Boston UniversityUndergraduate

Economics Association

2nd MAG Meeting

Today

� Macroeconomics: Brief Overview

� Sample Economic Indicator

� Preliminary Research

� Analysis

� Suggested Research Resources

What is Macroeconomics

� Origins of the field.

� Micro vs. Macro.

� Key economists to think about (theoretical background)

� Key ideas and questions considered in the field.

� Definitions.

Definitions

� AEA (American Economics Association)

� The actions of individuals sum to the total activity in a whole economy. In the aggregate, the total amount of products consumed by households and firms must equal the total amount produced. The total amount firms pay to workers and investors must equal the amount households receive in income.  Study of the aggregate relationships in an economy is called macroeconomics.  Economic Growth the role of money and interest rates, and changes in the overall level of prices and the aggregate level of unemployment are central concerns of macroeconomics.

� New York Fed

� The study of the overall economy and the determinants of national production, income, and inflation. Also, the role of the Federal Reserve System, money, interest rates, and monetary policy.

Sample Economic Indicator

� PMI (Purchasing Managers Index)

� Who collects and releases the indicator/statistic?

� How frequently, and when is the indicator released?

� How is the indicator reported, calculated?

� What data is collected, and how?

� What is the common interpretation of the indicator?

� Weaknesses vs. Strengths

� Your Analysis.

Who collects and releases the indicator/statistic?

� In the US PMI is released by the ISM (Institute for supply management)

� “Markit Group” releases PMIs for the EuroZone, BRICS, other countries, and US as well.

How frequently, and when is the indicator released?

� 1st Business day of every month.

� Its reported monthly which is pretty frequent.

� The PMI of the previous month is reported. PMI released in October is the PMI for September.

How is the indicator reported, calculated?

� Composite index calculated as follows:

• Production level (.25)

• New orders (from customers) (.30)

• Supplier deliveries - (are they coming faster or slower?) (.15)

• Inventories (.10)

• Employment level (.20)

What data is collected, and how?

� Surveys from more that 400 purchasing managers in a country. (Maybe the # of surveys depends on the size of the manufacturing sector)

� Manages have 3 options as an answer: Better, same, worse.

What is the common interpretation of the indicator?

� PMI above 50 indicates the expansion of the manufacturing sector.

� What is thus an impact on the unemployment, production, and overall economic activity?

� How do investors react to the PMI?

Weaknesses vs. Strengths

Your Analysis

� Does the size of the manufacturing sector as a share of GDP matter?

� Is PMI a more relevant figure for China or Israel?

� Developed countries or developing countries?

Analysis Demo1) Chose a diverse group of countries or regions

� China

� Russia

� Spain

� Eurozone

2) Look at Manufacturing value added as a % of GDP for these regions. (M/GDP)

3) Compare the movements in Manufacturing PMI to the movements of QoQ GDP growth rates.

4) Just by looking at the graphs what can you suggest is the relationship between the indicator, economic growth, and does (M/GDP) matter?

5) Does there seem to be a strong correlation? Is there a lag in the movement.

6) Preform a similar analysis for Unemployment. Consider what % of the labor force is in the manufacturing sector.

7) If you are able to compile actual data, and you checked that the data comes from reliable sources, and is on the subject of interest, you may want to do some statistical analysis.

M/GDP

Source: data.worldbank.org

PMI vs GDP

Source: tradingeconomics.com

PMI vs GDP

Source: tradingeconomics.com

� Primary Resources� Primary survey producer� St Louis Fed - Federal Reserve Economics Data

(FRED)� ieonomics - http://www.tradingeconomics.com/

� Secondary Resources� http://www.investopedia.

com/university/releases/napm.asp

� http://www.bloomberg.com/

� http://bordeure.files.wordpress.com/2008/11/the-economist-guide-to-economic-indicators-making-sense-of-economics.pdf

� Wikipedia…

Research Resources