Article Cites Economic Research Co-Authored by Prof. Nathaniel Throckmorton
June 3, 2014
"Uncertainty about the direction of the U.S. economy has been associated in recent years with weaker growth, at least in part because the Federal Reserve has kept short-term interest rates pinned near zero, argues new research," begins an article at the Wall Street Journal's website. The piece notes that one of the three authors of the research, Nathaniel Throckmorton, "is a visiting assistant professor at DePauw University."
Ben Leubsdorf writes, "Typically, the Fed lowers rates to stimulate the economy during downturns such as the 2007-2009 recession. But short-term rates hit bottom in December 2008 and can’t go any lower, a limitation known as the 'zero lower bound,' or ZLB. That limits policymakers’ options going forward, and 'the increase in uncertainty that occurs at the ZLB is due to the restriction it places on the central bank,' economists Michael Plante, Alexander Richter and Nathaniel Throckmorton wrote in a recent working paper."
The text continues, "The economists compared U.S. economic growth, as measured by changes in gross domestic product, with economic uncertainty as measured by indicators like the Philadelphia Fed’s Survey of Professional Forecasters, with a wider range of predictions about future growth signaling more uncertainty about the economy’s direction. They found only a weak correlation between uncertainty and growth -- except in the years since the last recession, when there was 'a strong negative correlation between macroeconomic uncertainty and real GDP growth,' they wrote. In other words, more uncertainty has been closely associated with lower growth for the past half-decade."
You'll find the complete story at WSJ.com.
Nate Throckmorton is visiting assistant professor of economics and management at DePauw. Learn more about Dr. Throckmorton by clicking here.
Source: Wall Street JournalBack