Saturday , January 29 2022
Home / Tag Archives: Macroeconomics

Tag Archives: Macroeconomics

Was MMT influential?

I often see people claim that Modern Monetary Theory is increasingly influential.  I see no evidence for that claim. One problem is that people use the term MMT is two very different ways.  In some cases, MMT refers to a theory of how the monetary system works. It’s a model. In another context, MMT refers to a bundle of policies such as combined fiscal/monetary stimulus, the belief that Congress (not the Fed) should control inflation, job guarantees, a “Green New...

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The actual case for wage/price controls

I am opposed to the imposition of wage/price controls. As we saw in the early 1970s, they are a terrible idea. Nonetheless, there is an argument for wage/price controls. But it’s not the argument that most of its supporters or opponents might assume.Wage/price controls cannot stop inflation, which is caused by monetary policy. What wage/price controls might be able to do is prevent high unemployment. The real purpose of wage/price controls is to boost employment, not...

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Who is hurt most by inflation?

Tyler Cowen has a new Bloomberg column that starts off as follows: With inflation now rising faster than at any time in the last four decades, economists are debating which group suffers more from inflation, the poor or the rich. This kind of economy-wide question is not easy to answer, especially when rates of inflation have been so low in recent times and hard data are scarce. Nor is it obvious how exactly to compare the losses to the poor to the losses to...

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Yglesias on monetary policy

Matt Yglesias has a new post that explains his views on monetary policy. Overall, Yglesias’s views are to the left of mine.  For instance, he favors the aggressive use of fiscal policy, whereas I am skeptical. But on monetary policy our views align in quite a few areas. Readers of my two blogs are familiar with arguments similar to the following:1. No “wait and see”: Now there are lags here, but they are lags in the sense that financial investments (the price...

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Yes, monetary policy did cause the Great Depression

During the 1930s, almost no one believed that the Fed caused the Great Depression. After a pathbreaking study of Milton Friedman and Anna Schwartz, published in 1963, the economics profession gradually changed its view. By 2002, even a top Fed official like Ben Bernanke conceded to Friedman: Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great...

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Nominal GDP >>> Aggregate Demand

In the past, I’ve called for replacing the aggregate demand curve with a curve representing a given level of nominal spending. Under this approach, a positive nominal spending shock occurs when NGDP growth is above target, and vice versa. It seems to me that the Covid economy provides a perfect example of why “aggregate demand” is not a useful way to think about the forces shaping the macroeconomy.  Over the past two years, prices have risen by more than normal while...

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Japan’s “curious” lack of inflation

Commenter Cove77 directed me to an article in The Economist, discussing the “curious” lack of inflation in Japan: Entrenched expectations built up through decades of little to no inflation play a big role in explaining why rising producer costs have not fed through to consumer prices. Domestic companies are notoriously unwilling to pass on increases in the prices of imports to consumers. At a press conference in October Kuroda Haruhiko, the governor of the Bank...

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What is a “low interest rate policy”?

Turkey’s President Erdogan is probably the world’s most famous proponent of NeoFisherism, the view that low interest rate policies are disinflationary and high interest rates policies are inflationary. Academic NeoFisherians, however, would presumably be horrified by the approach he has taken to implement this idea.  This FT article is from a month ago: Turkey’s central bank has defied warnings from the business world and opposition parties by slashing its main...

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2021 >>>>>>>> 2009

I’d like to first demonstrate how we know that the economy did much better in 2021 than in 2009, and then explain why the outcome was better this time around.In 2009, the main problem was unemployment. Today, the main problem is inflation. So “who’s to say” which economy was better?To answer this question, we need to also look at real GDP. Inflation doesn’t directly reduce living standards, as when one person pays more for a good it just means that another person...

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There is no magic wand

A recent essay by Yanis Varoufakis illustrates a frequent problem with media discussion of central bank policies: Central bankers once had a single policy lever: interest rates. Actually, the policy lever was open market operations; interest rates were one of the variables affected by those operations.  A tight money policy might raise interest rates if the liquidity effect dominated or it might reduce interest rates if the Fisher effect dominated.  Changing interest...

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