Woogo economy, what the New Year looks like

Mondo Entertainment Updated on 2024-01-31

Wu Ge is the Chief Economist of Changjiang and a member of the Board of Directors of the China Chief Economist Forum

Key takeaways:

1.A little anticipation, a little strange. Looking at the past, the macroeconomy certainly has its own cyclical laws, and changes tend to be more linear and direct. However, sometimes there are some non-periodic characteristics, and the trajectory is not necessarily traditional and linear. The two intertwine with each other, and finally form a kind of equilibrium that is higher or lower, thus outlining the reality of the New Year's economy.

2.A higher economic growth target in the coming year often indicates stronger counter-cyclical control. However, in recent years, macro policies seem to be more focused on annual targets, and the meaning of quarterly interval regulation has been relatively diluted, so that the characteristics of economic volatility are more obvious, or also reflect the difference between the perception of economic data at the macro and micro levels.

3.Different from the previous year-end and New Year holidays, there are more nonlinear factors in economic operation. In particular, with the significant change in housing price expectations, the value of land and real estate as collateral will be adjusted, which may have a significant impact on the credit expansion of the entire economy. From the perspective of national experience, decisively curbing the spread of real estate risks to financial and other fields is related to economic operation and even systemic stability.

4.Looking ahead to the new year, the gap between the actual economy at the beginning of the year and the expected annual target may stimulate countercyclical policy efforts. However, based on existing observations, the force may not be rapid and strong. The interaction between the economy and policy may still be iterative and tangled. Of course, whether the funds at both ends of supply and demand can substantially intervene in real estate is of great significance to the improvement of the risk appetite of micro entities.

Body:

Of course, the macroeconomy has its own cyclical laws, and changes tend to be relatively linear and direct. However, sometimes there are some non-periodic characteristics, and the trajectory is not necessarily traditional and linear. The two intertwine with each other, and finally form a kind of equilibrium that is higher or lower, thus outlining the reality of the New Year's economy.

1. Will the economy pick up linearly?

A higher economic growth target in the coming year often indicates stronger counter-cyclical control. However, in recent years, macro policies seem to be more focused on annual targets, and the meaning of quarterly interval regulation has been relatively diluted, so that the characteristics of economic volatility are more obvious, or also reflect the difference between the perception of economic data at the macro and micro levels.

Figure 1Interval control, or annual control?

**: wind, the author calculates

Note: The economy is the average of manufacturing and non-manufacturing PMI month-on-month;The historical period is from 2012 to 2019.

From the perspective of international experience, when the economy encounters a downturn, most countries have started counter-cyclical policy responses. However, whether it can completely get rid of the downturn depends on whether the strength of policy support can be greater than the "gravity" of the economic downturn. Observed at the monetary level, it means that the real interest rate can effectively be lower than the return on investment of micro agents, or lower than the equilibrium interest rate implied by the "Taylor rule".

Figure 2How to get out of the slump?

**: Bis, Ceic, Krippner (2013), as measured by the author

Note: The policy rate is a shadow rate at zero interest rate;The equilibrium interest rate is fitted by the Taylor rule determined by the output gap and **.

2. How to overcome nonlinear perturbations?

Different from the previous year-end and New Year holidays, there are more nonlinear factors in economic operation. In particular, with the significant change in housing price expectations, the value of land and real estate as collateral will be adjusted, which may have a significant impact on the credit expansion of the entire economy. In the 90s of the last century, Japan's real estate accounted for nearly three-quarters of residents' assets, and its rapid adjustment led to a negative cycle of "financial accelerator".

Figure 3The decline in the value of real estate collateral has hampered overall credit expansion

**: wind, the author calculates

From the perspective of national experience, curbing the spread of real estate risks is related to the systemic stability of the economy. After the real estate adjustment began, the Japanese decision-makers hoped to "exchange time for space" and wait for the housing prices and the economy to clear spontaneously. At the same time, they are concerned about moral hazard and are cautious about using public funds to bail out. Affected by this, Japanese non-bank institutions were first damaged, and then spread to banks and the real economy as a whole.

Figure 4Why is it so important to curb the transmission of real estate risks?

**: wind, Bank of Japan, Nikkei, author's estimate

III. Basic Conclusions

One isA higher economic growth target in the coming year often indicates stronger counter-cyclical control. However, in recent years, macro policies seem to be more focused on annual targets, and the meaning of quarterly interval regulation has been relatively diluted, so that the characteristics of economic volatility are more obvious, or also reflect the difference between the perception of economic data at the macro and micro levels.

The second isDifferent from the previous year-end and New Year holidays, there are more nonlinear factors in economic operation. In particular, with the significant change in housing price expectations, the value of land and real estate as collateral will be adjusted, which may have a significant impact on the credit expansion of the entire economy. From the perspective of national experience, decisively curbing the spread of real estate risks to financial and other fields is related to economic operation and even systemic stability.

The third isLooking ahead to the new year, the gap between the actual economy at the beginning of the year and the expected annual target may stimulate countercyclical policy efforts. However, based on existing observations, the force may not be rapid and strong. The interaction between the economy and policy may still be iterative and tangled. Of course, whether the funds at both ends of supply and demand can substantially intervene in real estate is of great significance to the improvement of the risk appetite of micro entities.

[Author].

Wu Ge: Ph.D., Chief Economist of Yangtze River. He has worked for a long time in the monetary policy department of central banks and as an economist at the International Monetary Organization. He is the winner of the Sun Yefang Economic Science Award, the Pushan Policy Research Award, the Liu Shibai Economics Award, and the economic champion of the "Vision Cup". He is the author of the "Four Steps" of Monetary Economy.

Gao Tong, Yu Tao, Cao Haiwei: Changjiang ** researcher.

Xie Yingshi: Intern Researcher.

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