Thursday , September 19 2019
Home / Tag Archives: Macroeconomics

Tag Archives: Macroeconomics

CPI Bias and Happiness

Our nominal income rises every year.  But what about our real income – our “standard of living”?  In order to answer that question, we have to accurately measure inflation.  If we understate inflation, we’re getting richer at a slower pace than we think.  If we overstate inflation, we’re getting richer at a faster pace than we think. Most economists, sadly, just forget about the issue and pretend that standard measures of inflation are solid.  Most specialists,...

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The unsung success of Japan’s recent fiscal policy

The media tends to dwell on bad news. Even when something is a smashing success, say Germany’s 2004 labor market reforms, the reporting is relentlessly downbeat. The same is true of Japan’s recent fiscal policy, which has finally brought the national debt under control.  The debt to GDP ratio has leveled off at roughly 240% of GDP since the 2014 tax increase: Better yet, this fiscal austerity was associated with an extremely strong labor market, not at all the...

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Is Fed policy “premised importantly” on market monetarism being true?

Market monetarists favor a policy regime where the instrument setting creates a policy stance that the financial markets believe will achieve the Fed’s policy goal. Thus, if the Fed’s goal is 2% inflation, then the monetary base (or the fed funds target) should be set at a level that the market believes will result in 2% inflation. Here’s Yahoo.com: Is the Federal Reserve beholden to short-term volatility in the financial markets? A handful of Fed-watchers argue that...

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Does price stickiness explain “lowflation”?

Here’s The Economist: A forthcoming paper by Diego Aparicio and Roberto Rigobon of the Massachusetts Institute of Technology helps make the point. Firms that sell thousands of different items do not offer them at thousands of different prices, but rather slot them into a dozen or two price points. Visit the website for h&m, a fashion retailer, and you will find a staggering array of items for £9.99: hats, scarves, jewellery, belts, bags, herringbone braces, satin...

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Using monetary policy as a political weapon

Former New York Fed President William Dudley has received a great deal of well-deserved criticism for these remarks: “I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable,” Dudley wrote, referring to Fed Chair Jerome Powell. “Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a...

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There’s no reason to go heterodox

Commenter Michael Sandifer had this to say: Seeing so many developed economies at negative nominal rates, with others trending there, as the global economy slows down, with those economies never having enjoyed even the nominal growth rates of the past, it is tempting to think there’s something very wrong with standard economic theory. And, perhaps there is. By standard economic theory, I mean Mishkin’s pre-Great Recession treatment of the subject. I bought an old copy...

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How soon we forget

The NYT has a piece discussing the Fed’s gradual reduction in bank capital requirements: Some of the changes, seemingly incremental and technical on their own, could add up to a weakening of capital requirements installed in the wake of the crisis to prevent the largest banks from suffering the kind of destabilizing losses that imperiled the United States economy. Another imminent change will soften a rule intended to prevent banks from making risky bets with customer...

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How has Keynes’s liquidity trap theory held up over time?

It’s worth revisiting this issue in a world with $17 trillion in negative yield bonds. Keynes was a complex thinker, who looked at issues from many different perspectives.  Unfortunately, that means his views were not always internally consistent. Thus it’s foolish to try to pin him down, as if sticking a pin in a butterfly. You’ll always find other passages that contradict your interpretation. Consider the following, from the General Theory: There is the...

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Easy credit and tight money

The title of this post is the shortest description I could come up with for the global economy circa 2019. Because these two concepts get confused, a short explanation is in order. The best way to judge the stance of monetary policy is by looking at the growth rate in “M*V” aka nominal GDP. By that criterion, money has been tighter than average in America, and even more so in Europe and Japan. That helps to explain low nominal interest rates, but it’s not the whole...

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Blind faith in government

I recently participated in Alternative Money University at the Cato Institute. It was nice to see so many young students who are interested in exploring monetary ideas beyond New Keynesian DSGE models. Presentations by Larry White and George Selgin had the effect of slightly changing my views of the gold standard. On balance, I’m still opposed to going back to the gold standard, but the reasons have more to do with likely government interference in the regime, rather...

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