Table 1

Table 2

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