Robert M. La Follette School of Public Affairs
Sunday, June 1, 2014

Chinn maps macroeconomic forces

Menzie Chinn Menzie Chinn

From the implications of an increased minimum wage to current account balances across the globe to the fiscal policies of the United States and the United Kingdom, economist Menzie Chinn keeps an eye on all trends macro.

At the moment, Chinn is assessing how emerging market central banks face problems specific to their economies. "Their problems are distinct from those facing advanced country central banks," Chinn says. "Understanding these challenges might help formulate better policy regimes for monetary policymakers."

Chinn also is examining spillover effects from monetary policy on emerging market economies, the evolution of macroeconomic links between countries in East Asia against the backdrop of increasingly tight supply chain linkages in the region, and the increasing use of the Chinese currency in international trade transactions.

Chinn makes many of his immediate observations in his Econbrowser weblog that he has been writing since 2005 with economist James D. Hamilton of the University of California, San Diego. In 2009, the Wall Street Journal rated Econbrowser ninth out of the top 25 economics blogs.

"Econbrowser is devoted to issues related to macroeconomic policymaking in the United States (both fiscal and monetary), as well as discussion of financial regulation, minimum wage legislation, and energy use," Chinn says. "Some analysis is also related to macroeconomic developments in Wisconsin."

Journalists around the world keep an eye on Chinn's analysis, and he has been quoted by the Economist, Financial Times, Reuters, Wall Street Journal, Business Week, Bloomberg, CNBC, National Public Radio, and Minnesota, Wisconsin and Boston Public Radio.

Policymakers frequently tap Chinn for advice and analysis. Over the past 20 years he has repeatedly been a visiting scholar and consultant at the International Monetary Fund. "I have advised the IMF on a variety of topics and contributed to two chapters in the World Economic Outlook (the IMF's flagship publication) on responding to capital inflows, and measuring financial stress," Chinn says. "Most of my advice pertains to econometric analysis."

Chinn was a member of the Congressional Budget Office's Academic Advisory Board in 2011-12. He also was a visiting scholar in the CBO's Macroeconomic Analysis Division in 2005, advising on international macroeconomic issues.

As a consultant for the Banque de France in 2012-14, Chinn conducted research on foreign exchange reserve accumulation during and after the global financial crisis and on the link between employment and gross domestic product.

Chinn appreciates tackling any macroeconomic trend, trying to figure out why financial crises occur and the potential ramifications of a government's fiscal and monetary policy.
In the spring 2014 La Follette Policy Report, he expanded on an observation in Econbrowser that the path the United States took to increase government spending to stimulate the economy in 2009 was the correct choice. In contrast, the United Kingdom moved in 2010 as the Great Recession was easing up to reduce the government's spending and size. "The Obama administration maintained elevated spending through 2011 to stimulate overall demand," Chinn says, "and we saw a slow, steady increase in per-capital income. In the United King, per-capita income lagged and the country fell into another recession."

With Jeffry Frieden of Harvard University, Chinn suggested in 2012 that inflation may be the best way to ease the debt crisis and help the global economy recover.

He and Frieden also explained how the Great Recession occurred in the first place in their 2011 book, Lost Decades: The Making of America's Debt Crisis and the Long Recovery. As the economy worsened in 2008, the two economists exchanged emails to make sense why the financial boom around mortgage-backed securities had fizzled.

They found that the crisis had its roots in a toxic mix of easy access to foreign savings, the rise of a no-regulation ideology applied to the financial system and the belief that government can run big budget deficits to finance tax cuts for the rich and wars abroad, even during good economic times.

In his research and his teaching, Chinn always incorporates policy implications to get his students and policymakers to think about how to address and financial prevent crises. "Getting policymakers to anticipate and then prevent problems such as those we observed late in 2007 is difficult," Chinn says. "Politicians have a hard time believing government might need to intervene to prevent a crisis when all seems well on the surface. That's a hard thing to push for when all you can say is, 'I think we'll have trouble if we don't cool it down now."