Thursday , April 2 2020
Home / Tag Archives: Macroeconomics

Tag Archives: Macroeconomics

The True CPI Just Jumped

I recently voiced fear of coming inflation.  Yet on reflection, high inflation is already here.  While measured inflation remains low, I’ve been arguing for years that CPI bias heavily distorts official measures.  My point has always been that official measures of inflation are too high, because official measures fail to properly account for rising quality and variety of goods.  In the last month, however, all this has suddenly reversed.  Due to the coronavirus,...

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Some misconceptions about wage stickiness

When macroeconomists talk about wage stickiness, they are generally referring to nominal stickiness. Because nominal wages are slow to adjust, a sudden and unexpected change in NGDP will usually impact employment, often in a sub-optimal fashion. It’s possible to construct a variable called “real wages”, but I don’t view that as a useful concept. This is partly because (like Keynes) I don’t view inflation as being a particular useful concept, except perhaps when trying...

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Hope springs eternal

[Before beginning, let me emphasize that this post is not discussing the use of government policy to provide income assistance for the unemployed. My focus is on the use of fiscal policy to boost aggregate demand.] During the current epidemic, we are seeing an avalanche of articles advocating the use of fiscal stimulus. At times the media/twitter/blogosphere gives the impression that only a fool would fail to see the rationale for giving every American $1000. In fact,...

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Scott Alexander on Herbert Hoover

Before reading Scott Alexander’s delightful recent post on Herbert Hoover, I knew a bit about his achievements prior to the presidency, but I learned much more. Read the whole thing; Hoover was an amazing man. I have strong views on Hoover, which is not surprising given that I spent over a decade researching the Great Depression. Hoover was not the most talented person to ever become President, but he was probably the most competent. Unfortunately, his areas of...

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I Fear Stagflation and Price Controls Are Coming

I’ve never seen much merit in Real Business Cycle theory.  I’ve long accepted the standard Keynesian view that high unemployment is a grave evil – not an optimal response to adverse conditions – and that recessions are almost entirely caused by declines in Aggregate Demand.  The Great Depression was not a Great Vacation; it was a disaster caused by the fatal combination of nominal wage rigidity and falling Aggregate Demand.  Yes, Aggregate Supply matters too; indeed,...

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The “d” word

I don’t know exactly why the stock market has been plunging, but this report provides some context: Boston Mayor Marty Walsh announces libraries closing, construction projects halting Think about the implication of that report, and the fact that it was treated as an afterthought in the Boston Globe newspaper.  In recent days we’ve seen many seemingly extreme announcements being made in one city, and then quickly spread to many others.  If construction were to shut...

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The Fed didn’t use even 10% of its “ammunition” today

Given today’s Fed policy news, I thought I’d do a follow-up on my morning post. Here’s David Wessel: This is exactly backwards.  The Fed could easily do 10 times as much QE as they announced today, perhaps much more.  And as far as cutting rates to zero, a move to level targeting of prices would be 10 times more powerful.  The Fed has barely scratched the surface of what it can do. In contrast, Congress and President Trump have used up much of their fiscal ammunition...

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Does anyone actually care about monetary and fiscal “ammunition”?

[This post was written a month ago, before it became apparent that a recession is likely in the near future.  This doesn’t change my analysis.] There’s a lot of discussion about what would happen if there were another recession. The media is fully of stories speculating on what fiscal and monetary policymakers might do to prop up the economy. But something important is missing from this discussion. A good place to start is with the concept of “ammunition”. The media...

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Only the Fed can do major “fiscal policy”

Some people argue that monetary policy is actually fiscal policy, as monetary actions have implications for the federal budget. Printing money creates seignorage, and buying assets (even Treasury bonds) exposes the central bank to the risk of a decline in asset prices. That reminds me of when people tell me “everything’s political”. Well, thanks for clearing that up; now I know that saying something is political conveys precisely zero information. If monetary policy...

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