Is China focused on NGDP?

This morning I noticed a discussion of NGDP growth in China, which has recently picked up slightly:

Screen Shot 2016-08-25 at 12.36.30 PM

The commentator at Bloomberg.com suggested that the acceleration in NGDP growth may help to explain why the PBoC has not done any monetary easing in recent months.

Many observers are skeptical about China’s RGDP numbers. It does seem plausible that the RGDP numbers are smoothed, and thus that NGDP more accurately reflects cyclical movements in the Chinese economy.

Question for my British readers:  How is Brexit impacting the UK economy so far? This will be a test of “uncertainty” theories of the business cycle—the claim that recessions can be caused by an increase in uncertainty, which hampers investment. Brexit was the mother of all uncertainty shocks. I’m agnostic on those theories, but on balance I think they are modestly overstated. Over at Econlog, I predicted a 0.5% rise in the UK unemployment rate as a result of Brexit. This BBC article suggests the immediate impact has been fairly mild—so far.  (Very little post-Brexit data is available.)

 


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14 Responses to “Is China focused on NGDP?”

  1. Gravatar of Britonomist Britonomist
    25. August 2016 at 10:59

    “How is Brexit impacting the UK economy so far? ”

    This isn’t exactly great: http://www.bankofengland.co.uk/publications/Documents/agentssummary/2016/aug.pdf

    Also this, if you think Brexit was well anticipated: http://www.ft.com/fastft/2016/08/12/uk-construction-struggled-in-lead-up-to-brexit-vote/?siteedition=uk

    UK Firms are pessimistic about Brexit, expect investment and hiring to weaken: https://www.theguardian.com/business/2016/aug/10/uk-businesses-expect-brexit-vote-to-weaken-investment-and-hiring-bank-finds?CMP=share_btn_tw

  2. Gravatar of Britonomist Britonomist
    25. August 2016 at 11:02

    Most of the data we have is still pre Brexit though. Not a clear picture yet.

  3. Gravatar of Chuck Chuck
    25. August 2016 at 14:15

    Little early to gauge Brexit impact. Especially because there is still uncertainty about whether it will even happen at all.

  4. Gravatar of Benjamin Cole Benjamin Cole
    25. August 2016 at 17:09

    I am not sure the People’s Bank of China is not easy. The PBOC is active in repurchase markets and the yuan is trading lower. They are well below inflation targets however.

  5. Gravatar of Jason Jason
    26. August 2016 at 04:08

    I think markets were fairly quick to realize that Brexit won’t happen any time soon and maybe not at all in any meaningful way.

    On the other hand, this still doesn’t look good for uncertainty shock models, because they would – I assume – expect lower growth for 50% chance of Brexit than both 0% and 100%. Although I guess 100% chance of Brexit has it’s own uncertainties (what kind of Brexit, etc).

  6. Gravatar of Scott Sumner Scott Sumner
    26. August 2016 at 09:59

    Chuck, You said:

    “Little early to gauge Brexit impact.”

    I’m not trying to measure the impact of Brexit, I’m trying to measure the impact of uncertainty.

    Jason, And note that almost all the experts said this was one of the biggest uncertainty shocks ever to hit the UK economy. If it doesn’t have much effect, then I’d be inclined to conclude that uncertainty doesn’t have much impact on the business cycle, except perhaps uncertainty over the future course of monetary policy.

  7. Gravatar of James Alexander James Alexander
    27. August 2016 at 07:41

    How do you measure how much uncertainty there is? In order “to measure the impact of uncertainty”. What are you talking about?

    The future is always uncertain, a bit more post the Brexit vote. If uncertainty about the future = 100, then UK markets, consumer spending, employers hiring intentions indicate it is 105, possibly. “The mother of all uncertainty shocks” is just plain silly.

  8. Gravatar of James Alexander James Alexander
    27. August 2016 at 07:54

    This pretty sensible summary of where the most shocked people in the UK have got to, so far…

    Brexit: apocalypse, no — FT.com

  9. Gravatar of ssumner ssumner
    27. August 2016 at 08:14

    James, I think you missed the point here. I’m not an “uncertainty theorist”, I don’t think uncertainty is very important—other people do. I’m not a Keynesian, I don’t think fiscal policy is very important, other people do.

    If a Keynesian tells me that the government has done massive austerity, I’ll say “Well, I don’t quite see it, but if you insist then let’s see the impact”.

    And the impact is often close to zero.

    If an uncertainty theorist tells me that there is a massive uncertainty shock, then I’ll say “well, I don’t quite see it, but let’s look at the impact.”

    And I plan to do so. I always like to remind people of the predictions they made.

    After Brexit there was a massive outpouring of commentary from people who do think that uncertainty is very important, and they were treating this as the biggest shock to hit the UK economy since WWII. You and I may not agree, but that was the overwhelming consensus in the media, and among very smart pundits at places like the FT, as I’m sure you know. There were lots of news reports on the devastating impact on the UK economy. Investment projects put on hold because of uncertainty about the status of the City of London, etc.

    I’m sure you saw the same stories. It is those views that are being tested. I’m not an “uncertainty theorist”, they are. I think monetary policy drives the business cycle.

  10. Gravatar of James Alexander James Alexander
    27. August 2016 at 10:59

    “very smart pundits at places like the FT, as I’m sure you know. There were lots of news reports on the devastating impact on the UK economy. Investment projects put on hold because of uncertainty about the status of the City of London, etc.”

    so far, it is turning out that all those very smart people were pretty darn wrong. just like very smart people were, and still are, wrong about the events of 2008. just look at the Federal Reserve. they fed is full of very smart people but, to a man and woman, wrong about 2008 wrong about the obsession with rate rises today.

    giles wilkes is smart, and actually very sympathetic to NGDPLT, he wrote the FT piece i mentioned … he’s half way over his shock … link is here (i hope, paywall issues):
    http://www.ft.com/cms/s/3/11d77e0e-6aba-11e6-ae5b-a7cc5dd5a28c.html

  11. Gravatar of ssumner ssumner
    28. August 2016 at 17:09

    James, So that’s my point, we are testing the orthodox theory of the best and the brightest. I agree that their theory may very well fail.

    I think you and I both think that “uncertainty” is an overrated factor in the business cycle.

  12. Gravatar of ssumner ssumner
    29. August 2016 at 05:36

    James, The following is from a typical article, I read just today:

    https://www.yahoo.com/finance/news/banks-preparing-economic-nuclear-winter-052654347.html

    “Meanwhile, a common theme across second-quarter results has been a warning of uncertain times ahead. From big investment banks to mining firms like BHP Billiton and Glencore to the auto sector, companies have cited uncertainty and volatility in markets as a reason for weak results and have warned that the second half will be challenging.

    Following that, a number of banks have cut their exposure to equities due to the volatile nature of stocks in the first half the year. Earlier this month, Goldman Sachs downgraded stocks to “underweight” as part of its 3-month asset allocation citing global equities to be at the upper end of their “fat and flat range.”

    “The second half of the year is going to be very challenging for U.K. corporates,” Craig Erlam, senior market analyst at OANDA told CNBC via email. “Not only are they contending with possible recession in the U.K. and more prolonged slowdown, the uncertainty factor surrounding Brexit leaves planning for the future a very difficult task.””

  13. Gravatar of James Alexander James Alexander
    29. August 2016 at 21:54

    The markets tell a different story to the experts, even in businesses. Just look t Uk government bonds and, yes, even mainly UK-focused equities like housebuilders. The GBP drop may be about long term economic growth prospects but is also about a change in expectations about monetary policy.

    Consumers are listening to experts too, but remain data-driven.
    https://www.theguardian.com/business/2016/aug/30/britons-positive-about-own-finances-but-not-economy-report-finds?utm_source=esp&utm_medium=Email&utm_campaign=GU+Today+main+NEW+H+categories&utm_term=188107&subid=14959125&CMP=EMCNEWEML6619I2

  14. Gravatar of ssumner ssumner
    30. August 2016 at 09:28

    James, You said:

    “The markets tell a different story to the experts, even in businesses.”

    That’s my point. This is a test of expert opinion.

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