LECTURE 1Overview of U.S. Macroeconomic

History and Data

August 31, 2011

Economics 210c/236a Christina RomerFall 2011 David Romer

I. CHRISTINA ROMER: “SPURIOUS VOLATILITY IN

HISTORY UNEMPLOYMENT DATA”

0

5

10

15

20

25

301/

1/18

90

1/1/

1898

1/1/

1906

1/1/

1914

1/1/

1922

1/1/

1930

1/1/

1938

1/1/

1946

1/1/

1954

1/1/

1962

1/1/

1970

1/1/

1978

1/1/

1986

1/1/

1994

1/1/

2002

Perc

ent

Inconsistent Unemployment Data

From Historical Statistics of the United States

0

2

4

6

8

10

12

14

1907

1915

1923

1931

1939

1947

1955

1963

1971

1979

1987

1995

2003

Perc

ent

Inconsistent Unemployment Data

From Historical Statistics of the United States

Inconsistent GDP Data

From Martin Neil Baily, “Stabilization Policy and Private Economic Behavior”

Lebergott’s Methodology

Unemployed = Labor Force – Employed

• Labor force is overestimated in recessions.

• Employment is underestimated.

• So unemployment is overestimated in recessions.

• Just the opposite in booms.

More Consistent Unemployment Data

From Christina Romer, ”Spurious Volatility in Historical Unemployment Data”

From Christina Romer, ”Spurious Volatility in Historical Unemployment Data”

Evaluation of Romer

Implications of Findings

• Depression stands out more.

• Why wasn’t there a stabilization?

II. JOSEPH DAVIS: “AN ANNUAL INDEX OF U.S. INDUSTRIAL PRODUCTION, 1790-1915”

Data Sources for Davis’s Index of Industrial Production

Evaluation of Davis

From Joseph Davis, “An Annual Index of Industrial Production, 1790-1915”

From Joseph Davis, “An Annual Index of Industrial Production, 1790-1915”

0

1

2

3

4

5

6

7

8

1790

1798

1806

1814

1822

1830

1838

1846

1854

1862

1870

1878

1886

1894

1902

1910

Loga

rithm

s

Davis Index of Industrial Production

From Joseph Davis, “An Annual Index of Industrial Production, 1790-1915”

From Joseph Davis, “An Annual Index of Industrial Production, 1790-1915”

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1791

1796

1801

1806

1811

1816

1821

1826

1831

1836

1841

1846

1851

1856

1861

1866

1871

1876

1881

1886

1891

1896

1901

1906

1911

Percentage Change in Industrial Production

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

1820

1825

1830

1835

1840

1845

1850

1855

1860

1865

1870

1875

1880

1885

1890

1895

1900

1905

1910

1915

Percentage Change in Industrial Production

Standard Deviation1820-1889 0.0601890-1915 0.089

From Joseph Davis, “An Annual Index of Industrial Production, 1790-1915”

Implications of Findings

• May affect view of impact of panics in the 19th c.

• Increasing frequency of cycles after 1890 may reflect changes in price flexibility.

• Changes in volatility may reflect the emergence of demand-driven recessions.

III. MARGARET MCCONNELL AND GABRIEL PEREZ-QUIROS, “OUTPUT FLUCTUATIONS IN THE UNITED

STATES: WHAT HAS CHANGED SINCE THE EARLY

1980’S?”

From McConnell and Perez-Quiros, “Output Fluctuations in the United States”

From Christina Romer, ”Changes in Business Cycles”

From James Stock and Mark Watson, “Has the Business Cycle Changed?”

From McConnell and Perez-Quiros, “Output Fluctuations in the United States”

Has the Great Moderation Ended?

1953:Q2-1983:Q4 1984:Q1-1999:Q2 1984:Q1-2011:Q2

S.d. of quarterly GDP growth 1.14 0.53 0.65(percentage points)

S.d. of unemployment rate 1.70 1.00 1.46(percentage points)

IV. CHRISTOPHER HANES, “THE DEVELOPMENT OF

NOMINAL WAGE RIGIDITY IN THE LATE 19TH CENTURY”

From J. Bradford DeLong, “America’s Peacetime Inflation,” in Romer and Romer, eds., Reducing Inflation: Motivation and Strategy (1997)

-6

-4

-2

0

2

4

6

8

1/1/

1866

1/1/

1869

1/1/

1872

1/1/

1875

1/1/

1878

1/1/

1881

1/1/

1884

1/1/

1887

1/1/

1890

1/1/

1893

1/1/

1896

1/1/

1899

1/1/

1902

1/1/

1905

Perc

ent

Hanes's Wage Inflation Series

From Hanes, “The Development of Nominal Wage Rigidity in the Late 19th Century”

From Hanes, “The Development of Nominal Wage Rigidity in the Late 19th Century”