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  • EMBA Macro

    Week 1May 4, 2019

    OverviewMonetary Policy

    1

  • 2

  • ECONOMIC POLICIES TRY TO HELP COUNTRIES ENJOY STRONG AND STABLE GROWTH IN INCOMES

    Macroeconomics is the study of income

    3

  • What is macro about?

    • Macroeconomics is the study of income.– Why do incomes vary over time?– Why do they differ across countries?– Why do they differ among people?

    • If we try to answer all these questions at the same time, we may not be any to answer any. So we take it one step at a time.

    • First, we ignore variation among people within a country. We pretend that everyone within a country makes the average income of that country.

    • Second, we make a distinction between short-run changes in income and long-run changes in income.

    4

  • Income: Long Run vs. Short Run

    • The long-run component of income is called the trend or potential income.

    • Fluctuations around the trend or potential are the short-run component of income.

    • When income is above trend, the economy is said to be in the boom phase of the cycle or in an expansion; when income trend, the economy is experiencing a slowdown or a slump.

    • Output gap: the difference between income and its trend (or potential)– Negative output gap: income is below trend – Positive output gap: income is above trend

    5

  • Main indicator of interest

    Eye of the bird: Real income per person (a.k.a. real GDP per capita, real output per capita)

    Other indicators:Unemployment rateInflation rateInterest rateExchange rate

    6

  • U.S. real income per person (a.k.a. US real GDP per capita)

    7

  • Trend vs. cycles in real GDP

    There are two main components of real GDP (or of real GDP per capita)

    • The first is the trend. The trend is generally upward and reflects technological progress and ‘factor accumulation’

    • The second component is the business cycle (or cyclical fluctuations). This refers to the movements around the trend.

    – When real GDP is above its long-run trend, the economy is said to be in the boom phase of the cycle or in an expansion; when real GDP is below its long-run trend, the economy is experiencing a slowdown or a slump.

    – Output gap (or GDP Gap): the difference between real GDP and its long-run trend

    • When output is about its long-run trend, the GDP gap is positive• When output is below its long-run trend, the GDP gap in negative

    8

  • UNDERSTANDING TREND INCOMES

    9

  • 1000

    10000

    1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

    Catch-up growth over last half-century Real GDP per equivalent adult – log scaleConstant 2005 US$s (PWT 6.3 data)

    USA ROK

    Hong Kong Singapore

    5000

    50000

    20000

    2000

    10

  • 500

    5000

    50000

    1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

    Growth over last half-century in selected countriesReal GDP per equivalent adult – log scale

    Constant 2005 US$s (PWT 6.3 data)

    USA

    Japan

    ROK

    China

    India

    15000

    1000

    2000

    11

  • Two short-cuts to understanding macro

    • Comparing micro and macro– Fish demand and supply– Aggregate demand and aggregate supply

    • Parable of Robinson Crusoe– Circular flow of income– Aggregate demand and aggregate supply

    12

  • National income identityThe expenditure approach to measuring GDP• Measures total spending on final goods and

    services produced within a nation during a specified period of time

    • Four main categories of spending: consumption (C), investment (I), government purchases of goods and services (G), and net exports (NX)

    • Y = C + I + G + NX

    13

  • 14

  • 15

  • 16

  • Inputs, Output and Efficiency

    17

  • A General View of Growth• Y = F (Policies, Institutions, Geography, Shocks or Something Else)

    • Policies – Macroeconomic Policies – Openness to trade

    • Institutions– Extent of Rule of Law; Protection of Property Rights; Quality of Bureaucracy

    • Geography; – Sachs: the “bad latitude” problem; Jared Diamond’s “guns, germs and steel”

    • Shocks– Terms of trade shocks – Political conflict– Financial crises

    • Something Else– Foreign Aid?– Resource Curse?– Expectations/Motivation?

    18

  • 19

  • INCOME INEQUALITY

    20

  • U.S. real income per person (a.k.a. US real GDP per capita)

    21

  • 22

  • Basic Facts About Income Inequality

    23

  • ‘Global Inequality’ (“Imagine there’s no countries”:Evolution of the World Distribution of Income

    24

  • Inclusive Growth

    25

    “A unifying framework for all this [new] work can be summarized in two words: Inclusive growth. We want growth, but we also want to make sure:

    • that people have jobs—this is the basis for people to feel included in society and to have a sense of dignity;

    • that women and men have equal opportunities to participate in the economy—hence our focus on gender;

    • that the poor and the middle class share in the prosperity of a country—hence the work on inequality and shared prosperity;

    • that, as happens, for instance when countries discover natural resources, wealth is not captured by a few—this is why we worry about corruption and governance;

    • that there is financial inclusion—which makes a difference in investment, food security and health outcomes; and

    • that growth is shared just not among this generation but with future generations—hence our work on building resilience to climate change and natural disasters.”

    Prakash Loungani, IMF Blog, January 24, 2017.

    http://www.imf.org/external/np/pp/eng/2013/031413.pdfhttp://www.imf.org/external/themes/gender/http://unassumingeconomist.com/2016/10/imf-research-on-inequality-a-primer/http://www.imf.org/en/About/Factsheets/The-IMF-and-Good-Governancehttp://www.imf.org/external/pubs/ft/sdn/2015/sdn1517.pdfhttp://www.imf.org/external/np/fad/environ/https://www.imf.org/en/News/Articles/2016/12/12/PR16550-IMF-Discusses-Small-States-Resilience-to-Natural-Disasters-and-Climate-Change-and-IMF-Role

  • Unemployment

    • Two components of unemployment rate– Cyclical unemployment – related to the business cycle

    – Natural rate of unemployment – the unemployment that would prevail even in the absence of business cycles (even at “full-employment’)

    • In a slump, the actual unemployment rate rises above the natural rate; cyclical unemployment is high

    • In a boom, the actual unemployment rate falls below the natural rate; cyclical unemployment is low.

    26

  • Actual and natural rates of unemployment in the U.S., 1960-2007

    Perc

    ent o

    f lab

    or fo

    rce

    Unemployment rate

    Natural rate of unemployment

    0

    2

    4

    6

    8

    10

    12

    1960 1965 1970 1975 1980 1985 1990 1995 2000 200527

  • UNDERSTANDING CYCLICALRELATIONSHIPS

    28

  • List of Figures (see Data_National Sheet in ‘Okun’ Database)

    • Real Income– Plot of raw data– Plot of logged data and trend (HP)– Plot of cycle component (HP)– Plot of logged data, trend and cycle (HP)

    • Unemployment Rate– Plot of raw data– of data and trend (HP)– Plot of cycle component (HP)– Plot of data, trend and cycle (HP)– Cycle components between U and Y

    • Unemployment Rate– Plot of data and trend (average)– Plot of cycle component (average)– Plot of data, trend and cycle (average)– Cycle components between U (average) and Y (HP)

  • Real Per Capita Income

  • Real Income – HP Trend

  • Real Income – Cycle (after removing HP trend)

  • Real Income – Trend and Cycle

  • Unemployment Rate

  • Unemployment Rate – HP Trend

  • Unemployment Rate – Cycle (after removing HP trend)

  • Unemployment Rate – Trend and Cycle

  • Cyclical Components of Output (Income) and Unemployment

  • Unemployment RateTrend = Sample Average

  • Unemployment Rate – Cycle (Deviations around Sample Average)

  • Unemployment Rate – Trend and Cycle

  • Cyclical Components –Real Income (HP), UR (Average)

  • Okun’s Law (“Levels” or “Gap” version)

    43

    ut – ut* = β (ln yt – ln yt *) + εt β < 0

    u = unemployment rateu* = natural rate of unemployment

    ln y = natural log of output (or output per capita)ln y* = natural log of potential output (or output per

    capita)

    We measure ut* and yt * with HP filter (“lambda” = 100).

  • Okun’s Law(“Changes version”)

    44

    Δut = α + β yt + ωt

    Δu = change in unemployment rate(i.e. Δut = ut – ut-1 )

    y = growth rate of real GDP

    • The “changes” version follows from the “levels” or “gap” version under certain assumptions (for example, if u * and Δy* are constant)

  • Estimates of Okun’s Law

    45

  • The flattening of the “Phillips Curve”

    46

  • THE ROLE OF MONETARY POLICY:1) KEEP AVERAGE INFLATION LOW2) STABILIZE CYCLICAL FLUCTUATIONS

    47

  • 48

    U.S. Inflation & its Trend

    Chart1

    1948

    1948.0833333333

    1948.1666666667

    1948.25

    1948.3333333333

    1948.4166666667

    1948.5

    1948.5833333333

    1948.6666666667

    1948.75

    1948.8333333333

    1948.9166666667

    1949

    1949.0833333333

    1949.1666666667

    1949.25

    1949.3333333333

    1949.4166666667

    1949.5

    1949.5833333333

    1949.6666666667

    1949.75

    1949.8333333333

    1949.9166666667

    1950

    1950.0833333333

    1950.1666666667

    1950.25

    1950.3333333333

    1950.4166666667

    1950.5

    1950.5833333333

    1950.6666666667

    1950.75

    1950.8333333333

    1950.9166666667

    1951

    1951.0833333333

    1951.1666666667

    1951.25

    1951.3333333333

    1951.4166666667

    1951.5

    1951.5833333333

    1951.6666666667

    1951.75

    1951.8333333333

    1951.9166666667

    1952

    1952.0833333333

    1952.1666666667

    1952.25

    1952.3333333333

    1952.4166666667

    1952.5

    1952.5833333333

    1952.6666666667

    1952.75

    1952.8333333333

    1952.9166666667

    1953

    1953.0833333333

    1953.1666666667

    1953.25

    1953.3333333333

    1953.4166666667

    1953.5

    1953.5833333333

    1953.6666666667

    1953.75

    1953.8333333333

    1953.9166666667

    1954

    1954.0833333333

    1954.1666666667

    1954.25

    1954.3333333333

    1954.4166666667

    1954.5

    1954.5833333333

    1954.6666666667

    1954.75

    1954.8333333333

    1954.9166666667

    1955

    1955.0833333333

    1955.1666666667

    1955.25

    1955.3333333333

    1955.4166666667

    1955.5

    1955.5833333333

    1955.6666666667

    1955.75

    1955.8333333333

    1955.9166666667

    1956

    1956.0833333333

    1956.1666666667

    1956.25

    1956.3333333333

    1956.4166666667

    1956.5

    1956.5833333333

    1956.6666666667

    1956.75

    1956.8333333333

    1956.9166666667

    1957

    1957.0833333333

    1957.1666666667

    1957.25

    1957.3333333333

    1957.4166666667

    1957.5

    1957.5833333333

    1957.6666666667

    1957.75

    1957.8333333333

    1957.9166666667

    1958

    1958.0833333333

    1958.1666666667

    1958.25

    1958.3333333333

    1958.4166666667

    1958.5

    1958.5833333333

    1958.6666666667

    1958.75

    1958.8333333333

    1958.9166666667

    1959

    1959.0833333333

    1959.1666666667

    1959.25

    1959.3333333333

    1959.4166666667

    1959.5

    1959.5833333333

    1959.6666666667

    1959.75

    1959.8333333333

    1959.9166666667

    1960

    1960.0833333333

    1960.1666666667

    1960.25

    1960.3333333333

    1960.4166666667

    1960.5

    1960.5833333333

    1960.6666666667

    1960.75

    1960.8333333333

    1960.9166666667

    1961

    1961.0833333333

    1961.1666666667

    1961.25

    1961.3333333333

    1961.4166666667

    1961.5

    1961.5833333333

    1961.6666666667

    1961.75

    1961.8333333333

    1961.9166666667

    1962

    1962.0833333333

    1962.1666666667

    1962.25

    1962.3333333333

    1962.4166666667

    1962.5

    1962.5833333333

    1962.6666666667

    1962.75

    1962.8333333333

    1962.9166666667

    1963

    1963.0833333333

    1963.1666666667

    1963.25

    1963.3333333333

    1963.4166666667

    1963.5

    1963.5833333333

    1963.6666666667

    1963.75

    1963.8333333333

    1963.9166666667

    1964

    1964.0833333333

    1964.1666666667

    1964.25

    1964.3333333333

    1964.4166666667

    1964.5

    1964.5833333333

    1964.6666666667

    1964.75

    1964.8333333333

    1964.9166666667

    1965

    1965.0833333333

    1965.1666666667

    1965.25

    1965.3333333333

    1965.4166666667

    1965.5

    1965.5833333333

    1965.6666666667

    1965.75

    1965.8333333333

    1965.9166666667

    1966

    1966.0833333333

    1966.1666666667

    1966.25

    1966.3333333333

    1966.4166666667

    1966.5

    1966.5833333333

    1966.6666666667

    1966.75

    1966.8333333333

    1966.9166666667

    1967

    1967.0833333333

    1967.1666666667

    1967.25

    1967.3333333333

    1967.4166666667

    1967.5

    1967.5833333333

    1967.6666666667

    1967.75

    1967.8333333333

    1967.9166666667

    1968

    1968.0833333333

    1968.1666666667

    1968.25

    1968.3333333333

    1968.4166666667

    1968.5

    1968.5833333333

    1968.6666666667

    1968.75

    1968.8333333333

    1968.9166666667

    1969

    1969.0833333333

    1969.1666666667

    1969.25

    1969.3333333333

    1969.4166666667

    1969.5

    1969.5833333333

    1969.6666666667

    1969.75

    1969.8333333333

    1969.9166666667

    1970

    1970.0833333333

    1970.1666666667

    1970.25

    1970.3333333333

    1970.4166666667

    1970.5

    1970.5833333333

    1970.6666666667

    1970.75

    1970.8333333333

    1970.9166666667

    1971

    1971.0833333333

    1971.1666666667

    1971.25

    1971.3333333333

    1971.4166666667

    1971.5

    1971.5833333333

    1971.6666666667

    1971.75

    1971.8333333333

    1971.9166666667

    1972

    1972.0833333333

    1972.1666666667

    1972.25

    1972.3333333333

    1972.4166666667

    1972.5

    1972.5833333333

    1972.6666666667

    1972.75

    1972.8333333333

    1972.9166666667

    1973

    1973.0833333333

    1973.1666666667

    1973.25

    1973.3333333333

    1973.4166666667

    1973.5

    1973.5833333333

    1973.6666666667

    1973.75

    1973.8333333333

    1973.9166666667

    1974

    1974.0833333333

    1974.1666666667

    1974.25

    1974.3333333333

    1974.4166666667

    1974.5

    1974.5833333333

    1974.6666666667

    1974.75

    1974.8333333333

    1974.9166666667

    1975

    1975.0833333333

    1975.1666666667

    1975.25

    1975.3333333333

    1975.4166666667

    1975.5

    1975.5833333333

    1975.6666666667

    1975.75

    1975.8333333333

    1975.9166666667

    1976

    1976.0833333333

    1976.1666666667

    1976.25

    1976.3333333333

    1976.4166666667

    1976.5

    1976.5833333333

    1976.6666666667

    1976.75

    1976.8333333333

    1976.9166666667

    1977

    1977.0833333333

    1977.1666666667

    1977.25

    1977.3333333333

    1977.4166666667

    1977.5

    1977.5833333333

    1977.6666666667

    1977.75

    1977.8333333333

    1977.9166666667

    1978

    1978.0833333333

    1978.1666666667

    1978.25

    1978.3333333333

    1978.4166666667

    1978.5

    1978.5833333333

    1978.6666666667

    1978.75

    1978.8333333333

    1978.9166666667

    1979

    1979.0833333333

    1979.1666666667

    1979.25

    1979.3333333333

    1979.4166666667

    1979.5

    1979.5833333333

    1979.6666666667

    1979.75

    1979.8333333333

    1979.9166666667

    1980

    1980.0833333333

    1980.1666666667

    1980.25

    1980.3333333333

    1980.4166666667

    1980.5

    1980.5833333333

    1980.6666666667

    1980.75

    1980.8333333333

    1980.9166666667

    1981

    1981.0833333333

    1981.1666666667

    1981.25

    1981.3333333333

    1981.4166666667

    1981.5

    1981.5833333333

    1981.6666666667

    1981.75

    1981.8333333333

    1981.9166666667

    1982

    1982.0833333333

    1982.1666666667

    1982.25

    1982.3333333333

    1982.4166666667

    1982.5

    1982.5833333333

    1982.6666666667

    1982.75

    1982.8333333333

    1982.9166666667

    1983

    1983.0833333333

    1983.1666666667

    1983.25

    1983.3333333333

    1983.4166666667

    1983.5

    1983.5833333333

    1983.6666666667

    1983.75

    1983.8333333333

    1983.9166666667

    1984

    1984.0833333333

    1984.1666666667

    1984.25

    1984.3333333333

    1984.4166666667

    1984.5

    1984.5833333333

    1984.6666666667

    1984.75

    1984.8333333333

    1984.9166666667

    1985

    1985.0833333333

    1985.1666666667

    1985.25

    1985.3333333333

    1985.4166666667

    1985.5

    1985.5833333333

    1985.6666666667

    1985.75

    1985.8333333333

    1985.9166666667

    1986

    1986.0833333333

    1986.1666666667

    1986.25

    1986.3333333333

    1986.4166666667

    1986.5

    1986.5833333333

    1986.6666666667

    1986.75

    1986.8333333333

    1986.9166666667

    1987

    1987.0833333333

    1987.1666666667

    1987.25

    1987.3333333333

    1987.4166666667

    1987.5

    1987.5833333333

    1987.6666666667

    1987.75

    1987.8333333333

    1987.9166666667

    1988

    1988.0833333333

    1988.1666666667

    1988.25

    1988.3333333333

    1988.4166666667

    1988.5

    1988.5833333333

    1988.6666666667

    1988.75

    1988.8333333333

    1988.9166666667

    1989

    1989.0833333333

    1989.1666666667

    1989.25

    1989.3333333333

    1989.4166666667

    1989.5

    1989.5833333333

    1989.6666666667

    1989.75

    1989.8333333333

    1989.9166666667

    1990

    1990.0833333333

    1990.1666666667

    1990.25

    1990.3333333333

    1990.4166666667

    1990.5

    1990.5833333333

    1990.6666666667

    1990.75

    1990.8333333333

    1990.9166666667

    1991

    1991.0833333333

    1991.1666666667

    1991.25

    1991.3333333333

    1991.4166666667

    1991.5

    1991.5833333333

    1991.6666666667

    1991.75

    1991.8333333333

    1991.9166666667

    1992

    1992.0833333333

    1992.1666666667

    1992.25

    1992.3333333333

    1992.4166666667

    1992.5

    1992.5833333333

    1992.6666666667

    1992.75

    1992.8333333333

    1992.9166666667

    1993

    1993.0833333333

    1993.1666666667

    1993.25

    1993.3333333333

    1993.4166666667

    1993.5

    1993.5833333333

    1993.6666666667

    1993.75

    1993.8333333333

    1993.9166666667

    1994

    1994.0833333333

    1994.1666666667

    1994.25

    1994.3333333333

    1994.4166666667

    1994.5

    1994.5833333333

    1994.6666666667

    1994.75

    1994.8333333333

    1994.9166666667

    1995

    1995.0833333333

    1995.1666666667

    1995.25

    1995.3333333333

    1995.4166666667

    1995.5

    1995.5833333333

    1995.6666666667

    1995.75

    1995.8333333333

    1995.9166666667

    1996

    1996.0833333333

    1996.1666666667

    1996.25

    1996.3333333333

    1996.4166666667

    1996.5

    1996.5833333333

    1996.6666666667

    1996.75

    1996.8333333333

    1996.9166666667

    1997

    1997.0833333333

    1997.1666666667

    1997.25

    1997.3333333333

    1997.4166666667

    1997.5

    1997.5833333333

    1997.6666666667

    1997.75

    1997.8333333333

    1997.9166666667

    1998

    1998.0833333333

    1998.1666666667

    1998.25

    1998.3333333333

    1998.4166666667

    1998.5

    1998.5833333333

    1998.6666666667

    1998.75

    1998.8333333333

    1998.9166666667

    1999

    1999.0833333333

    1999.1666666667

    1999.25

    1999.3333333333

    1999.4166666667

    1999.5

    1999.5833333333

    1999.6666666667

    1999.75

    1999.8333333333

    1999.9166666667

    2000

    2000.0833333333

    2000.1666666667

    2000.25

    2000.3333333333

    2000.4166666667

    2000.5

    2000.5833333333

    2000.6666666667

    2000.75

    2000.8333333333

    2000.9166666667

    2001

    2001.0833333333

    2001.1666666667

    2001.25

    2001.3333333333

    2001.4166666667

    2001.5

    inflation rate

    inflation rate trend

    % per year

    10.2325581395

    9.7222222222

    6.8181818182

    8.1818181818

    9.0909090909

    9.5022624434

    9.9099099099

    8.9285714286

    7.0175438596

    6.1135371179

    4.7619047619

    2.9914529915

    1.2658227848

    0.8438818565

    1.7021276596

    0.4201680672

    -0.4166666667

    -1.2396694215

    -2.868852459

    -2.868852459

    -2.4590163934

    -2.4691358025

    -2.0661157025

    -2.0746887967

    -2.0833333333

    -1.2552301255

    -1.2552301255

    -0.8368200837

    -0.4184100418

    0

    1.6877637131

    2.1097046414

    2.1008403361

    3.3755274262

    3.7974683544

    5.9322033898

    8.085106383

    9.3220338983

    9.7457627119

    9.2827004219

    9.243697479

    8.3682008368

    7.468879668

    7.0247933884

    6.9958847737

    6.9387755102

    6.9105691057

    6

    4.3307086614

    2.3255813953

    1.9305019305

    2.3166023166

    1.9230769231

    2.3166023166

    3.0888030888

    3.0888030888

    2.3076923077

    1.9083969466

    1.5209125475

    0.7547169811

    0.3773584906

    0.7575757576

    0.7575757576

    0.7547169811

    0.7547169811

    1.1320754717

    0.3745318352

    0.7490636704

    1.1278195489

    1.1235955056

    0.7490636704

    0.7490636704

    1.1278195489

    1.5037593985

    1.1278195489

    0.7490636704

    0.7490636704

    0.3731343284

    0.3731343284

    0

    -0.3717472119

    -1.1111111111

    -0.3717472119

    -0.3717472119

    -0.3717472119

    -0.7407407407

    -0.3717472119

    -0.3717472119

    -0.3717472119

    -0.7434944238

    -0.3717472119

    -0.7434944238

    0.3731343284

    0.3745318352

    0.3731343284

    0.3731343284

    0

    0.3731343284

    0.3731343284

    0.3731343284

    0.7462686567

    1.872659176

    1.8656716418

    2.2471910112

    1.8587360595

    2.6119402985

    2.2304832714

    2.6022304833

    3.3582089552

    3.3457249071

    3.717472119

    3.717472119

    3.7037037037

    3.3088235294

    3.2967032967

    3.663003663

    3.2846715328

    2.9090909091

    3.2727272727

    3.2608695652

    3.2490974729

    3.2374100719

    3.5842293907

    3.5842293907

    3.2142857143

    2.846975089

    2.4822695035

    2.1201413428

    2.1201413428

    2.1201413428

    2.1126760563

    1.7543859649

    1.3986013986

    1.0452961672

    0.3460207612

    0.3460207612

    0.3460207612

    0.6920415225

    1.0380622837

    1.0380622837

    1.384083045

    1.7301038062

    1.3793103448

    1.3793103448

    1.3793103448

    1.3793103448

    1.3793103448

    1.724137931

    2.0689655172

    1.7182130584

    1.3698630137

    1.3698630137

    1.023890785

    1.3605442177

    1.3605442177

    1.3605442177

    1.3605442177

    1.3605442177

    1.3605442177

    1.0169491525

    0.6756756757

    0.6756756757

    1.0135135135

    1.0135135135

    1.3513513514

    0.6711409396

    0.6711409396

    0.6711409396

    0.6711409396

    1.0067114094

    1.3422818792

    1.3422818792

    1.3422818792

    1.3422818792

    1.0033444816

    1.3377926421

    1.3333333333

    1.3333333333

    1.3333333333

    1.3333333333

    1.3333333333

    1.3289036545

    0.9933774834

    0.9933774834

    0.9933774834

    1.3245033113

    1.6556291391

    1.6501650165

    0.9868421053

    1.3157894737

    1.3157894737

    1.6447368421

    1.6447368421

    1.3114754098

    1.3114754098

    1.6393442623

    1.6393442623

    1.3071895425

    0.9771986971

    0.974025974

    1.3029315961

    0.974025974

    1.2987012987

    1.2944983819

    1.2944983819

    1.2944983819

    1.2944983819

    1.2903225806

    1.6129032258

    1.935483871

    1.935483871

    1.6077170418

    1.6077170418

    1.9292604502

    1.9230769231

    1.9169329073

    1.9169329073

    2.5559105431

    2.875399361

    2.8662420382

    2.8571428571

    2.5316455696

    2.8481012658

    3.4810126582

    3.7974683544

    3.785488959

    3.4591194969

    3.1347962382

    3.1347962382

    2.8037383178

    2.4844720497

    2.4767801858

    2.1604938272

    2.7777777778

    2.7692307692

    2.4464831804

    2.4390243902

    2.4316109422

    3.0395136778

    3.3434650456

    3.6474164134

    3.6363636364

    3.9393939394

    3.9274924471

    4.2296072508

    4.2042042042

    4.4910179641

    4.4776119403

    4.4642857143

    4.7477744807

    4.4247787611

    4.7058823529

    4.6920821114

    4.6783625731

    5.2478134111

    5.523255814

    5.5072463768

    5.4755043228

    5.4441260745

    5.4285714286

    5.698005698

    5.6657223796

    5.9322033898

    5.8988764045

    6.162464986

    6.4245810056

    6.0941828255

    6.0606060606

    6.043956044

    6.0109289617

    5.7065217391

    5.6910569106

    5.6603773585

    5.6300268097

    5.6

    5.5702917772

    5.2770448549

    4.7244094488

    4.4386422977

    4.1558441558

    4.4041450777

    4.381443299

    4.3701799486

    4.358974359

    4.0816326531

    3.807106599

    3.5353535354

    3.2663316583

    3.2581453634

    3.7593984962

    3.5

    3.4912718204

    3.2258064516

    2.962962963

    2.9556650246

    2.9484029484

    3.1862745098

    3.1784841076

    3.4146341463

    3.4063260341

    3.640776699

    3.8647342995

    4.8309178744

    5.3012048193

    5.5288461538

    5.9952038369

    5.7416267943

    7.3985680191

    7.3634204276

    8.0568720379

    8.2547169811

    8.9411764706

    9.6018735363

    10

    10.1382488479

    10.0686498856

    10.7061503417

    10.8597285068

    11.5384615385

    10.8888888889

    11.9469026549

    11.8421052632

    12.2004357298

    12.0950323974

    11.7521367521

    11.2050739958

    10.460251046

    10.1871101871

    9.2592592593

    9.1836734694

    9.5334685598

    8.6172344689

    7.9051383399

    7.6470588235

    7.3786407767

    7.1290944123

    6.6921606119

    6.2737642586

    6.0606060606

    5.8490566038

    6.2146892655

    5.9813084112

    5.5555555556

    5.7195571956

    5.4945054945

    5.4644808743

    5.0632911392

    5.035971223

    5.1971326165

    6.0822898032

    6.4285714286

    6.9518716578

    6.7375886525

    6.7019400353

    6.6666666667

    6.6317626527

    6.4236111111

    6.390328152

    6.7125645439

    6.6780821918

    6.8143100511

    6.239460371

    6.3758389262

    6.5

    7.1428571429

    7.4380165289

    7.7302631579

    7.8559738134

    8.4828711256

    8.9285714286

    8.8709677419

    8.9887640449

    9.2503987241

    9.8412698413

    10.2523659306

    10.4851330203

    10.6976744186

    11.0769230769

    11.4503816794

    11.8361153263

    11.8796992481

    12.0715350224

    12.5925925926

    13.2547864507

    13.8686131387

    14.161849711

    14.5922746781

    14.5892351275

    14.4257703081

    14.2659279778

    13.1506849315

    12.8900949796

    12.7688172043

    12.6329787234

    12.6315789474

    12.3537061118

    11.7948717949

    11.3924050633

    10.6117353308

    10.1359703337

    9.7919216646

    9.696969697

    10.7748184019

    10.8173076923

    10.9654350417

    10.2715466352

    9.5794392523

    8.912037037

    8.2568807339

    7.6136363636

    6.8848758465

    6.6217732884

    6.9119286511

    7.182320442

    6.5573770492

    5.9652928416

    4.9409237379

    5.0321199143

    4.4776119403

    3.825717322

    3.7076271186

    3.48468849

    3.5902851109

    4

    3.441084463

    2.4742268041

    2.358974359

    2.4564994882

    2.7635619243

    2.752293578

    3.1632653061

    3.7871033777

    4.2900919305

    4.693877551

    4.8929663609

    4.5546558704

    4.3346774194

    4.3259557344

    4.3086172345

    4.2957042957

    4.2828685259

    4.2658730159

    4.1543026706

    4.0433925049

    3.5259549461

    3.6062378168

    3.7900874636

    3.5818005808

    3.5748792271

    3.6644165863

    3.4582132565

    3.3524904215

    3.2473734479

    3.2350142721

    3.5137701804

    3.7914691943

    3.9735099338

    3.198494826

    2.1535580524

    1.5887850467

    1.6791044776

    1.7674418605

    1.6713091922

    1.5755329008

    1.7576318224

    1.5668202765

    1.2844036697

    1.1872146119

    1.4558689718

    2.0054694622

    2.9330889093

    3.771849126

    3.7614678899

    3.8391224863

    4.0182648402

    4.3795620438

    4.3636363636

    4.44646098

    4.6195652174

    4.4223826715

    4.1255605381

    3.8427167113

    3.8290293856

    3.9007092199

    3.9787798408

    3.9612676056

    4.1264266901

    4.020979021

    4.181184669

    4.2571676803

    4.2424242424

    4.407951599

    4.4788975022

    4.7332185886

    4.8885077187

    5.1194539249

    5.2721088435

    5.0804403048

    5.0590219224

    4.7058823529

    4.4314381271

    4.5833333333

    4.5681063123

    4.6357615894

    5.1937345425

    5.2588331964

    5.1512673753

    4.7077922078

    4.3618739903

    4.7542304593

    4.8154093098

    5.6982343499

    6.1649319456

    6.374501992

    6.2748212867

    6.25

    5.6426332288

    5.3083528493

    4.898911353

    4.8062015504

    5.0309597523

    4.6923076923

    4.3644716692

    3.7965072134

    3.3936651584

    2.8464419476

    3.0642750374

    2.9784065525

    2.6706231454

    2.8169014085

    3.1875463306

    3.1804733728

    3.0213706706

    3.0124908156

    3.1548055759

    3.0724213606

    2.9905178702

    3.2774945375

    3.1182015954

    2.9645697758

    3.1791907514

    3.2444124009

    3.0172413793

    3.1541218638

    3.2188841202

    2.9957203994

    2.8449502134

    2.8388928318

    2.7620396601

    2.7503526093

    2.6722925457

    2.808988764

    2.5210084034

    2.5139664804

    2.649930265

    2.362751911

    2.2869022869

    2.4930747922

    2.6970954357

    2.8985507246

    2.9634734666

    2.6080988332

    2.6712328767

    2.5956284153

    2.868852459

    2.8610354223

    2.785326087

    3.1228784793

    3.1165311653

    3.0405405405

    2.8282828283

    2.615694165

    2.5435073628

    2.8093645485

    2.6017344897

    2.5965379494

    2.7888446215

    2.7152317881

    2.8420356907

    2.8308097433

    2.8252299606

    2.8196721311

    2.8814669286

    2.8104575163

    3.0026109661

    2.992843201

    3.2509752926

    3.3095392602

    3.0361757106

    3.0947775629

    2.763496144

    2.4327784891

    2.3003194888

    2.2321428571

    2.1642266073

    2.2250476796

    2.2179974651

    2.0846493999

    1.8891687657

    1.6959798995

    1.6300940439

    1.4383989994

    1.4383989994

    1.5

    1.6239850094

    1.6219588272

    1.6822429907

    1.6791044776

    1.3639181649

    1.4232673267

    1.4833127318

    1.6059295862

    1.6656384948

    1.6029593095

    1.7262638718

    2.2167487685

    2.0282728949

    1.9643953346

    2.1446078431

    2.2018348624

    2.629969419

    2.6235509457

    2.6187576127

    2.6747720365

    2.7912621359

    3.2766990291

    3.7575757576

    3.0722891566

    3.1927710843

    3.6724864539

    3.599280144

    3.4111310592

    3.4564958284

    3.38882283

    3.4421364985

    3.3747779751

    3.7190082645

    3.5252643948

    2.9789719626

    3.3313851549

    3.6193812026

    3.3101045296

    2.7214823393

    data

    cpi-data.xls

    Consumer Price Index For All Urban Consumers:

    All Items

    1982-84=100, Seasonally Adjusted

    Source: U.S. Department of Labor, Bureau of Labor Statistics

    DATE CPIAUCSL(quarter over quarter at annualized rate)

    CPIinflation rate

    19471194721.5

    194721947.083333333321.6

    194731947.166666666722

    194741947.25229.3

    194751947.3333333333227.4

    194761947.416666666722.11.8

    194771947.522.23.6

    194781947.583333333322.47.3

    194791947.666666666722.812.7

    1947101947.7522.912.6

    1947111947.833333333323.112.5

    1947121947.916666666723.410.5

    19481194823.714.010.2

    194821948.083333333323.710.49.7

    194831948.166666666723.51.76.8

    194841948.2523.81.78.2

    194851948.3333333333245.19.1

    194861948.416666666724.211.99.5

    194871948.524.410.19.9

    194881948.583333333324.46.78.9

    194891948.666666666724.43.37.0

    1948101948.7524.3-1.66.1

    1948111948.833333333324.2-3.34.8

    1948121948.916666666724.1-4.93.0

    19491194924-4.91.3

    194921949.083333333323.9-5.00.8

    194931949.166666666723.9-3.31.7

    194941949.2523.9-1.70.4

    194951949.333333333323.90.0-0.4

    194961949.416666666723.90.0-1.2

    194971949.523.7-3.3-2.9

    194981949.583333333323.7-3.3-2.9

    194991949.666666666723.8-1.7-2.5

    1949101949.7523.70.0-2.5

    1949111949.833333333323.70.0-2.1

    1949121949.916666666723.6-3.4-2.1

    19501195023.5-3.4-2.1

    195021950.083333333323.6-1.7-1.3

    195031950.166666666723.60.0-1.3

    195041950.2523.73.4-0.8

    195051950.333333333323.83.4-0.4

    195061950.416666666723.95.10.0

    195071950.524.16.81.7

    195081950.583333333324.26.72.1

    195091950.666666666724.36.72.1

    1950101950.7524.56.63.4

    1950111950.833333333324.66.63.8

    1950121950.91666666672511.55.9

    19511195125.414.78.12.7

    195121951.083333333325.819.59.32.6

    195131951.166666666725.914.49.72.5

    195141951.2525.97.99.32.4

    195151951.3333333333263.19.22.3

    195161951.416666666725.90.08.42.2

    195171951.525.90.07.52.1

    195181951.583333333325.9-1.57.01.9

    195191951.6666666667261.57.01.8

    1951101951.7526.24.66.91.8

    1951111951.833333333326.36.26.91.7

    1951121951.916666666726.57.76.01.6

    19521195226.54.64.32.02.3

    195221952.083333333326.41.52.31.92.2

    195231952.166666666726.4-1.51.91.82.2

    195241952.2526.50.02.31.82.1

    195251952.333333333326.51.51.91.82.1

    195261952.416666666726.51.52.31.82.0

    195271952.526.73.03.11.82.0

    195281952.583333333326.73.03.11.71.9

    195291952.666666666726.61.52.31.71.9

    1952101952.7526.70.01.91.71.8

    1952111952.833333333326.70.01.51.71.8

    1952121952.916666666726.71.50.81.71.8

    19531195326.6-1.50.41.81.8

    195321953.083333333326.6-1.50.81.91.8

    195331953.166666666726.6-1.50.82.01.8

    195341953.2526.71.50.82.11.9

    195351953.333333333326.71.50.82.11.9

    195361953.416666666726.83.01.12.11.9

    195371953.526.81.50.42.11.9

    195381953.583333333326.93.00.72.12.0

    195391953.666666666726.91.51.12.22.0

    1953101953.75273.01.12.22.1

    1953111953.833333333326.90.00.72.22.1

    1953121953.916666666726.90.00.72.22.2

    19541195426.9-1.51.12.32.2

    195421954.0833333333271.51.52.32.2

    195431954.166666666726.90.01.12.32.2

    195441954.2526.90.00.72.32.2

    195451954.333333333326.9-1.50.72.32.3

    195461954.416666666726.90.00.42.32.3

    195471954.526.90.00.42.22.3

    195481954.583333333326.90.00.02.22.3

    195491954.666666666726.8-1.5-0.42.22.3

    1954101954.7526.7-3.0-1.12.12.3

    1954111954.833333333326.8-1.5-0.42.12.2

    1954121954.916666666726.80.0-0.42.02.2

    19551195526.81.5-0.41.92.2

    195521955.083333333326.80.0-0.71.82.1

    195531955.166666666726.80.0-0.41.62.0

    195541955.2526.80.0-0.41.52.0

    195551955.333333333326.80.0-0.41.51.9

    195561955.416666666726.7-1.5-0.71.51.8

    195571955.526.80.0-0.41.51.8

    195581955.583333333326.7-1.5-0.71.51.7

    195591955.666666666726.93.00.41.51.7

    1955101955.7526.80.00.41.51.6

    1955111955.833333333326.93.00.41.51.6

    1955121955.916666666726.90.00.41.41.5

    19561195626.80.00.01.41.5

    195621956.083333333326.90.00.41.31.4

    195631956.166666666726.90.00.41.31.4

    195641956.2526.91.50.41.31.4

    195651956.3333333333271.50.71.31.4

    195661956.416666666727.24.51.91.31.4

    195671956.527.35.91.91.31.4

    195681956.583333333327.34.42.21.31.4

    195691956.666666666727.42.91.91.31.3

    1956101956.7527.52.92.61.31.3

    1956111956.833333333327.52.92.21.31.3

    1956121956.916666666727.62.92.61.31.3

    19571195727.72.93.41.31.3

    195721957.083333333327.84.43.31.31.3

    195731957.166666666727.94.33.71.41.3

    195741957.2527.92.93.71.41.3

    195751957.3333333333282.93.71.41.3

    195761957.416666666728.12.93.31.41.3

    195771957.528.24.33.31.31.3

    195781957.583333333328.34.33.71.31.3

    195791957.666666666728.32.83.31.31.4

    1957101957.7528.31.42.91.41.4

    1957111957.833333333328.41.43.31.31.4

    1957121957.916666666728.52.83.31.31.4

    19581195828.64.23.21.31.4

    195821958.083333333328.74.23.21.41.4

    195831958.166666666728.95.63.61.41.4

    195841958.2528.94.23.61.41.4

    195851958.333333333328.92.83.21.41.4

    195861958.416666666728.90.02.81.41.4

    195871958.528.90.02.51.41.4

    195881958.583333333328.90.02.11.51.4

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    198241982.25952.56.66.46.71982.041803.578.7

    198251982.333333333395.95.16.96.46.71982.051815.29.1

    198261982.4166666667979.77.26.46.71982.061826.369.3

    198271982.597.510.56.66.36.61982.071835.389.1

    198281982.583333333397.77.56.06.36.61982.081850.379.2

    198291982.666666666797.72.94.96.26.61982.091863.939.2

    1982101982.7598.12.55.06.26.61982.11874.768.9

    1982111982.8333333333981.24.56.16.51982.111888.038.8

    1982121982.916666666797.70.03.86.16.51982.121909.758.8

    19831198397.9-0.83.76.06.41983.011962.8410.9

    198321983.0833333333980.03.56.06.41983.022000.212.7

    198331983.166666666798.11.63.65.96.31983.032018.4213.0

    198341983.2598.83.74.05.86.31983.042031.6912.6

    198351983.333333333399.24.93.45.76.21983.052046.3612.7

    198361983.416666666799.45.32.55.76.11983.062057.2412.6

    198371983.599.84.02.45.66.11983.072069.1712.7

    198381983.5833333333100.13.62.55.56.01983.082078.2612.3

    198391983.6666666667100.44.02.85.45.91983.092086.912.0

    1983101983.75100.84.02.85.45.91983.12102.4712.1

    1983111983.8333333333101.14.03.25.35.81983.112115.1712.0

    1983121983.9166666667101.44.03.85.25.71983.122126.0911.3

    198411984102.15.24.35.15.61984.012140.729.1

    198421984.0833333333102.65.94.75.15.61984.022161.088.0

    198431984.1666666667102.95.94.95.05.51984.032177.997.9

    198441984.25103.34.74.64.95.41984.042194.218.0

    198451984.3333333333103.53.54.34.85.31984.052207.627.9

    198461984.4166666667103.73.14.34.75.21984.062219.047.9

    198471984.5104.13.14.34.65.11984.072228.297.7

    198481984.5833333333104.43.54.34.65.11984.082235.277.6

    198491984.6666666667104.73.94.34.55.01984.092248.537.7

    1984101984.75105.13.84.34.54.91984.12262.527.6

    1984111984.8333333333105.33.44.24.54.81984.112284.88.0

    1984121984.9166666667105.53.14.04.44.81984.122309.848.6

    198511985105.72.33.54.34.71985.012335.049.1

    198521985.0833333333106.33.83.64.34.61985.022356.769.1

    198531985.1666666667106.84.93.84.34.61985.032368.938.8

    198541985.251074.93.64.24.51985.042378.128.4

    198551985.3333333333107.23.43.64.24.51985.052393.488.4

    198561985.4166666667107.52.63.74.14.41985.062417.158.9

    198571985.5107.72.63.54.14.41985.072434.999.3

    198581985.5833333333107.92.63.44.14.31985.082449.579.6

    198591985.6666666667108.12.23.24.04.31985.092461.289.5

    1985101985.75108.53.03.24.04.21985.12472.019.3

    1985111985.83333333331094.13.54.04.21985.112481.268.6

    1985121985.9166666667109.55.23.84.04.21985.122495.258.0

    198611986109.95.24.04.04.11986.012504.937.3

    198621986.0833333333109.72.63.24.04.11986.022515.446.7

    198631986.1666666667109.1-1.52.24.04.11986.032535.687.0

    198641986.25108.7-4.41.63.94.11986.042560.447.7

    198651986.3333333333109-2.61.73.94.11986.052588.748.2

    198661986.4166666667109.41.11.83.94.01986.062609.568.0

    198671986.5109.52.91.73.94.01986.072632.538.1

    198681986.5833333333109.62.21.63.84.01986.082652.598.3

    198691986.66666666671102.21.83.84.01986.092673.238.6

    1986101986.75110.22.61.63.83.91986.12692.458.9

    1986111986.8333333333110.42.91.33.83.91986.112705.499.0

    1986121986.9166666667110.82.91.23.83.91986.122731.949.5

    198711987111.54.71.53.83.91987.012747.349.7

    198721987.0833333333111.95.42.03.83.91987.022751.199.4

    198731987.1666666667112.35.42.93.93.91987.032757.118.7

    198741987.25112.84.73.83.93.91987.042771.458.2

    198751987.3333333333113.14.33.83.93.91987.052777.617.3

    198761987.4166666667113.64.63.83.93.91987.062779.486.5

    198771987.5113.93.94.03.83.91987.072785.485.8

    198781987.5833333333114.44.64.43.83.91987.082794.465.3

    198791987.6666666667114.84.24.43.83.91987.092804.984.9

    1987101987.75115.14.24.43.83.91987.12819.754.7

    1987111987.8333333333115.53.84.63.83.91987.112823.764.4

    1987121987.9166666667115.73.14.43.83.91987.122830.943.6

    198811988116.13.54.13.83.91988.012851.923.8

    198821988.0833333333116.22.43.83.83.91988.022875.054.5

    198831988.1666666667116.63.13.83.73.91988.032895.385.0

    198841988.25117.23.83.93.73.81988.042915.325.2

    198851988.3333333333117.64.84.03.73.81988.052931.225.5

    198861988.4166666667118.15.14.03.73.81988.062944.225.9

    198871988.5118.64.84.13.73.81988.072955.256.1

    198881988.58333333331194.84.03.73.81988.082960.235.9

    198891988.6666666667119.65.14.23.73.81988.092964.395.7

    1988101988.751204.74.33.73.81988.12972.015.4

    1988111988.8333333333120.44.74.23.63.81988.112986.255.8

    1988121988.9166666667120.84.04.43.63.71988.122994.155.8

    198911989121.34.34.53.63.71989.012997.045.1

    198921989.0833333333121.74.34.73.63.71989.022997.874.3

    198931989.1666666667122.35.04.93.63.71989.033005.723.8

    198941989.25123.26.35.13.63.71989.043011.63.3

    198951989.3333333333123.86.95.33.63.71989.053017.462.9

    198961989.4166666667124.15.95.13.63.71989.063034.373.1

    198971989.5124.64.55.13.63.71989.073060.333.6

    198981989.5833333333124.62.64.73.63.71989.083082.294.1

    198991989.6666666667124.92.64.43.63.71989.093100.194.6

    1989101989.75125.52.94.63.63.71989.13121.145.0

    1989111989.8333333333125.94.24.63.63.61989.113139.465.1

    1989121989.9166666667126.44.84.63.63.61989.123157.995.5

    199011990127.66.75.23.63.61990.013172.445.9

    199021990.0833333333128.17.05.33.53.61990.023184.956.2

    199031990.1666666667128.67.05.23.53.61990.033195.766.3

    199041990.251294.44.73.63.61990.043207.36.5

    199051990.3333333333129.23.44.43.63.61990.053205.716.2

    199061990.41666666671304.44.83.73.71990.063219.566.1

    199071990.5130.65.04.83.73.71990.073230.465.6

    199081990.5833333333131.77.75.73.73.71990.083249.35.4

    199091990.6666666667132.68.06.23.73.71990.093260.975.2

    1990101990.75133.58.96.43.73.71990.13265.144.6

    1990111990.8333333333133.86.46.33.73.71990.113268.694.1

    1990121990.9166666667134.35.16.33.73.71990.123277.243.8

    199111991134.83.95.63.73.71991.013293.083.8

    199121991.0833333333134.93.35.33.73.71991.023310.423.9

    199131991.1666666667134.91.84.93.73.71991.033327.454.1

    199141991.25135.21.24.83.73.71991.043337.534.1

    199151991.3333333333135.72.45.03.63.71991.053349.654.5

    199161991.4166666667136.13.64.73.63.71991.063359.064.3

    199171991.5136.33.34.43.63.71991.073363.334.1

    199181991.5833333333136.72.93.83.63.71991.083362.233.5

    199191991.6666666667137.12.93.43.63.71991.093361.913.1

    1991101991.75137.32.92.83.63.71991.13366.093.1

    1991111991.8333333333137.93.53.13.63.71991.113370.963.1

    1991121991.9166666667138.33.53.03.63.71991.123376.563.0

    199211992138.43.22.73.63.61992.013387.192.9

    199221992.0833333333138.72.32.83.53.61992.023406.062.9

    199231992.1666666667139.22.63.23.53.61992.033409.052.5

    199241992.25139.53.23.23.53.61992.043405.242.0

    199251992.3333333333139.83.23.03.53.61992.053403.651.6

    199261992.4166666667140.22.93.03.53.61992.063400.21.2

    199271992.5140.63.23.23.43.61992.073402.581.2

    199281992.5833333333140.93.13.13.43.51992.083407.161.3

    199291992.6666666667141.22.93.03.43.51992.093417.251.6

    1992101992.75141.83.43.33.43.51992.13431.21.9

    1992111992.8333333333142.23.73.13.33.51992.113433.531.9

    1992121992.9166666667142.43.43.03.33.51992.123430.671.6

    199311993142.82.83.23.33.41993.013426.041.1

    199321993.0833333333143.22.83.23.23.41993.023422.40.5

    199331993.1666666667143.42.83.03.23.41993.033419.890.3

    199341993.25143.93.13.23.23.41993.043418.880.4

    199351993.3333333333144.33.13.23.13.31993.053445.171.2

    199361993.4166666667144.42.83.03.13.31993.063451.071.5

    199371993.5144.61.92.83.03.31993.073452.161.5

    199381993.5833333333144.91.72.83.03.21993.083455.811.4

    199391993.6666666667145.11.92.83.03.21993.093463.211.3

    1993101993.75145.73.02.83.03.21993.13466.181.0

    1993111993.83333333331463.02.73.03.11993.1134791.3

    1993121993.9166666667146.43.62.83.03.11993.123484.311.6

    199411994146.41.92.53.03.11994.013485.761.7

    199421994.0833333333146.82.22.52.93.11994.023486.651.9

    199431994.1666666667147.22.22.62.93.01994.033492.362.1

    199441994.25147.32.52.42.83.01994.043496.712.3

    199451994.3333333333147.62.22.32.83.01994.053505.731.8

    199461994.41666666671482.22.52.82.91994.063495.171.3

    199471994.5148.53.32.72.82.91994.073500.731.4

    199481994.5833333333149.14.12.92.82.91994.083498.781.2

    199491994.6666666667149.43.83.02.72.91994.093498.781.0

    1994101994.75149.52.72.62.72.81994.13497.610.9

    1994111994.8333333333149.92.12.72.62.81994.113499.390.6

    1994121994.9166666667150.22.12.62.62.81994.123498.790.4

    199511995150.62.92.92.62.71995.013503.610.5

    199521995.08333333331512.92.92.62.71995.023501.980.4

    199531995.1666666667151.32.92.82.62.71995.033503.630.3

    199541995.25151.93.53.12.62.71995.043510.590.4

    199551995.3333333333152.23.23.12.62.71995.053535.350.8

    199561995.4166666667152.53.23.02.62.71995.063561.931.9

    199571995.5152.72.12.82.62.61995.073581.972.3

    199581995.58333333331532.12.62.62.61995.083603.043.0

    199591995.6666666667153.21.82.52.62.61995.093614.423.3

    1995101995.75153.72.62.82.62.61995.13625.073.6

    1995111995.8333333333153.82.12.62.62.61995.113633.473.8

    1995121995.9166666667154.12.32.62.62.61995.123641.884.1

    199611996154.82.92.82.62.71996.013659.814.5

    199621996.0833333333155.13.42.72.62.71996.023673.944.9

    199631996.1666666667155.63.92.82.72.71996.033699.515.6

    199641996.25156.23.62.82.72.71996.043709.525.7

    199651996.3333333333156.53.62.82.72.71996.053721.45.3

    199661996.4166666667156.83.12.82.72.71996.063735.464.9

    199671996.5157.12.32.92.62.71996.073751.364.7

    199681996.5833333333157.32.02.82.62.71996.083759.414.3

    199691996.6666666667157.82.63.02.62.71996.093768.934.3

    1996101996.75158.33.13.02.62.71996.13781.614.3

    1996111996.8333333333158.83.83.32.62.61996.113795.844.5

    1996121996.9166666667159.23.53.32.62.61996.123814.774.7

    199711997159.53.03.02.62.61997.013829.144.6

    199721997.0833333333159.92.83.12.62.61997.023840.274.5

    199731997.1666666667159.91.82.82.62.61997.033855.544.2

    199741997.251601.32.42.62.61997.043870.734.3

    199751997.3333333333160.10.52.32.62.61997.053884.564.4

    199761997.4166666667160.31.02.22.62.61997.063903.664.5

    199771997.5160.51.32.22.62.61997.073923.434.6

    199781997.5833333333160.81.72.22.62.61997.083952.85.1

    199791997.6666666667161.32.52.22.62.61997.093971.135.4

    1997101997.75161.62.72.12.62.61997.13990.325.5

    1997111997.8333333333161.82.51.92.62.61997.114010.345.7

    1997121997.9166666667161.91.51.72.62.61997.124031.855.7

    199811998162.11.21.62.62.61998.014055.235.9

    199821998.0833333333162.21.01.42.62.61998.024087.676.4

    199831998.1666666667162.20.71.42.62.61998.034113.766.7

    199841998.25162.40.71.52.62.61998.044135.796.8

    199851998.3333333333162.71.21.62.62.61998.054159.097.1

    199861998.4166666667162.91.71.62.62.61998.064186.167.2

    199871998.5163.22.01.72.62.61998.074207.087.2

    199881998.5833333333163.52.01.72.62.61998.084231.147.0

    199891998.6666666667163.51.51.42.62.61998.094272.557.6

    1998101998.75163.91.71.42.62.61998.14314.98.1

    1998111998.8333333333164.21.71.52.62.61998.114354.118.6

    1998121998.9166666667164.52.41.62.62.61998.124385.878.8

    199911999164.82.21.72.62.61999.014407.978.7

    199921999.0833333333164.81.51.62.62.61999.024435.198.5

    199931999.16666666671651.21.72.62.61999.034446.778.1

    199941999.251662.92.22.62.61999.044470.358.1

    199951999.33333333331662.92.02.62.61999.054495.558.1

    199961999.4166666667166.12.72.02.62.61999.064517.17.9

    199971999.5166.71.72.12.52.61999.074543.838.0

    199981999.5833333333167.12.72.22.62.61999.084561.827.8

    199991999.6666666667167.84.12.62.62.61999.094578.447.2

    1999101999.75168.23.62.62.62.61999.14599.726.6

    1999111999.8333333333168.53.42.62.62.61999.114625.916.2

    1999121999.9166666667168.92.62.72.62.61999.124653.286.1

    200012000169.42.92.82.62.62000.014675.516.1

    200022000.0833333333170.24.03.32.62.62000.024690.945.8

    200032000.1666666667171.25.43.82.62.62000.034721.496.2

    200042000.25171.14.03.12.52.52000.044759.666.5

    200052000.3333333333171.32.63.22.52.52000.054766.596.0

    200062000.4166666667172.22.33.72.52.52000.064787.86.0

    200072000.5172.73.73.62.52.52000.074807.885.8

    200082000.5833333333172.83.53.42.52.52000.084838.026.1

    200092000.6666666667173.63.33.52.52.52000.0948706.4

    2000102000.75173.92.83.42.52.52000.14891.436.3

    2000112000.8333333333174.33.53.42.52.52000.114906.826.1

    2000122000.9166666667174.62.33.42.52.52000.124945.126.3

    200112001175.74.13.72.52.52001.014995.166.8

    200122001.0833333333176.24.43.52.42.52001.025040.337.4

    200132001.1666666667176.33.93.02.42.52001.035100.698.0

    200142001.25176.82.53.32.52.52001.045146.38.1

    200152001.3333333333177.53.03.62.52.52001.055170.668.5

    200162001.4166666667177.93.63.32.52.52001.065214.228.9

    200172001.5177.41.42.72.52.52001.075252.599.2

    2001.085284.989.2

  • 49

    U.S. inflation and nominal interest rates

    Percent16

    14

    12

    10

    8

    6

    4

    2

    0

    -2

    Nominalinterest rate

    Inflationrate

    1950 1955 1960 1965 1970Year

    1975 1980 1985 1990 20001995

  • Many different interest rates

    • For this lecture:– Policy interest rate (can be “set” by central bank)– Short-term interest rate– Long-term interest rate

    • Each of these interest rates can be decomposed into a part that is “real” and a part due to “expected inflation”

    • An assumption we make is that by changing the policy interest rate the central bank can influence other interest rates

    • The relationship among short-term and long-term interest rates is called the ‘yield curve’ or the ‘term structure of interest rates’

    50

  • 51

  • How Should Central Banks Set the Policy Rate?The Taylor Rule

    • The first ‘2’ in the equation is the neutral (long-run) real interest rate (assumed to be 2 percent)

    • The second ‘2’ in the equation is the inflation target (assumed to be 2 percent)• The two ‘0.5’ numbers are values that held for the U.S. in the 1980s and 1990s. They can

    be different over other periods, and can differ by country.

    52

    cbn = nominal federal funds rate= − =cb cbr n p real federal funds rate

    −×GDP Gap = 100 *

    *Y Y

    Y

    = −cb 2 + 0.5(p 2) + 0.5(GDP Gap)r

  • Taylor Rule (continued)

    • If p = 2 and output is at potential, then monetary policy targets the real policy rate at 2% (and therefore the nominal policy rate is 4%).

    • For each percentage point increase in p, monetary policy should be ‘tightened’ by raising the real policy rate by 0.5 percentage points.

    • For each percentage point that GDP falls below potential, monetary policy should be ‘eased’ by reducing the real policy rate by 0.5 percentage points.

    53

    = −cb 2 + 0.5(p 2) + 0.5(GDP Gap)r

  • CENTRAL BANK ACTIONS: FROM THE SHORT RUN TO THE LONG RUN

    54

  • 55

    When the Fed Wants to “Loosen”

    Fed buys T-billsfrom banks

    Fed pays for the T-bills by writing a cheque: injecting liquidity

    Banks now have more cash than they want to hold

    Banks that want to borrow from other banks can do so at a lower fed funds rate money is cheap

    Fed injects liquidity until fed funds ratehas fallen to the Fed’s set “target”

  • Transition from Short Run to Long Run (1)

    • Interest rates and money supply

    – Raising policy interest rates is similar to curbing growth of money supply.

    – Lowering policy interest rates is similar to raising the growth rate of the money supply.

    • In the short run, the central bank lowers policy interest rates (i.e. raises the growth rate of the money supply) to stimulate the economy (bring output back to trend; close the output gap)

    • But it lowering policy interest rates stimulates the economy, shouldn’t the central bank always keep interest rates low?

    56

  • Transition from Short Run to Long Run (2)

    • ‘Good’ scenario:– Central bank has lowered rates because the economy is in

    a slump (output gap is large). In this case, inflation may not go up much; plus, some stimulus can be justified even if inflation does go up a bit

    – The central bank has credibility, that is, people expect it to keep its (medium- to long-run) inflation target. This means that people expect that interest rates will be raised back to neutral once the output gap has closed. Hence, inflation expectations remain anchored.

    57

  • Transition from Short Run to Long Run (3)• ‘Bad’ scenario(s):

    – Wrong reasons: Central bank has lowered rates even though the economy is not in a slump (output gap is zero). Or, the central bank may have made a mistake about the size of the output gap. In these cases, inflation may go up (and the stimulus cannot be justified on the grounds that it is helping the economy recover from a slump)

    – Right reasons, poor credibility: Central bank may have lowered reasons for the right reasons (economy is indeed in a slump) but it has poor credibility. That is, people expect it will not keep to (or have difficulty keeping to) its medium- to long-run inflation target. This means that people expect that interest rates will not be raised back to neutral once the output gap has closed. Hence, inflation expectations can get unanchored.

    – Wrong reasons, poor credibility: Worse case scenario – inflation may kick up because central bank has intervened at the wrong time; and problem is compounded as inflation expectations get unanchored.

    58

  • CENTRAL BANK ACTIONS: THE LONG RUN

    59

  • The Quantity Theory of Money

    Key

    π inflation rate

    ∆M/M growth rate of money supply

    ∆Y/Y growth rate of output (real GDP)

    60

    Normal economic growth requires a certain amount of money supply growth to facilitate growth in transactions. Money growth in excess of this amount leads to inflation. Inflation is “too much money chasing too few goods”

    [Note: we’re simplifying by assuming that the ‘velocity of money’ is constant.]

    As we have learnt, in the long-run, ∆Y/Y (growth rate of real GDP) depends on growth in inputs and on technological progress.

    Hence, the Quantity Theory of Money predicts a long-run one-for-one relation between changes in the money growth rate and changes in the inflation rate.

    Note: During hyperinflations, the quantity theory of money can hold even in the short run

  • Aggregate Demand and Aggregate Supply:Effects of a Permanent Monetary Expansion

    A monetary expansion leads to an increase in output in the short run but has no effect on output in the medium run.

    The difference between Y and Ynsets in motion the adjustment of price expectations.

    In the medium run, the AS curve shifts to AS’’ and the economy returns to equilibrium at Yn.

    The increase in prices is proportional to the increase in the nominal money stock.

  • 62

    U.S. data on inflation and money growth, decade averages

    0 2 4 6Growth in money supply (percent)

    8 10 12

    8

    6

    4

    2

    0

    - 2

    - 4

    1970s1910s

    1940s

    1980s

    1960s1950s

    1990s

    1930s1920s

    1870s

    1890s

    1880s

    1900s

    Inflationrate(percent)

  • 63

    International Data on Inflation & Money Growth

    Inflation rate(percent, logari thmicscale) 1,000

    10,000

    100

    10

    1

    0.1

    Money supply growth (percent, logari thmic scale0.1 1 10 100 1,000 10,000

    Nicaragua

    AngolaBrazi l

    Bulgar ia

    Georgia

    Kuwai t

    USA

    Japan Canada

    Germany

    Oman

    Democratic Repubof Congo

  • Understanding Hyperinflations

    Three ways to finance G

    • Taxation

    • Borrowing

    • Inflation

    64

  • Hyperinflation

    65

    What is it?•π ≥ 50%

    per month

    What causes it?• Excessive money

    supply growth.

    Does that work?• Only for a short time.

    • Because money ceases to function as a store of value, and may not serve its other functions (unit of account, medium of exchange), people start conducting transactions with barter or a stable foreign currency.

    • Because people are no longer willing to subject themselves to the “inflation tax,” it ceases to be a source of revenue for the government.

    How is it stopped?• Proximate step: stop printing

    money.

    • At a more fundamental level: it requires a credible announcement of government fiscal reform (i.e. cuts in government spending, increases in tax revenue, new sources of borrowing or some combination of all three) and follow-through.

  • ‘Classic’ hyperinflations

    Seven Hyperinflations of the 1920s and 1940s

    Country Beginning End PT/P0Average Monthly Inflation Rate (%)

    Average Monthly Money Growth (%)

    Austria Oct. 1921 Aug. 1922 70 47 31

    Germany Aug. 1922 Nov. 1923 1.0 x 1010 322 314

    Greece Nov. 1943 Nov. 1944 4.7 x 106 365 220

    Hungary 1 Mar. 1923 Feb. 1924 44 46 33

    Hungary 2 Aug. 1945 Jul. 1946 3.8 x 1027 19,800 12,200

    Poland Jan. 1923 Jan. 1924 699 82 72

    Russia Dec. 1921 Jan. 1924 1.2 x 105 57 49

    PT/P0 is the price level in the last month of hyperinflation divided by the price level in the first month.

    66

  • 67

    Episodes of Hyperinflation in the 1980s

    Chart1

    Israel 1983-85Israel 1983-85

    Poland 1989-90Poland 1989-90

    Brazil 1987-94Brazil 1987-94

    Argentina 1988-90Argentina 1988-90

    Peru 1988-90Peru 1988-90

    Nicaragua 1987-91Nicaragua 1987-91

    Bolivia 1984-85Bolivia 1984-85

    inflation

    growth of money supply

    percent growth

    275

    295

    400

    344

    1323

    1350

    1912

    1264

    3849

    2974

    5261

    4991

    6515

    4208

    Sheet1

    Israel 1983-85Poland 1989-90Brazil 1987-94Argentina 1988-90Peru 1988-90Nicaragua 1987-91Bolivia 1984-85

    inflation27540013231912384952616515

    growth of money supply29534413501264297449914208

  • MONETARY POLICY IN OPEN ECONOMIES: THE IMPOSSIBLE TRINITY

  • Interest Rate Parity

    • If domestic and foreign assets are considered perfect substitutes, then we expect interest parity to hold on average:rt –rwt = (Xet+1 – Xt)/Xt

    • That is, the interest rate differential between the domestic (Rt ) and foreign interest rate (rwt ) should be zero, unless the market expects changes in the exchange rate. – In practice, interest rate differentials fail to predict large swings in actual

    exchange rates and even fail to predict which direction actual exchange rates change. Why?

    • It could be because domestic and foreign assets are imperfect substitutes. Changes in risk premiums (ρt ) may drive deviations from interest rate parityrt –rwt = (Xet+1 – Xt)/Xt + ρt

  • Example of Interest Rate Parity

    We should expect that interest rates on offshore currency deposits and those on domestic currency deposits within a country should be the same if

    – the two types of deposits are treated as perfect substitutes,

    – assets can flow freely across borders and – international capital markets are able to quickly and easily

    transmit information about any differences in rates.

  • Example of interest rate parity: Comparing Onshore and Offshore Interest Rates for the Dollar

    Source: Board of Governors of the Federal Reserve, monthly data.

  • Lack of interest rate parity(and illustration of risk premium)

    Interest Differentials, 1998 - 2005

    0

    500

    1000

    1500

    2000

    2500

    Basi

    s poi

    nts

    EMBI vs. US spread

    Brazilvs.

    US Spread

  • Interest Rate Parity (IRP) and Monetary Policy Choices

    IRP imposes limits on central bank’s monetary independence.

    Why?

    • Assume capital can flow in unlimited amounts between domestic and foreign country.

    • Suppose now the domestic central bank were to try to keep exchange rates steady.

    • At the same time, suppose also that it tries to adjust interest rates (say upwards) in order to attain a separate inflation target.

    • Under fully-integrated capital markets, higher domestic interest rates ⇒ large capitalinflow into the domestic economy.

    • Capital flows in ⇒ the value of the domestic currency will have to go up versus the foreign currency—i.e., appreciation of the domestic currency.

    • So the exchange rate cannot be held steady if the interest rate objective takes primacy.

  • • Suppose now the central bank wants to keep its currency from appreciating.

    • To prevent appreciation it must either inject more domestic currency into the market directly, or buy up foreign currency with domestic currency.

    • Either way, the domestic currency it issues or pays out is new money ⇒ expansion in domestic liquidity

    • Expansion in domestic liquidity ⇒ interest rate falls

    • So the interest rate target cannot be achieved if the fixed exchange rate takes primacy.

    IRP and Monetary Policy Choices (continued)

  • Conclusion: One of the three must go. Either

    • A central bank must give up trying to maintain stability in exchange rates and allow the currency to be determined by the market forces that work through arbitrage, or

    • A central bank must give up its independence in setting domestic interest rates; that is, it must align its domestic objectives with the objective of keeping exchange rates stable, or

    • Something has to be done to limit capital flows and break the arbitrage that ties together exchange rates and interest rates.

  • Breaking the Arbitrage that Ties Interest Rates and Exchange Rates:

    • The ability to conduct full arbitrage between local and global capital markets depends on the degree to which capital is allowed to flow between the two sets of markets—the degree of capital market integration or linkage between domestic and global markets.

    • The degree of capital market integration often depends on the level of development and sophistication of local financial markets and institutions. But it can also be a policy choice

  • Degree of Capital Market Integration:

    “Full” or complete capital market integration: Few or no legal restrictions or natural market barriers on capital flows between domestic and global capital markets, particularly on currency-related transactions.

    ⇒No limit on volume of capital flows between markets. Convertibility of currency on capital account (not just current account).

    ⇒Feasible to conduct unlimited arbitrage whenever it makes sense to.

  • Degree of Capital Market Integration:Less than complete capital market integration:

    Significant capital or exchange controls limit the volume of capital that can flow between domestic and global markets.

    ⇒Capital markets are segmented and arbitrage between from one market to another is expensive or impossible.

  • “Impossible Trinity”

    “Impossible Trinity” or Policy Trilemma–The following three things are incompatible:

    Fully integrated capital markets (which would require interest rate parity)

    Independent or autonomous monetary policy (i.e., CB can target policy interest rates, as in the Taylor’s Rule we discussed )

    Fixed (“stable”) exchange rates (x)

  • Monetary Policy in ‘Small’ Open Economies

    80

  • Savings, Investment and the Financial Sector

    • Financial sector = Intermediary

    • Accepts savings (part of income that is not consumed) from workers in the form of deposits

    • Makes loans to firms who carry out the investment

  • Savings and Investment in a Global Economy

    • trade surplus: exports greater than imports (means domestic savings are greater than domestic investment)

    • trade deficit: imports > exports (means domestic savings are less than domestic investment)

    • a country with a trade deficitis a net borrower from the rest of the world

  • U.S. net exports, 1950-2007

    -800

    -600

    -400

    -200

    0

    200

    1950 1960 1970 1980 1990 2000

    billi

    ons

    of d

    olla

    rs

    -8%

    -6%

    -4%

    -2%

    0%

    2%

    perc

    ent o

    f GD

    P

    NX ($ billions) NX (% of GDP)

    Chart1

    19471947

    1947.251947.25

    1947.51947.5

    1947.751947.75

    19481948

    1948.251948.25

    1948.51948.5

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