The crisis 1

115
Dynamics of Real GDP
(May 2004=100)
110

105

ITALY
100
US

95

Macroeconomics – Definitions and statistical regularities

GDP growth in the long run (US) 2

120

110

100
log(GDP)
90

80
1929

1939

1949

1959

1969

1979

1989

1999
Macroeconomics – Definitions and statistical regularities
GDP g
growth in the long
g run (Italy)
( y) 3

400

300

GDP
HP trend

200

100

GDP growth in Italy

(1960=100)

1960 1965 1970 1975 1980 1985 1990 1995 2000

Macroeconomics – Definitions and statistical regularities

Economic fluctuations 4
Fluctuations of GDP in Italy
(differences with respect to the HP trend)

1960 1965 1970 1975 1980 1985 1990 1995 2000

Macroeconomics – Definitions and statistical regularities

The unemployment
p y rate 5
12

10

2 ITALY US

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
2

2
Macroeconomics – Definitions and statistical regularities
Unemployment
p y in the long
g run 6

14 Euro Area
US
12 Japan
Italy
10

0
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005
Macroeconomics – Definitions and statistical regularities
“Comovements” 7
Variations in GDP and the unemployment rate
(U.S. - 1960-2002)

8
GDP RATE O F UNEMPLO YMENT

-2
2

-4
1960 1965 1970 1975 1980 1985 1990 1995 2000

Macroeconomics – Definitions and statistical regularities

 The Okun Law 8
9,0
Δu

60
6,0 Okun'ss law
Okun
(U.S. - 1960-2002)

3,0

0,0 Δy

-3,0
-4
4 -2
2 0 2 4 6 8

Macroeconomics – Definitions and statistical regularities

And in Italy?
y 9
12 Fluctuations of GDP and unemployment 1
(It l - 1971-2002)
(Italy 1971 2002)

8
,
0,5
4

0 0

-4
-0,5
05
-8 Fluctuations of GDP
% Var. of unemployment

-12 -1
1961

1966

1971

1976

1981

1986

1991

1996

2001
Macroeconomics – Definitions and statistical regularities
Hours worked 10

1
% Var. of hours worked

-1

-2
Okun's law
-3 (Italy - 1971-2002)

-4
-4 -2 0 2 4 6 8
% Var. of GDP

Macroeconomics – Definitions and statistical regularities

Prices 11
120

Consumer Price Index

110 CPI (2005=100)

100

USA
90
ITA

80
22001
22000

22002

22003

22004

22005

22006

22007

22008

22009
Macroeconomics – Definitions and statistical regularities
Inflation rates 12

25

ITALY
20
EURO
15 AREA
US
10

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
-5

Macroeconomics – Definitions and statistical regularities

 Deflation 13

25

% variation
20
of p
prices in
Japan
15

10

0
0
1980
1960
0

1970

1990

2000
-5

Macroeconomics – Definitions and statistical regularities

Stock p
prices ((1990=100)) 14
500

450

400

350

300

250

200

150

100 Index in the U.S.

Index in Italy
50

0
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08
199

199

199

199

199

199

199

199

199

199

200

200

200

200

200

200

200

200

200
Macroeconomics – Definitions and statistical regularities
 The oil p
price ((1)) 15
160

140

120 Price in Dollars

Price in Euros
100

80

60

40

20

0
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
Macroeconomics – Definitions and statistical regularities
 The oil p
price ((2)) 16
Real Price The oil p
price for Italyy
10.000 Price $
Price €

1.000

100
1960

1970

1980

1990

2000
1

2
Macroeconomics – Definitions and statistical regularities
The exchange
g rate ((1)) 17

1,6
1,5
14
1,4
1,3
1,2
11
1,1
1,0 $/€
0,9
08
0,8
1/1/1999

1/1/2000

1/1/2001

1/1/2002

1/1/2003

1/1/2004

1/1/2005

1/1/2006

1/1/2007

1/1/2008
Macroeconomics – Definitions and statistical regularities
The exchange
g rate ((2)) 18

2500

2000

1500

1000

500 Lira / Dollar

0
1960

1970

1980

1990

2000
Macroeconomics – Definitions and statistical regularities
The Phillips
p curve 19

25

The Phillips curve

Italy - 1980-2000
20
Inflation rrate

15

10

0
4 6 8 10 12 14
Unemployment rate

Macroeconomics – Definitions and statistical regularities

A little of caution 20
25
1980

Inflation and unemployment

20 (Italy - 1960 - 2004)
n rate

15
Inflation

1990
10 1970

5
1960

0 2000

2 4 6 8 10 12 14
Unemployment rate

Macroeconomics – Definitions and statistical regularities

 Stylized
y facts on C and I 21
About consumption :
1. There is a strong
g correlation,, in the long
g run,, between
consumption (C ) and output (Y ):

Consumption and GDP

Italy 1960-2004
Househollds' onsumption

GDP

Macroeconomics – Aggregate expenditure

“Comovement” of C and Y - Italyy 22
2. There is a clear “comovement” between fluctuations of C
and fl
fluctuations
ct ations of Y (see here the comovement
como ement in Italy);
Ital );
"Comovement" of Consumption and GDP
4 (Italy - differences with respect to the HP trend)

-1

-2

GDP
-3 Consumption

-4
1960

1965

1970

1975

1980

1985

1990

1995

2000
Macroeconomics – Aggregate expenditure
“Comovement” of C and Y – U.S. 23
And see here the “comovement” in the U.S.:
8

Var% Pil
Var% Consumo
6

Comovement of Consumption and GDP

-2
2 (U.S. - 1960-2002)
( )

-4
1960

1965

1970

1975

1980

1985

1990

1995

2000
Macroeconomics – Aggregate expenditure
Consumption
p and disposable
p income 24
3. Consumption 10

changes
h with
ih Consumption and disposable income
disposable 8
(U.S. − 1960-2004)

income:

onsumption
The Figure shows 6

the case of U.S.:

US :
Households'con
Consumption is 4
C = 0.95Yd

g y proportional
highly p p
to disposable
income. 2

0
0 2 4 6 8 10
Households'disposable income

Macroeconomics – Aggregate expenditure

 Stylized
y facts on investment 25
1. Investment is more volatile than consumption; its
fluctuations are wider:
15 Fluctuations of Consumption and Investiment
(Italy - Differences with respect to the HP trend)

10

-5
5

-10
Investimento

Consumo
-15

-20
1960

1965

1970

1975

1980

1985

1990

1995

2000
Macroeconomics – Aggregate expenditure
Investment and GDP 26
2. The correlation between the fluctuations of I and those of
Y is less clear and requires
q some explanation:
p
20

15 Investment and GDP dynamics

(Italy - 1960-2004)

10
% Var. of Investiment

-5

-10

-15
-3 0 3 6 9
% Var. of GDP

Macroeconomics – Aggregate expenditure

 -12
12
-10
-8
-6
6
-4
-2
0
2
4
Aug-59
Apr-61
Nov-62
Jul-64
Mar-66
Nov-67
Jul-69
Mar-71
Nov-72
Jul-74
Mar-76
Nov-77
Jul-79
Mar-81
Nov-82
Jul-84
Mar-86
Nov-87
Jul-89
Mar-91
Nov-92
Macroeconomics – Public Deficits and Debt
Jul-94
The deficit-GDP ratio ((US)) – %

Mar-96
Nov-97
Jul-99
Mar-01
Nov-02
Jul-04
Mar-06
Nov-07
27
 0
10
20
30
40
50
60
70
Feb-52 80
Jan-54
Nov-55
Oct-57
Sep-59
Aug-61
Jul-63
Jun-65
May-67
Apr-69
Mar-71
Feb-73
Jan-75
Nov-76
Oct-78
Sep-80
Aug-82
Jul-84
Jun-86
May-88
Macroeconomics – Public Deficits and Debt Apr-90
The debt-GDP ratio ((US)) – %

Mar-92
Feb-94
Jan-96
Nov-97
Oct-99
Sep-01
Aug-03
Jul-05
Jun-07
28
 400000
600000
800000
1000000
1200000
1400000
1600000
1800000

Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
The monetaryy base (US)

Jan-05
May-05

Macroeconomics – Money
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
( ) – millions of $ 29
 4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Moneyy supply

Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05

Macroeconomics – Money
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
pp y ((US)) – M2 – billions of $ 30
 0
1
2
3
4
5
6
7
8
9
Jan-00 10
Jun-00
Nov-00
Apr-01
Sep-01
Feb-02
Jul-02
Dec-02
May-03
Oct-03
Mar-04
p

Aug-04
Jan-05
The monetaryy multiplier

Jun-05

Macroeconomics – Money
Nov-05
Apr-06
((US))

Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
31
 10
10,5
11
11,5
12
12,5
13
Jan-00
Jun-00
Nov-00
Apr-01
Sep-01
Feb-02
Jul-02
Dec-02
May-03
y p

Oct-03
Mar-04
The currency-deposit

Aug-04
Jan-05
Jun-05

Macroeconomics – Money
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
ratio ((US)) – %

May-08
Oct-08
Mar-09
Aug-09
32
 0
2
4
6
8
10
12
Jan-00 14
Jun-00
Nov-00
Apr-01
Sep-01
Feb-02
Jul-02
Dec-02
p

May-03
Oct-03
The reserve-deposit

Mar-04
Aug-04
Jan-05
Jun-05

Macroeconomics – Money
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
ratio ((US)) – %

Dec-07
May-08
Oct-08
Mar-09
Aug-09
33
 Reserves ((US)) – millions of $ 34
1000000

900000

800000

700000

600000

500000
REQUIRED RESERVES
400000

300000 TOTAL RESERVES

200000

100000

0
Oct-01

Oct-08
Jan-00
Aug-00

May-02

Sep-04
Apr-05
Dec-02
Jul-03

Nov-05
Jun-06
Jan-07
Aug-07

May-09
Mar-01

Feb-04

Mar-08
Macroeconomics – Money