All posts by RealEstate

Taking the time to measure money : A closer look at broad money in the U.K.

The FRED graph above, which tracks broad money in the U.K. over the past 172 years, makes it look like the Bank of England has let the money supply go completely out of control since 1970. But not so fast! Two important effects are at play here. The first is the power of compounding: Any statistic that increases at a constant rate will look like it is accelerating, especially if the sample period is long. That’s why FRED graphs offer the option of taking the natural logarithm, as shown in the second graph, below.

If broad money had increased at a constant rate, the graph would show a straight line. That’s not the case, though, as broad money reacts to economic conditions, which is the second effect at play here. Consider that the money supply follows the general evolution of prices. Or the reverse: Prices follow increases in the money supply.

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The stock market is not the economy : Taking a “random walk” through the data

Does the stock market tell us anything about the economy? The stock market seems to react continually to various data and economic news, and many of us follow its day-to-day changes, especially if we’re invested in it. But do fluctuations in the stock market actually reflect economic health?
The best measure we have for measuring total economic activity is GDP. But GDP is measured only quarterly and with a considerable lag. With the help of FRED, though, we can look at a decade’s worth of data to see how closely GDP relates to the stock market.
The graph above looks at quarter-to-quarter percent changes in the Dow Jones Industrial Average (DJIA), deflated to remove general price increases, and real GDP, which is by definition also deflated to remove general price increases. Of course, the stock market is very volatile, but it’s too hard to see any relationship in this line graph. A

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Paychecks at the top, at the bottom, and in the middle : A look at the distribution of wage income

Let’s consider the topic of income disparity by looking at some data from our friends at the Bureau of Labor Statistics—or, as we like to call them, the BLS. (Just to clarify: Top incomes are increasing more than others not so much because of regular labor income, but largely because of capital income, various bonuses, and the like. That said, in this post we’ll stick with the distribution of regular wage income.)
The BLS’s Current Population Survey provides weekly wage income data for the U.S. population that can be split into various segments: These segments are ordered by income, from the very top (100%) to the very bottom (1%). The segments we chose, from top to bottom in the graph, are the 90%, 75%, 25%, and 10% levels. (That is, the ninth decile, the third quartile, the first quartile, and the first decile.) The reported income for each of these segments

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The give and take of technology : Changes in U.S. imports and exports of intellectual property

The U.S. creates many technological innovations that the rest of the world wants to use. The FRED graph above tracks how much technology the U.S. exported to the rest of the world from 2002 to 2018 (blue line), as measured by payments the world made for the use of U.S. intellectual property (IP). These payments, in the form of royalties and licensing fees, increased from $67 billion to about $118 billion, showing that the U.S. has substantially increased the knowledge it shares globally.
The U.S. also seeks out technology it doesn’t produce at home. So our graph also displays what the U.S. imported from the rest of the world (red line), as measured by the royalty payments the U.S. made to all other countries for the use of their IP. Take care to connect the exports with the left axis and the imports with the right axis, and you can see

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Capital’s gain is lately labour’s loss : The global decline in the labour share of income

The GDP of a country reflects, among other things, the total payments to all factors of production. For a long time, the share of payments to labour* relative to total payments to all factors of production was relatively stable. In recent decades, the share of payments to labour has been trending down in many countries, which FRED can help us illustrate.
The first graph shows that the share of labour compensation in GDP has been declining for several countries around the world. In the U.S., this share has declined by 5% between 1975 and 2017. The decline in other countries is even greater, with the largest occurring in Canada, at almost 11%.
Researchers Karabarbounis and Neiman recently argued that there’s an association between the declining labour share and the declining price of capital goods, such as equipment. They show that, if the elasticity of substitution between capital and labour is larger than

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Live by the barrel, die by the barrel : Connections between oil production, oil dependency, and economic growth

In every introductory macroeconomics course, oil is used as the classic example of a negative price shock. Professors tend to discuss the 1973 oil price shock triggered by the Arab-Israeli conflict and the 1979 oil price shock caused by the Iranian Revolution as reasons for rising inflation and falling global output—connecting these shocks to models about investment and aggregate supply and demand. More recent literature, including this presentation by St. Louis Fed President James Bullard, indicates that oil prices can sometimes be interpreted as a proxy for demand. But what’s the impact of oil supply for the consumers in oil-producing countries? We can use FRED to plot crude oil production versus GDP growth in oil-producing countries to get at least a first idea of just how oil-dependent a country might be.
For the United States, the relative importance of oil to industrial production (which is now less than 20% of the

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Switzerland’s mountainous monetary base : More Swiss uniqueness on their national holiday

Today is the Swiss national holiday. In the past, we’ve taken this opportunity to discuss some unique (i.e., weird) feature of the Swiss economy. This time we use FRED to compare the Swiss monetary base with the U.S. monetary base. To make them comparable, we divide each by its country’s nominal GDP. We see that the general patterns are similar, with a sudden increase in 2008. While the U.S. monetary base has started to go back down (it’s lost a quarter since its high point), there’s nothing that shows any tendency to return to the long-run trend. Indeed, Switzerland is still working with extremely low (even negative) interest rates.
But let’s talk about the stark difference shown in the graph. This statistic for Switzerland is dramatically higher than it is for the U.S.: The Swiss monetary base is now worth over three years of its GDP, while the U.S. monetary base

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What can we claim about initial claims? : Keeping track of initial unemployment insurance claims

Initial unemployment claims is a much-watched indicator of the economy. It counts how many people have become eligible for unemployment insurance compensation in a particular week. The data are available quickly and at a high frequency (weekly), but the series has the disadvantage of being highly volatile. This is why FRED also offers a four-week moving average, shown in the graph above: Simply, it’s the average of the past four weeks. Included in the graph is also a red line that indicates the lowest value of this statistic in the course of its history—in May 1969. Currently, claims are around 230,000 per week; and, while this is low, it was lower for 126 weeks early in the sample period.

Of course, the population was much smaller in the 1960s, so the current statistics are even more impressive than they first appeared. Which is what the second graph shows, after dividing new

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A mirror image of mortgages and equity : The story of the Great Recession told with two intersecting lines

Take a look at mortgage or real estate data on FRED. The main story (for a number of years, now) is all about the Great Recession, which is clear in the graph above. Let’s unpack that story.
In blue, we have the share of equity in the real estate that households own. In the 1950s, 70-80% of the value of the average house was owner equity, and 20-30% was owned by a financial institution. The share of owner equity essentially stayed within a 60-70% band until the end of the millennium. Then it quickly dropped to below 40%, before rebounding today to its previous level (from 2001 or so). What happened during the Great Recession is clearly a deviation from normal.
This being a ratio, the deviation could have come from changes on either side of that ratio: 1. Mortgages could have sharply increased without a change in owner equity. 2. Owner

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The importance of imports : Import tariffs, imports of production inputs, and domestic investment

U.S. trade policy continues to change, with rising tariffs on imports of capital goods and intermediate inputs from China and other countries. But how important are these types of imports for the U.S. economy, especially compared with total U.S. imports? As usual, FRED can help answer our question: The graph above plots the share of capital and intermediate inputs in aggregate U.S. imports over the period 1999-2019.
As the graph shows, the share is not small. In fact, it’s the majority of total imports, ranging from 46% to 61% over this period, with an average well above 50%. Because these imports play an important role for the domestic production of U.S. goods, one would expect that raising tariffs on these goods would have a negative impact on domestic production.
Again, FRED sheds some light on the question: The graph below shows that imported capital goods make up a substantial fraction of aggregate

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