Wednesday, August 27, 2014

Are You Cut Out To Be A Macroeconomist? A Simple Test

Try this at home. The chart below shows you the relationship between unemployment and output (to be precise, it is the relationship between the change in unemployment and output growth). The chart is automatically updated, starting with the relationship as it appeared in 1948 to 1963, and then adding 10 additional years at a time to bring it all the way to the present. (You can also click on this link to see these charts: Okun’s Law Over Time.) Now here’s the first question on the test: Do you think the relationship shown in these charts has remained strong and stable over time?

Here’s the link to another macroeconomic relationship, this one between unemployment and inflation. Same deal: first you see the relationship over the 1948 to 1963 period and the charts that follow add 10 years at a time. (You can also click on this link to see these charts: Phillips Curve Over Time.) Second question on the test: Do you think the relationship shown in these charts has remained strong and stable over time?

If you are suspecting a trick you are right. To the lay person, it probably seems that the first relationship, known as Okun’s Law, is strong and stable and the second relationship, known as the Phillips Curve, is weak and unstable. But macroeconomists actually worry a lot that Okun’s Law is dead. And—using special goggles known as ‘econometrics’—they are able to see the Phillips Curve where the lay person may just see a cloud.

Robert Gordon, a renowned macroeconomist, for example has proclaimed the demise of Okun’s Law and noted that, in contrast, the Phillips Curve is ‘alive and well’. This is what keeps macroeconomics interesting: things may not be what they seem. (For what it’s worth, I think that Okun’s Law is alive and well and that the Phillips Curve is being kept alive with artificial resuscitation—but then I’m closer to a lay person than to a renowned macroeconomist.)

Tuesday, August 12, 2014

House Prices in the Philippines

"In Q4:2013, prices of mid- and high-end condominiums in upscale areas of metro Manila (only available price series) rose by 13 percent, y/y, similar to growth rates that prevailed prior to the GFC. However, in real terms, condo prices remain below their peak that prevailed prior to the Asian financial crisis. This likely reflects in part the large supply increase in this market segment in recent years. In fact, according to the official Philippine Housing Industry Plan for 2012‒30, supply of units in the mid­- and high -cost segments of the housing market is adequate, while the low-end of the market is characterized by severe shortages. Despite the recent price increases, residential price-to-rent ratios have remained relatively stable at around 14 percent," says the IMF's latest report on the Philippines. 

Monday, August 4, 2014

House Prices in Lebanon

See the IMF's latest report on Lebanon here.

House Prices in China

The real estate sector "(...) has shown growing signs of imbalances and activity has softened in 2014. The challenge is to allow for the necessary correction while preventing an excessively sharp slowdown. The contribution of real estate and construction to growth has been rising; last year, it accounted directly for 12.8 percent of value added, and about 33 percent if upstream and downstream sectors are included. Residential real estate is marked by substantial regional differentiation. Large cities have enjoyed favorable demand conditions—reflecting both underlying and speculative demand—and prices show signs of overvaluation relative to fundamentals, despite measures aimed at restricting speculative demand. In contrast, many smaller cities have experienced oversupply as local governments promoted large-scale development to boost growth and used land sales to finance local government spending. Supply seems to have outpaced demand in many areas as evidenced by muted price increases and rising inventories. The commercial real estate market appears to be in oversupply in both smaller and bigger cities," according to the latest IMF report on China.

Wednesday, July 30, 2014

House Prices in the United Kingdom

"(...) house prices are rising rapidly, and over an increasingly wide area. House price inflation is notably high in London, with levels now 32 percent above those before the crisis, reflecting strong foreign demand for premium properties, and demographic pressures (...). Price rises are becoming geographically more widespread, even though transaction volumes are still below historic averages overall," says the latest IMF report on the United Kingdom. 

Also, see a special analysis here (Housing and Business Cycles: Is the UK Different From Other Advanced Economies)