Tuesday, November 3, 2009

Global Nominal Spending History

As someone who believes that stabilizing nominal spending rather than inflation is key to macroeconomic stability, I have taken the liberty in the past to reframe U.S. macroeconomic history according to this perspective. Thus, I renamed (1) the "Great Inflation" that started in the mid-1960s and ended in the early-1980s as the "Great Nominal Spending Spree" and (2) the "Great Moderation" of 25 years or so preceding the current crisis the "Great Moderation in Nominal Spending." I also labeled the late-2008, early 2009 period as the "Great Nominal Spending Crash". Below was the figure I used to summarize this reframing of U.S. macroeconomic history (Click on figure to enlarge):

Recently, I learned the OECD has a quarterly nominal GDP measure (PPP-adjusted basis) aggregated across 25 of its member countries going back to 1960:Q1. The countries are as follows: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The combined economies of these counties make up over half the world economy and thus, provide some sense of global nominal spending. So in the spirit of reframing global macroeconomic history according to a nominal spending perspective I created the following figure (click on figure to enlarge):

I suspect the similarities between these two figures speak to the size and influence of the U.S. economy. I think it also speaks to the influence of U.S. monetary policy on global liquidity conditions and, thus, it influence on global nominal spending.


  1. Just to make sure you two are aware of each other, allow me to make an introduction:

    Scott Sumner of Bentley has been writing along very similar lines. I've linked him to your last post, and here is his blog:

  2. Oh, reading further down I see you do. Nevermind.

  3. Nice graphs David. It really shows how big the policy error was this time (the biggest drop in NGDP since 1938) Bill Woolsey has done some graphs with levels rather than rates of change. Since the early 1990s NGDP stayed pretty close to the trend line until last year. I would add that the NGDP spurt in 1983-84 wasn't totally unjustified, as the deep recession of 1982 meant that RGDP could grow fast as we returned to full employment. This meant fast NGDP growth was consistent with 4% inflation. After 1984 they appropriately downshifted to closer to 5% NGDP growth. There is some debate about whether faster than 5% NGDP growth would be appropriate during a similar catch up period right now. I think it would, (as does Woolsey)as long as the Fed carefully spells out an explicit target path for NGDP that would prevent a breakout of high inflation.

  4. I think the graphs are impressive but can´t really understand what is going on because I´m not familiar with the variables in question. Can you please explain what these variables are for those of us who are lagging a few quarters?

  5. Alex:

    I just put up a new post that hopefully sheds some light on the figures.