Reviewer Quotes
Loading Quotes...
Looking for topics recently in the news? Search the Karlan/Morduch blog.
What’s New on the Blog

January FOMC Announcement

Posted on Jan 29, 2015 | 0 comments

The Federal Reserve concluded its latest Federal Open Market Committee (FOMC) meeting on Wednesday.

Two two most important paragraphs from the announcement are:

“Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace.  Labor market conditions have improved further, with strong job gains and a lower unemployment rate.  On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish.  Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power.  Business fixed investment is advancing, while the recovery in the housing sector remains slow.  Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices.  Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.”


“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.  In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.  This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.  Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.  However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.  Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.”

You may also read the complete announcement here.

Case-Shiller HPI: Tampa, FL

Posted on Jan 27, 2015 | 0 comments

Tampa metro area’s Case-Shiller housing price index (HPI) from January 1987 to September 2014 is shown in the figure below.

Screen Shot 2015-01-27 at 1.36.53 PM

Tampa’s pre-recession housing market peak was May 2006. Similar to the rest of the U.S., Tampa’s housing market declined after 2006 and it has subsequently recovered.

If the Tampa housing market is split into thirds, the pattern observed is similar to that of other U.S. housing markets: relative to the high and middle tiers, the low tier experienced the greatest decline after the housing bust and is now experiencing the strongest growth rate.

The top third of Tampa’s housing market—the high tier segment—reached a maximum index value of 226 in May 2006. The high tier declined 48 percent to reach its lowest HPI value of 129 in September 2011. As of September 2014, this segment of Tampa’s housing market has increased 30 percent from its 2011 low.

The middle third of Tampa’s housing market—the middle tier segment—reached a maximum index value of 245 in June 2006. The middle tier declined 52 percent to reach its lowest HPI value of 117 in September 2011. As of September 2014, this segment of Tampa’s housing market has increased 37 percent from its 2011 low.

The bottom third of Tampa’s housing market—the low tier segment—reached a maximum index value of 279 in July 2006. The low tier declined 63 percent to reach its lowest HPI value of 103 in November 2011. As of September 2014, this segment of the Tampa’s housing market has increased 53 percent from its 2011 low.

European Central Bank Signals Start of QE

Posted on Jan 22, 2015 | 0 comments

The European Central Bank’s (ECB) President Mario Draghi is widely expected to announce the start of a large scale government bond purchasing program, known as quantitative easing (QE). Read news reports here and here.

It is expected that the ECB will purchase $58 billion a month in government bonds for a minimum of 12 months. The figure below shows the expected impact on the ECB balance sheet and the value of the euro.

Screen Shot 2015-01-22 at 8.22.34 AMIn addition to QE, the ECB continues to charge a negative interest rate (-0.2 percent) on excess reserves deposited at the ECB. The ECB will also maintain its key target interest rate at 0.05 percent. The set of programs are an attempt to pull the euro zone out of deflation and ultimately encourage strong economic growth. See recent data on inflation and growth in the figure below.

Screen Shot 2015-01-22 at 8.43.36 AMDiscussion question:

Discuss how the ECB’s purchase of government bonds will help end deflation and encourage economic growth.

CPI: December 2014

Posted on Jan 16, 2015 | 0 comments

The Bureau of Labor Statistics (BLS) released its December 2014 Consumer Price Index (CPI) report. Click here to read the report.

The CPI increased 0.8 percent over the last 12 months (see the figure below). This reading is at the Fed’s inflation target of 2 percent.

Core CPI–which excludes food and energy prices–increased 1.6 percent over the last 12 months.

The following figure shows both CPI and Core CPI since Dec 2013.

Screen Shot 2015-01-16 at 3.15.46 PM


The Labor Force Participation Rate Surprise

Posted on Jan 16, 2015 | 0 comments

Peter Coy, Matthew Philips, and Rich Miller have a fascinating article in Bloomberg Business week. Click here to read it.

The labor force participation rate measures the percentage of people who have jobs or are actively looking for work (the so-called labor force) out of the population (more specifically, those age 16 and older, excluding those in the armed forces, prison inmates, and residents of nursing homes).

Since the great recession, which began in December 2007, the labor force participation rate has declined. Indeed, the rate tied an almost 37-year low of 62.7 percent in December, according to data released on Jan. 9 by the U.S. Bureau of Labor Statistics. See the figure below.

Screen Shot 2015-01-16 at 11.00.27 AM

Historically, the poorest families are the least likely to be in the labor force. However, Nicolas Petrosky-Nadeau and Robert Hall have discovered a twist: “Low-income families are the only ones whose participation rate has risen. The average for families in the lowest tenth of households by income rose by 11 percentage points over a 13-year period, to just under 44 percent. The participation rate of families in the top tenth of incomes fell by a little more than 3 percentage points, to just under 80 percent. To put it simply, the poor have been stepping forward while the rich have been stepping back,” according to the article.

The open question is: why? It is a question that Petrosky-Nadeau and Hall will investigate.

Discussion questions:

1) Discuss why the labor force participation rate is at an almost 37-year low.

2) Discuss how the labor force participation rate can be so low, while the unemployment rate has improved to 5.6 percent.

Government Bond Yields Turn Negative

Posted on Jan 15, 2015 | Comments Off

As global growth fears worsen, investors are now willingly paying European governments and Japan to keep their money for years. See the figure below from the WSJ. Click here to read the full article.

Screen Shot 2015-01-15 at 1.33.38 PMThe yield on the five-year German government bond fell Wednesday to a record-low close of negative 0.016%, according to the article.

Discussion question:

Read the article. Explain why investors are willing to pay governments to hold their money?

Lessons of the Great Depression

Posted on Jan 13, 2015 | Comments Off

A very nice (and short) interview with economist Barry Eichengreen about lessons of the Great Depression.

Duration of Job Loss in Tampa Bay, FL

Posted on Jan 13, 2015 | Comments Off

The figure below illustrates the duration of job loss in Tampa Bay from the 2007-2009 recession relative to the last two U.S. recessions. The figure illustrates how the recession has impacted the labor force in Tampa Bay. As of November 2014, 82 months have passed since the recession began in December 2007 and the area remains net negative 28,400 jobs, which is 2.3 percent below the December 2007 employment level. Although Tampa Bay is slowly adding nonfarm payroll jobs, many more months might pass before Tampa Bay observes the number of nonfarm payroll jobs that existed prior to the recession.

Downturn Duration Tampa MSA