Kalshi cofounder Tarek Mansour recently shared this graph:
In hindsight it seems like an obvious graph to make, and a good way to teach Aggregate Supply / Aggregate Demand models, but I don’t actually recall seeing much like this. One obvious improvement is to include more countries. I do so below using data from Trading Economics, showing all 182 countries that have recent data on both annual GDP growth and inflation. I also flip the axes to be more consistent with the convention in economics:
This makes clear both the costs and benefits of including all countries. We see just how extreme some outliers are: hyperinflation in Venezuela, Sudan, Lebanon, and Syria; a severe contraction in Libya; and huge growth in Azerbaijan and the Maldives (errors in the data?). But all the more typical countries blend together. So here I zoom in on the more typical countries:
This makes clear the strong aversion to deflation that most countries have. Well over a hundred countries here, many with very low inflation, but only in South Sudan does inflation actually go negative. Real GDP growth does not exhibit the same sharp divide at zero, presumably because its much harder to central banks to fine-tune. Now I try to zoom and enhance one more time:
But things are starting to just get messy, so its time to drop more countries. Here I focus on the 30 largest economies (minus Turkey, which breaks the scale on inflation):
Here we see:
- Japan is demonstrating stagnation/ low aggregate demand / “running cold”
- Brazil, Stagflation (negative supply shocks?)
- Poland, high aggregate demand / running hot
- Saudi Arabia and Israel, high growth without high inflation (positive supply shocks?)
The US is on the higher end of inflation, and I still think we should be doing more about this, but in this graph we don’t look like a huge outlier. We’re all still working through Covid-related shocks. But the very latest quarterly data today (not reflected in these graphs) showed negative GDP growth in the US, sending us toward the “Stagflation” quadrant and making the Fed’s job much harder.
Thank you, in all sincerity, for using conventional axes.
I appreciate what you were doing, but there are caveats for the final images. A high growth rate for Israel is par for the course. The data that you use is only covering the difference between two years.
So, based on this graph alone, we don’t know which countries are growing fast relative to their historical rates. Like, maybe this is the highest inflation that Japan has experienced in recent history and the graph is indicative of AD stimulus.
Or, is the purpose to compare the speed of recoveries from 2020Q4 to 2021Q4? In which case, the graphs are difficult to interpret without knowing the magnitude of the recessions.
(I wrote tomorrow’s post several days ago, and it happens to dovetail nicely)
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