Skip to main content

A 2016 recession would be different

If the US or the Eurozone entered a recession this year, a few macroeconomic variables would look very different relative to previous recessions.

1. The Yield curve would be very steep. Unlike in any previous recession when the yield curve was flat or inverted.

















2. The real federal funds rate (or the ECB real repo rate) would be extremely low and would be at a level similar to that of the beginning of the expansion. Unlike in previous recessions where the real central bank interest rates was high relative to the beginning of the expansion.

3. And nominal central bank interest rates would be stuck at zero so there will be no room to lower them in response to the recession. Unlike in previous recessions where nominal interest rates came down by about 4-7 percentage point (this is also true for real interest rates, see previous chart).

So maybe this tells us that a recession is not about to happen. But if it is, the lack of space to implement traditional monetary policy tools should be a big concern for policy makers. If a recession ends up happening, helicopter money will likely become a policy option.

Antonio Fatás

Comments

Post a Comment

Popular posts from this blog

The increasing number of Euro fools.

Via the Irish Economy Blog  I find this very interesting interview of Mario Draghi with  Der Spiegel . I was first surprised by the aggressive responses from Draghi every time he is asked about the German negative assessment of recent ECB monetary policy. I like his honesty and clarity when he asserts that all German fears about increasing inflation in the Euro area have turned to be wrong. Here is one of his answers: "DRAGHI: No, but the fears felt by some sectors of the public in Germany have not been confirmed. What haven’t we been accused of? When we offered European banks additional liquidity two years ago, it was said there would be a high rate of inflation. Nothing has happened. When I made my comment in London, there was talk of a violation of the central bank’s mandate. But we had made ​​clear from the beginning that we are moving within our mandate. Each time it was said, for goodness’ sake, this Italian is ruining Germany. There was this perverse Angst that things w...
Post a Comment
Read more

What Happens When You Drink Enough Water

Tridona Bestsellers If you’re reading this: Drink a glass of water. You likely need it, as 75 percent of Americans are described as “chronically dehydrated.” While achieving a state of hydration might seem enviable and impossible, fret not because it’s doable. And the health benefits are not only encouraging, but they are also downright inspiring in the immediate short term, but especially in the long run. “Long-term hydration is the single best thing we can do to prevent chronic illness,” says Dr. Dana Cohen, an integrative medicine specialist in New York and coauthor of Quench: Beat Fatigue, Drop Weight, and Heal Your Body Through the New Science of Optimum Hydration . Though the eight-cup rule is popular, there is no one-size-fits-all number. Instead, it’s more of an individual approach. The new general rule of thumb is half your weight in ounces, according to Dr. Cohen. For example, if you weigh 120 pounds, you need to drink 60 ounces of water a day.
Post a Comment
Read more

COVID-Economics Links (April 26)

Health versus wealth: On the distributional effects of controlling a pandemic  - Jonathan Heathcote, Andrew Glover, Dirk Krueger, Víctor Ríos-Rull (VoxEU) The deflation threat from the virus will be long lasting - Gavyn Davies (FT) CBO’s Current Projections of GDP, Unemployment and Federal Deficit  - Congressional Budget Office Coronavirus Projected to Trigger Worst Economic Downturn Since 1940s - WSJ Cash in the time of corona  - Andreas Joseph, Christiane Kneer, Neeltje van Horen, Jumana Saleheen (VoxEU) Reweaving the social fabric after the crisis - Andrew Haldane (FT) German shops reopen but celebrations in Berlin muted - FT.com We need a better head start for the next pandemic  - Mehdi Shiva (VoxEU) Forecasting recoveries is difficult: Evidence from past recessions  - Zidong An, Prakash Loungani (VoxEU) Will central banks serve up fresh stimulus? - FT.com
Post a Comment
Read more