Working Paper: NBER ID: w12168
Authors: Martin Feldstein
Abstract: This paper is an analytic comment on two chapters of the Economic Report of the President for 2006. Chapter One deals with the economy in 2005 and the outlook for the future. The chapter provides a detailed analysis of the expansion in 2005 but not an explanation of why the expansion occurred despite the sharp rise in oil prices. I discuss the role of easy money in stimulating mortgage borrowing which generated negative savings in 2005. Looking ahead, I comment on the risk to inflation implied by the rising unit labor costs over the past four years. Chapter six deals with the international position of the United States. It provides a useful analysis of capital flows to the United States and the reasons why other countries have current account surpluses. It does not deal with the role of the dollar or the nature of the adjustment that might occur to reduce the US current account deficit. I present some comments on those issues.
Keywords: No keywords provided
JEL Codes: E0; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low federal funds rate (E43) | increased mortgage refinancing (G21) |
| increased mortgage refinancing (G21) | increased consumer spending (D12) |
| low federal funds rate (E43) | increased consumer spending (D12) |
| rising unit labor costs (J39) | upward pressure on product prices (L11) |
| changes in global capital flow dynamics (F32) | reliance on U.S. dollar bonds (F34) |