Not exact matches
After accounting
for the impacts of measures and adjustments, the Sales Tax revenue base is projected to grow at an average annual
rate of 4.3 per cent over the forecast period, roughly consistent with the average annual
growth in
nominal consumption of 4.0 per cent over this period.
Because
nominal wage
growth for a large fraction of workers has been held to zero, a somewhat higher
rate of inflation would grease the wheels of the labor market by allowing real wages to fall (Akerlof, Dickens, and Perry 1996).
In this case the «cost» of financial repression to households was the gap between
nominal GDP
growth and
nominal lending
rates, plus an additional 1 - 1.5 % to account
for the larger than normal gap between the lending
rate and the deposit
rate.
At longer horizons, the 6.3 %
growth rate that we've assumed
for nominal GDP over the coming years will begin to bail investors out given enough time, and as a result, our projection
for 10 - year S&P 500
nominal total returns peeks its head up above zero, at about 2.4 % annually from current levels.
First, it is now much harder
for borrowers to justify investment in non-productive projects because they can no longer count on the huge gap between
nominal GDP
growth and the lending
rate to bail them out of bad investments.
For many years
nominal GDP
growth in China was 18 - 21 % and the official lending
rate was around 7 %.
While there are some signs of recognition such as the Fed's reduction in its estimated neutral
rate from 4.5 percent to 3.0 percent during the last 2 years, the IMF's explicit use of the term secular stagnation in its World Economic Outlook, ECB president Mario Draghi's call
for global coordination and greater use of fiscal policy, and Japan's indicated interest in fiscal - monetary cooperation, policymakers still have not made sufficiently radical adjustments in their world view to reflect this new reality of a world where generating adequate
nominal GDP
growth is likely to be the primary macroeconomic policy challenge
for the next decade.
This could include setting targets
for nominal GDP
growth rather than inflation, investing in a wider range of risk assets, making plans to allow base
rates to turn negative, and underscoring the importance of avoiding a new recession.
The private sector economists are surveyed
for only a selective number of aggregate economic and financial indicators: real gross domestic product (GDP)
growth; GDP inflation,
nominal GDP;, the 3 - month treasury bill
rate;, the 10 - year government bond
rate;, the unemployment
rate; the, consumer price index; the exchange
rate (US cents / Cdn $); and finally, and U.S. real GDP
growth.
That alternative, which Market Monetarists like David Beckworth, Lars Christensen, and Scott Sumner have been pushing ever since the Great Recession started, is
for the FOMC to keep its collective eye, not on the inflation
rate, but on the level and
growth rate of
nominal GNP — a measure of the flow of spending on goods and services in the economy.
As Bank of Japan governor Haruhiko Kuroda put it: «With the level of
nominal interest
rates being high, Japan's economy will have more policy room to mitigate the impact of future economic downturns, or will be equipped with a sort of insurance
for sustained economic
growth.»
I should note that in each of these models, we're assuming a long - term
growth rate for cyclically - adjusted earnings, revenues, dividends,
nominal GDP and so forth of about 6.3 % annually.
The data is unambiguous on current economic conditions - GDP
growth in the last quarter of 2015 was a meager 2.11 % with full year
growth of 2.79 % according to the National Bureau of Statistics (NBS); inflation rose sharply to 11.4 % in February with prospects of reaching 12 % by March; capital markets have remained bearish; according to UNCTAD Nigeria's FDI fell by 27.7 % to $ 3.4 billion in 2015, and on current trends may fall even more precipitously in 2016; the de facto exchange
rate of the Naira
for most producers and consumers is now N322 / $ even though CBN maintains a
nominal N197 / $
for privileged persons; several economic sectors - construction, government, manufacturing, oil and gas and hotels and restaurants are in recession or barely out of it; government's official foreign reserves is down to $ 27.8 bn; and unemployment and under - employment
rates have worsened 10.4 % and 18.7 % by the end of 2015.
I teamed it up with DVY assuming a current yield of 3.97 % and a dividend
growth rate of 5.5 %
nominal, the same as
for the S&P 500 index.
For small values of inflation, simply subtracting the inflation rate from the nominal return gives a reasonably accurate approximation of the real return, but for larger values, the exact formula should be used.4 For our example the formula is 2.11 / 1.26 - 1 = 1.67 — 1 = 0.67 = 67 % (2.11 is the nominal, investment growth factor calculated as $ 21,090 / $ 10,000, and 1.26 is the inflation factor derived in the previous paragrap
For small values of inflation, simply subtracting the inflation
rate from the
nominal return gives a reasonably accurate approximation of the real return, but
for larger values, the exact formula should be used.4 For our example the formula is 2.11 / 1.26 - 1 = 1.67 — 1 = 0.67 = 67 % (2.11 is the nominal, investment growth factor calculated as $ 21,090 / $ 10,000, and 1.26 is the inflation factor derived in the previous paragrap
for larger values, the exact formula should be used.4
For our example the formula is 2.11 / 1.26 - 1 = 1.67 — 1 = 0.67 = 67 % (2.11 is the nominal, investment growth factor calculated as $ 21,090 / $ 10,000, and 1.26 is the inflation factor derived in the previous paragrap
For our example the formula is 2.11 / 1.26 - 1 = 1.67 — 1 = 0.67 = 67 % (2.11 is the
nominal, investment
growth factor calculated as $ 21,090 / $ 10,000, and 1.26 is the inflation factor derived in the previous paragraph).
The formula
for the real income of an investment at year N is: Inflation adjusted dividend income = (initial dividend amount) * -LCB-[1 + (
nominal dividend
growth rate)-RSB- ^ N -RCB- / -LCB-[1 + (inflation
rate)-RSB- ^ N -RCB- Typically, you would use a
nominal dividend
growth rate of 5.5 % per year in the absence of other information and 3 % per year inflation.
I used a DVY dividend
growth rate of 5.5 %
nominal, same as
for the S&P 500, and 0 %
for PFF.
It currently has a dividend yield just under 2 % and,
for the last half century, it has had an amazingly steady 5 %
nominal dividend
growth rate.
For planning purposes, assume that the sum of the initial dividend yield and the annual
NOMINAL dividend
growth rate equals a constant.
This has gotten too long, but one thing that I will try over the next few days is estimate
Nominal GDP
growth rates for nations in the «ring of fire,» and their Government's financing
rates.