tag:blogger.com,1999:blog-2546602206734889307.post503069649268049156..comments2024-03-29T12:16:15.785+00:00Comments on mainly macro: Raising the inflation targetMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger43125tag:blogger.com,1999:blog-2546602206734889307.post-50494258085640804652019-08-24T12:46:16.231+00:002019-08-24T12:46:16.231+00:00xvxvSneha Shahhttps://www.blogger.com/profile/06526583406162052280noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-90370993722053306432017-06-24T23:11:07.256+00:002017-06-24T23:11:07.256+00:00"The way it would work is this. When the cent..."The way it would work is this. When the central bank thinks rates will hit the ZLB, it says - publicly and loudly - that it can no longer do its job properly because fiscal policy is too tight."<br /><br />Assuming that lowering interest rates will lead to an increase in aggregate demand?<br /><br />“The funny thing is: they haven’t. In fact, among the more than 10,000 research articles produced by the major central banks in the two decades prior to the 2008 crisis, none explored the correlation or causation between nominal interest rates and nominal GDP growth. Fortunately, this task is not very demanding, and once we conduct such an examination, we conclude that, in actual fact, there is no evidence to back these assertions whatsoever. To the contrary, empirical evidence shows that the central banking narrative on interest rates is diametrically opposed to the observable facts in two dimensions: instead of the proclaimed negative correlation, interest rates and economic growth are positively correlated. Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it.”<br /><br />https://professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy-do-we-need-central-banks/Postkeyhttps://www.blogger.com/profile/11747509012748106827noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-26776777446471389912017-06-24T10:23:16.242+00:002017-06-24T10:23:16.242+00:00Professor, there is very good story to be told tha...Professor, there is very good story to be told that for every borrower there is not a saver. At least not beforehand. <br />https://larspsyll.wordpress.com/2017/06/22/mainstream-monetary-theory-neat-plausible-and-utterly-wrong/Jerry Brownnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73944248706890729782017-06-20T12:59:05.964+00:002017-06-20T12:59:05.964+00:00«When the central bank thinks rates will hit the Z...«<i>When the central bank thinks rates will hit the ZLB, it says - publicly and loudly - that it can no longer do its job properly because fiscal policy is too tight.</i>»<br /><br />But that the government(s) have been squeezing (a bit) fiscal policy in order to "force" the BoE, given an unchanged wage inflation target, to bubble up credit to attempt a "trickle down" "even wealthier effect" and that is not a technical matter like “<i>can no longer do its job properly</i>”.<br /><br />And here we go back to the "austerity" equivocation: if the government policy can be described as "austerity" it could be coinsidered as a policy mistake, and the BoE could point that out loudly and publicly. But the policy the government(s) have chosen is "class war", that is redistribution upward, quite consciously, as G Osborne made abundantly clear, and that is a legitimate policy choice, and the first G Osborne government was re-elected with an increased parliamentary majority. That is “<i>fiscally conservative but monetarily active</i>” is a political strategy even more than an economic policy, the political opposition campaigned against it and lost that argument, so that political strategy was endorsed by the voters.<br /><br />It seems bizarre to me to argue that the BoE should support the political campaign of the opposition against a government who has deliberately chosen upward redistribution as a political strategy and that choice has been endorsed by voters.<br /><br />The BoE is not the fourth estate of the political system after the parties, the City and Murdoch... :-)<br />The BoE is the servant of the City, and the City is very happy with upward redistribution.Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-44057431596252008702017-06-20T09:15:16.782+00:002017-06-20T09:15:16.782+00:00After periods of considerable financial turmoil th...After periods of considerable financial turmoil the ability of central banks to influence financial sector credit provision through the interest rate is in any case very limited. The answer may have to be greater activism, where governments, together with central banks, get involved in the allocation of credit. This will be an anathema to the Neo-Liberal - Neo-Classical consensus (we should have the market allocate resources with a socially liberal welfare state) - but it is time to ask questions ontologically where the philosophical foundations of this methodology, which is essentially an ideology, lie.<br /><br />NK.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-79173827153089609292017-06-19T14:43:09.877+00:002017-06-19T14:43:09.877+00:00Apologies on duplicating my post. Tilting the QE ...Apologies on duplicating my post. Tilting the QE programme towards the purchase of publicly-backed bonds, financing economically needed expenditure on infrastructure, whether physical or human, would not be designed to increase interest rates, but rather to provide an adjunct to fiscal expansion, which would not add to the deficit. Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-12959772263518404912017-06-19T14:32:42.858+00:002017-06-19T14:32:42.858+00:00One would hope that Andrew Adonis's Infrastruc...One would hope that Andrew Adonis's Infrastructure Commission is thinking about how best to prioritise and sequence public infrastructure projects, as well as the relationship between its overall level and economic performance. Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-39659483347185228702017-06-19T14:20:56.564+00:002017-06-19T14:20:56.564+00:00Thought-provoking post, Robert. With respect to yo...Thought-provoking post, Robert. With respect to your observation that fiscal expansion is a counterpart to deficient private demand, connected to the related desire to mitigate cyclical variations in its level, issues of timing and expectations intrude, but I think the 'missing link' you refer to, is that the increased public investment in productive infrastructure - including affordable housing - needs to be a structural and sustained, rather than a cyclical, response. In other words, such investment needs to be a higher constant and displace excessive cyclical levels of private demand, rather than reduce a more optimal level of median demand linked to compressed peaks and troughs. <br /><br />Taking housing, as an example: Bank of England prudential controls on mortgage lending combined with increased public investment in new affordable housing assets (carefully designed and mixed ideally with private investment in such a way to increase total new housing investment ) rather than increased private expenditure on mortgage financing of assets inflating in paper value, would serve to directly deflate frothy bust-inducing cyclical private booms in the housing market. Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-40264546217289792902017-06-19T12:29:33.890+00:002017-06-19T12:29:33.890+00:00Simon Wren-Lewis
You say: “For every borrower the...Simon Wren-Lewis<br /><br />You say: “For every borrower there is a saver.”<br /><br />In this generality this is trivially true, nonetheless it is grossly misleading. To see this, let us take the pure consumption economy as the most elementary case as starting point (no investment, not government, no foreign trade). Wage income is denoted as Yw, consumption expenditures as C.#1<br /><br />The sector balances (Sm≡Yw-C, Qm≡C-Yw) always add up to zero, i.e. Qm+Sm=0 or Qm=-Sm, that is, the business sector makes a monetary profit Qm which is equal to the household sector’s dissaving -Sm or a loss -Qm which is equal to monetary saving Sm. So, if the household sector dissaves it uno actu happens that the household sector becomes the borrower vis a vis the banking sector (including the central bank) and the business sector becomes the lender to the banking sector. When we cut the banking sector short the business sector becomes the ultimate lender to the household sector.<br /><br />From this immediately follows that saving and investment is NEVER equal, neither ex ante nor ex post, and ALL Keynesian and Post Keynesian and New Keynesian and IS-LM models are provable false.#2<br /><br />The same relationship holds when the private households are substituted by public households. Therefore, the period deficit of the public sector reappears one-to-one as profit of the business sector. When we cut the banking sector short the business sector becomes the ultimate lender to the public sector.<br /><br />Needless to say that the business sector prefers the public sector as ultimate borrower. This explains the safe asset shortage if the monetary profits stem from private deficit spending.<br /><br />The deficit spending of the private and public households together determine the overall profit of the business sector. This means that Keynesian deficit spending is the ultimate profit machine if the household sector’s budget is balanced. Private and public deficit spending in turn explain the falling labor share.#3<br /><br />Whether public deficit spending helps employment is not sure. It depends on whether the average price increases or not. In any case, though, public deficit spending helps profit one-to-one. So, whoever wants the maximum employment effect from deficit spending has to see to it that the price increase is zero.#4<br /><br />Now, you are in favor of expansive fiscal policy and propose to increase the inflation target. This is as counterproductive as can be. The combination of increasing public deficit spending and a rising price increases profit and leaves employment unaffected.<br /><br />From the standpoint of the 1-percenters your policy mix is perfect. From the standpoint of the 99-percenters it is another instance of expert madness. The correct policy in the given situation is to put traditional=failed monetary and fiscal policy aside and to increase the average wage rate at ZERO inflation.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 For details see ‘First Lecture in New Economic Thinking’<br />http://axecorg.blogspot.de/2017/05/first-lecture-in-new-economic-thinking.html<br /><br />#2 For details see ‘Profit and the collective failure of economists’<br />http://axecorg.blogspot.de/2015/11/profit-and-collective-failure-of.html<br /><br />#3 See ‘Profit and distribution: a primer’<br />http://axecorg.blogspot.de/2017/06/profit-and-distribution-primer.html<br /><br />#4 See ‘Unemployment is high because economics is false: period, full stop, end of story’<br />http://axecorg.blogspot.de/2016/11/unemployment-is-high-because-economics.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2921664207563812942017-06-19T10:09:47.727+00:002017-06-19T10:09:47.727+00:00It is crystal clear that the BoE and other such in...It is crystal clear that the BoE and other such institutions encouraged austerity post 2008, rather than advising fiscal stimulus. Assuming that this really was a basic mistake, one that most economics undergraduates would not have made, are you able to say why the central banks were governed by such poor economists? What can be done about their internal structures? In my field many mediocre people get to the top, but absolute no-hopers almost never do. Florahttps://www.blogger.com/profile/08129694921423448564noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31253815045237476492017-06-19T09:29:21.690+00:002017-06-19T09:29:21.690+00:00A point to add to the reply is that it is nominal ...A point to add to the reply is that it is nominal interest rates which would be higher with a higher inflation target, not real interest rates. <br />In other words: if inflation were 2% higher than otherwise, then home buyers (and other borrowers) would be paying 2% more on interest payments, but their incomes and the prices of their homes would also be rising 2% faster than otherwise. So the burden of payments is the same as with the lower inflation rate.<br /><br />Almar.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-85564809905187246692017-06-19T06:12:16.137+00:002017-06-19T06:12:16.137+00:00For every apple sold, there's an apple buyer. ...For every apple sold, there's an apple buyer. That doesn't justify a non-optimum, or non GDP maximising price for apples: e.g. an artificially raised apple price. Same for interest: a deliberately excessive amount of fiscal stimulus designed to artificially boost interest rates will presumably not maximise GDP.<br /><br />The only excuse for that policy would be if interest rate adjustments worked much more quickly than fiscal adjustments, but I’m not impressed by the evidence backing that idea.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-90477285022959375302017-06-18T22:54:11.152+00:002017-06-18T22:54:11.152+00:00Is this really a real description of the system? A...Is this really a real description of the system? Are you just invoking the savings/investment identity? <br /><br />My understanding of money creation is that lending does not require savings per se. <br /><br />James Peachhttps://www.blogger.com/profile/08757077858988493833noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19479444574213430852017-06-18T18:01:03.611+00:002017-06-18T18:01:03.611+00:00The way it would work is this. When the central ba...The way it would work is this. When the central bank thinks rates will hit the ZLB, it says - publicly and loudly - that it can no longer do its job properly because fiscal policy is too tight. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-39561497539310118842017-06-18T17:58:35.560+00:002017-06-18T17:58:35.560+00:00Yes. If the deficit is falling as a % of GDP that ...Yes. If the deficit is falling as a % of GDP that is contractionary.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-41651347673754588992017-06-18T17:57:30.272+00:002017-06-18T17:57:30.272+00:00You obviously missed this http://voxeu.org/article...You obviously missed this http://voxeu.org/article/fiscal-policy-explains-weak-recoveryMainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-65075238633619730652017-06-18T17:56:01.849+00:002017-06-18T17:56:01.849+00:00If that is the case, giving central banks some fis...If that is the case, giving central banks some fiscal instrument (like helicopter money) avoids the cost of extra inflation.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47971551823159038662017-06-18T17:54:38.788+00:002017-06-18T17:54:38.788+00:00The US are currently raising rates to hit a 2% tar...The US are currently raising rates to hit a 2% target. If the target was 4%, they wouldn't be raising rates.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-76119591729844167182017-06-18T17:53:08.564+00:002017-06-18T17:53:08.564+00:00For every borrower there is a saver.For every borrower there is a saver.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49178488561985895092017-06-18T17:51:11.517+00:002017-06-18T17:51:11.517+00:00I cannot see why austerity (fiscal consolidation t...I cannot see why austerity (fiscal consolidation that reduces output) is essential but fiscal consolidation when monetary policy can offset its effects is somehow thought unlikely to happen. Or in other words, nonsense.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-80697756865560457042017-06-18T17:48:18.296+00:002017-06-18T17:48:18.296+00:00Yes, that is what monetary policy tries to do.Yes, that is what monetary policy tries to do.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-38600359482351655832017-06-18T09:13:34.119+00:002017-06-18T09:13:34.119+00:00How big a penance do the words "inflate our w...How big a penance do the words "inflate our way out of trouble" carry nowadays?Philhttps://www.blogger.com/profile/07009879034507926661noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-41523617237088255922017-06-18T07:38:35.636+00:002017-06-18T07:38:35.636+00:00Prof. Wren-Lewis:
Your proposal will not work for...Prof. Wren-Lewis:<br /><br />Your proposal will not work for countries whose bonds are considered as safe assets (US, Germany, UK, France). The world-wide savings glut will keep interest rates low there. Those are the limits of fiscal policy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-23486506144119286222017-06-17T18:20:10.723+00:002017-06-17T18:20:10.723+00:00Or re-tilt the QE programme towards the purchase o...Or re-tilt the QE programme towards the purchase of publicly-backed bonds, financing economically needed expenditure on infrastructure, whether physical or human? Interesting article in Moneyweek on moves for the Bank of japan to finance free education tuition by the issue of education bonds, possibly relevant to labour's pledge. <br /><br />http://moneyweek.com/merryns-blog/the-uk-cant-afford-free-university-tuition-but-japan-can-heres-how/Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47857554640192377682017-06-17T18:16:52.421+00:002017-06-17T18:16:52.421+00:00Or re-tilt the QE programme towards the purchase o...Or re-tilt the QE programme towards the purchase of infrastructural bonds. Interesting article in Moneyweek, on moves for the Bank of japan to finance free education tuition by the issue of education bonds.<br /><br />http://moneyweek.com/merryns-blog/the-uk-cant-afford-free-university-tuition-but-japan-can-heres-how/Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.com