Dollars and Jens
Friday, December 30, 2011
Income Inequality and Empirical Economics
I found this podcast less interesting for the findings presented (recent increases in income inequality are overstated) than for the issues addressed.

In particular, attempting to measure purchasing power by looking at before-tax reported income and dividing by the CPI is far from perfect. They also discuss the fact that looking at all demographic subsamples of households could have rising incomes while overall household incomes go down if the poorer subsamples grow in size. Of course, the average incomes of the subsamples aren't necessarily more important numbers than the average income of the total population, depending on precisely what question you're getting at, but it's tempting and wrong to infer from the aggregate number that some of the subsamples must have the same sign. An issue that wasn't addressed in this podcast that I've seen raised elsewhere is that rich people and poor people buy different things; measuring real income for a subset of the population by using a basket of goods for the whole population (or a different population) has problems beyond the ones raised in the podcast.

More generally, empirical proxies usually correspond somewhat with the theoretical concepts they are meant to represent, but they almost never do so perfectly. In this case CPI is specifically designed to measure inflation, and it does, but imperfectly. It irks me when a paper says, "we're going to use firm size as a proxy for liquidity" - they aren't usually quite that stupid, but I'm making up an example - and then refers to "liquidity" through the experimental portion of the paper when the author means "market cap".

If you want an introduction to the sort of thinking you have to do to do empirical social science research, that podcast would be a good place to start.

Tuesday, December 13, 2011
The FOMC statement, as revised:

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. Nonetheless, recent While indicators point to continuing weakness some improvement in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation appears to have has moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term , and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are Strains in global financial markets continue to pose significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

Possibly moved phrases:

in global financial markets


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