Evening Must-Read: Martin Wolf: Trapped in a Cycle of Credit Booms
Noted for Your Afternoon Procrastination for October 9, 2014

Over at Equitable Growth: A Note on Pre-2008 Unemployment-Rate Mean-Reversion: Wednesday Focus for October 8, 2014

Over at Equitable Growth: Back before 2008, we neoclassical new Keynesian-new monetarist types were highly confident that the U.S. macroeconomy as then constituted had very powerful stabilizing forces built into it: if the unemployment rate rose above the so-called natural rate of unemployment, the NAIRU, it would within a very few years return to normal. READ MOAR

This is why we were confident:

1948-2014: Share of Deviation of Unemployment from Trend Erased After...

...1 Yr    ...2 Yrs    ...3 Yrs    With NAIRU trend...

33.7%      67.4%       88.3%       Cubic
32.4%      63.6%       84.1%       Quadratic
31.8%      61.5%       80.5%       Linear
27.8%      52.5%       69.2%       No Trend

Standard errors? Bootstrapping the three-year forecast cubic-trend model with 10,000 replications produced a mean estimated coefficient of 84.3% with a standard error of the estimate of 17.4%-points--half again as large as the OLS estimated standard error.

Dropbox 2010906 R Markdown and R Pres 2014 09 29 Unemployment Rate Mean Reversion Simple Bootstrap html

We were wrong.

If you have R, and wish to play with the Rmarkdown files, take a look: