27 - AEM 2300 Guest Lecture Steven Kyle Grade hisself on...

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AEM 2300 Guest Lecture 4/27/10 Steven Kyle Grade hisself on how he did year before on his predictions Economists are poor at making predictions Growth -Prediction “no growth at all. Far more likely is decline of 1-2% in GDP, with even worse performance if there are additional negative shocks or if the stimulus package is delayed or too small to be effective” (this was his prediction last year) -Actual results = a little below what he said, but he was pretty good. The reason it wasn’t higher was because Obama’s stimulus wasn’t as big as he thought it should have been =Grade = B+ -The last quarter has been continually increased -The first report is a complete guess. They continually revise it. The second report is pretty close. The third report is what goes into the books Unemployment -He also predicted unemployment of 6.7% would go to 8 or 9 or even 10% unemployment. Depending on growth performance -Actual = 10% -U6 (includes part time and discouraged): 17.2% -Graph – shows that unemployment peaks (recessions) -recession 1992 and for us unemployment is sky high but has slowly decreased since =Grade = A Interest Rates -Prediction: “The fed will keep rates low as long as growth is in the tank” -Actual outcome: Interest rates were near zero a year ago and they still are (near zero as they ever get) -Banks are bigger than they were back then -Fed reserve is leaning clear the wing so to speak with their policy. When unemployment goes up, they lower interest rates. When unemployment goes down they raise interest rates to avoid inflation -Problem w/ us right now –we have interest rates as low as possible can’t lower any further -Normally we rely on interest rate to get us out of recession (monetary policy) mainly because congress are sporadic and can’t get them to do anything thus ew need fed reserve to get us out. But right now we are as low as possible. Can’t go lower than we are now so they need to rely only on fiscal policy to get us out of this. The only stimulus is fiscal policy or nothing. -Simple world – money supply is only influence on inflation but in real world not the case
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-In times of uncertainty for short run there is no worry about inflation because even though there will be greater supply of money because they aren’t spending it, just keeping it. Inflation -Prediction – inflation is not to worry about. Deflation is even possibility though not likely given a large stimulus package -Actual outcome: Inflation has remained low – well under 5% (remained low) -We even had brief deflation moment when gas prices went down Exchange rate – sometimes he gets this wrong -Prediction: It is hard to see dollar strengthening much more than the current mid 1.20’s against the euro -The huge flood of US paper hitting the markets will tend to weaken the dollar
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27 - AEM 2300 Guest Lecture Steven Kyle Grade hisself on...

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