The negative AD shift comes from the Fed’s extreme tightening plus the phasing out of fiscal stimulus. That might hurt housing markets the most, plus whatever consumers were wanting to spend their extra cash on (travel, restaurants?). It should hurt a lot of service sectors with sticky nominal prices quite a bit. And, we are told, that is quite a few sectors.
The positive supply shock comes from supply chains untangling, post Russian invasion, plus mopping up the residue from Covid restrictions. It shouldn’t help most service sectors very much, but a lot of manufactured goods, and resource-intensive goods, and agricultural foodstuffs should boom from this. Imports too, especially if they come by ship rather than by plane. Note that foreign trade is not a huge share of the American economy, though, and America is the world’s leading oil exporter. Falling energy prices may not help us much if at all, not in the aggregate.
You might think these dual shifts can, on net, work out for the better. Maybe. But part of the mix should be a fairly extreme volatility across sectors. You have a lot of service sectors that get hit hard from the negative AD shock and which don’t benefit so much from the supply chain untangling.
Is that what we see in the data? It seems most service sectors have done fine, and we’ve had a high degree of comovement, though I would note continuing issues in real estate markets and also in banking.
These days the Keynesians think you can get so much general positive comovement from the supply shocks resolving themselves — hilarious! For decades they have been criticizing the real business cycle theorists along those lines, and that was without a simultaneous major disinflation staring us in the teeth.
No one should be patting themselves on the back for having figured all this out.
The post What if you have a favorable AS shift and a negative AD shift? appeared first on Marginal REVOLUTION.
Comments
Post a Comment