tag:blogger.com,1999:blog-2546602206734889307.post5426230054305248330..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: The inflation floodgatesMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2546602206734889307.post-89487167085004115282013-11-23T21:07:22.791+00:002013-11-23T21:07:22.791+00:00This comment has been removed by a blog administrator.Anonymoushttps://www.blogger.com/profile/02378236444802184226noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-22878255746551728392012-03-19T20:14:53.532+00:002012-03-19T20:14:53.532+00:00Inflation will
1) FIX the problem of low growth in...Inflation will<br />1) FIX the problem of low growth in the US,<br />2) FIX the problem that Germany is too competitive with southern Europe,<br />3) Ditto for BRICS vs. US<br />4) FIX the inequality issue<br />5) FIX the debt problem<br />...and so on.<br /><br />INFLATION WILL FIX EVERY PROBLEM IN THE WORLD.<br />Sounds a little too good to be true doesn't it?hrshttp://bestbuycreditcardonline.com/www-hrsaccount-com-bestbuy-pay-bill/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-12014509860926050272012-03-16T09:00:28.534+00:002012-03-16T09:00:28.534+00:00Can I ask why people pay attention to expectations...Can I ask why people pay attention to expectations in the first place?<br /><br />Surely inflation is ultimately about where prices are set by sellers (including workers), and accepted by buyers. Any seller (and any worker) will always strive to set price to maximise the gross surplus to the best of his/her market power. If I believe that inflation is likely to be 2%, but that I can pass on a 5% price increase to customers (or to my employer) with only a marginal loss in volume (leaving my gross surplus net higher), then I will hike prices. Conversely, if I believe inflation will be 5%, but I don't have the market power to get a price rise accepted, then I will keep price the same.<br /><br />This is borne out by the period 2H10-1H11 where households expected 3% inflation but only saw wages rise at 2%.<br /><br />Expectations seem to be a complete red herring. Market power seems the thing.Andersnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-14405333331993301192012-03-15T15:33:08.438+00:002012-03-15T15:33:08.438+00:00Good post.
The AWE rates hide the fact that nomin...Good post.<br /><br />The AWE rates hide the fact that nominal private sector wages are basically flat after Q1 of 2011 - £458/week in March 2011, £458/week in Jan 2012. Ouch. The MPC hawks in 2011 should be deeply deeply embarrassed by now.<br /><br />It is a mystery why more people can't see that the headline CPI rate has become almost completely meaningless as a proxy for demand growth.Britmousehttp://uneconomical.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-52951864710630542132012-03-15T14:11:00.474+00:002012-03-15T14:11:00.474+00:00Nice post, though I would put the expectations arg...Nice post, though I would put the expectations argument more explicitly: Inflation expectations get passed through to actual inflation only if workers and firms are in fact able to push up wages and prices. With high unemployment and low demand neither is possible. People who panic about inflation expectations in such an environment have forgotten the underlying reason why we think they matter in the first place.<br />I made this point last year on the FT blog, though without your helpful charts: http://blogs.ft.com/economistsforum/2011/02/remember-why-inflation-expectations-matter<br />Krugman discussed the argument here: http://krugman.blogs.nytimes.com/2011/02/09/why-expectations-matter/Paul Segalnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60876240094103535512012-03-15T10:22:47.553+00:002012-03-15T10:22:47.553+00:00Well score one for the credibility of independent ...Well score one for the credibility of independent central banks. Yes inflation expectations rose above the target, but not enough to set off Stagflation. <br /><br />Also score one for pretty much rational expectations (no one takes it literally).<br /><br />In contrast an own goal for my favorite behavioral model of expectations. I just realized that it corresponds exactly to the floodgates hypothesis. Psychologists including Anreasson and Krause have found that people presented with a random walk make forecasts as if the data were generatged by a broken trend. So generally they predict mean reversion, but a few increases in a row and they decide the variable is trending up, so they extrapolate.<br /><br />This behavior corresponds exactly to expectations which are currently anchored, but also to floodgates which can open. I think it is reasonably clear that actual central bank policy has something to do with believing in this behavioral model (as I generally do) along with ideas that inflation is sinful and so on.<br /><br />Anyway, my favorite model of expectations failed this time.Roberthttps://www.blogger.com/profile/14455788499385673507noreply@blogger.com