mcl_st_int_macro_ab_c2_econ_measurement_spring_2017 (1) -...

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Lecture Notes: Intermediate MacroeconomicsEconomic MeasurementM. Cary Leahey
2Summary topicsHow to look at data: everything is relativeNIPA/GDP accounting and relationship to real worldThree approaches to measuring GDPGDP and well beingSaving and wealthPublic versus private; saving versus investmentStocks versus flowsMeasures of inflation – Commodity prices, PPI, CPI, PCE/GDP PIInterest rates: Nominal, real, and expected real ratesOverview of data sources and commentary
3How to look at the data: relative to what?Everything in life (and economics) is relative.surpriseis what counts relative to expectationsNews versus noise: Expectations- trends/momentum (Chart).-8-6-4-20Inertia of Inflation(Percent change, annualized).2468IIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIVIIIIIIIV2011201220132014201520161-month change @PCA(PCIU)6-month change @PCA(@MOVAV(PCIU,6))12-month change @PCY(PCIU)
4How to look at the data: relative to what (2)?Time series versus cross section.Times series: pattern of historyCross section: across countries etc at a specificpoint in time.Pooled cross section: cross section changing over time.Supply/demand imbalances:Key indicators of interest on changes in the resource utilization of the economy.Insufficient demand leads to slack, reducing pressures on inflation. Excess demand, slack is diminishing, intensifying pressures on inflation.
Examples
5National Income and Product Accounting (NIPA)NIPA – accounting framework measuring aggregate economic activity, over a particular period (quarters or years). This is a flow concept (more on this later).Three approaches to measuring aggregate output or GDPProduct: Income: ExpenditureThree concepts are equivalent: Output producedis purchasedby someone and results in someone’s income.This gives a fundamental identity of the NIPAstotal production = total income = total expenditureEach approach has its pros and cons:What is actually done in real time?.
6GDP: Measurement using the product approachMarket value: product approach uses market value, allowing unlike items to be added together using market prices.Trouble with nonmaket items/underground economy.New productionFinal goods and services. Using the value added chain, only the end products (final goods) are counted in GDP.Example: wheat-flour-bread.Capital goods Inventory changeGDP versus GNPGDP regional measureGNP ownership measureGDP = GNP – NFP, where NFP is net factor payments from abroad.Why switch from GNP to GDP?
7GDP: Measurement using the expenditure approachExpenditure approach measures total spending on final goods and services produced within a nation during a specific period of time.Some nomenclature: GDP = Y = total production or output = total income = total expenditureFour main categories of spending: consumption (C), investment (I), government purchases of goods and services (G), and net exports (NX)So the income expenditure identity is Y = C + I + G + NXConsumption:Investment:

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