tag:blogger.com,1999:blog-2546602206734889307.post8185310152618323033..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Why do central banks use New Keynesian models?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2546602206734889307.post-39560355521468461922015-05-12T17:38:00.930+00:002015-05-12T17:38:00.930+00:00"someone who is very likely to know what he i..."someone who is very likely to know what he is talking about"<br /><br />Nope. A few years ago this guy predicted hyperinflation while Keynesians like Krugman predicted low inflation / deflation. So far he has no acknowledges his very basic mistake.<br /><br />New Classical demand deniers are ideologically driven and not caring one iota about external consistency.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-53386176796612652372015-03-31T15:57:41.164+00:002015-03-31T15:57:41.164+00:00I am not a economist, but can you please explain t...I am not a economist, but can you please explain to me in simple terms why we are in this awful mess. No work, people losing their homes. Will possibly never own a property ever again. So who is winning here the banks?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82142380664855574632015-03-29T23:30:46.164+00:002015-03-29T23:30:46.164+00:00"So, I wouldn't take the wide adoption of..."So, I wouldn't take the wide adoption of NK as proof of its virtues."<br /><br />I think this is a very interesting and an astute remark from someone who is very likely to know what he is talking about. Some of these models are fine and have their place, but when it comes to understanding how the real world works, more often than not it is precisely what is not in these models which is what is most interesting and important. As a result their role for guiding policy makers is quite limited and in the end they just have to accept that they have to deal with real world mess as it is.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-23097405026350368862015-03-26T07:09:56.647+00:002015-03-26T07:09:56.647+00:00In fact, the effects of QE on demand may be based ...In fact, the effects of QE on demand may be based on a profound non-rationality. Because holders of equity do not know how to estimate expected returns they view temporary gains caused by a fall in the discount rate as permanent increases in wealth. Combined with exchange rate moves, asset prices are the main transmission mechanism for QE. Both RBC and NK models provide no insights into this, and therefore tell us little about how monetary policy may or may not be working.<br />Anonymoushttps://www.blogger.com/profile/13473661280678620614noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-42870730647617099302015-03-26T06:57:11.038+00:002015-03-26T06:57:11.038+00:00The more pressing problem with all these models is...The more pressing problem with all these models is the equation for the inter-temporal substitution of consumption. Households do not substitute consumption for savings in response to lower real interest rates, when real interest rates are already low - as we are learning. However, if our models don't assume that they do, changes in real interest rates do not bring the system into equilibrium. If anything, it appears that lower real interest rates raise desired savings.Anonymoushttps://www.blogger.com/profile/13473661280678620614noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-36663653649847715102015-03-25T22:30:59.179+00:002015-03-25T22:30:59.179+00:00I would like to extend RBC to a period that is mar...I would like to extend RBC to a period that is marked by long trend interest rate movement, instead of just usual RBC period which average about 7 years. I have studied USA economy and observe trends in there not that of UK, so it might not correlate.<br /><br />What RBC period would that be? The period from 1945 - 2003. In 1945 long trend interest rate started upward untill 1980 and then goes down till 2003, but then it was extended by banking fraud (encouraged by politicians) allowing for more borrowing then normal regulated banking would allow. That would be from Minsky hypothesis.<br />After 2003 when interest rates hit close to 0% first time, it was Ponzy lending that extended and pretended making colapse much much costly.<br /><br />What conclusion can be infered from this? It is that monetary policy is serving as adjuster to fiscal policy. Fiscal policy rules.<br />From 1945- 1980 fiscal policy was demand sided with full employment policy and after 1980 turned supply sided and so monetary policy could only moderatly shave off extremes of miscalculations of robust and cumbersome fiscal policies that rule economics.<br /><br />Eastern countries never switched from demand sided policies to supply sided so their inflation have kept going up.<br /><br />What conclusions we would find if RBC is extended to 80 years period?Critical Tinkererhttps://www.blogger.com/profile/08540226813192385645noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73552522675500145252015-03-25T17:59:28.097+00:002015-03-25T17:59:28.097+00:00You're perhaps overly suspicious of my intenti...You're perhaps overly suspicious of my intentions. I do actually have some ideas about the answer to the question which is the title of your post. One of Mike Woodford's career goals was to take modern macro, adapt it to answer monetary policy questions, and then have central bankers adopt the product. He's been very successful . The people who make decisions in the central banks of the world are a diverse lot. Some of them are economists, some are lawyers, some come from the business community. Some are well-versed in modern macro, some were educated as economists before the macro revolution took hold in most graduate programs, some have econ 101, some have never taken an economics course. NK can appeal to all of them. It appeals to the high-tech macroeconomist who is looking for a framework which is consistent with modern macro ideas but in which monetary policy is not neutral. It appeals to the old-style Keynesian who thinks it's just IS-LM (even though it's not). It appeals to the non-economist who only thinks in terms of: interest rate up is tightening, interest rate down is easing. There are problems, though. (i) NK is all about relative price distortions (intertemporal and intratemporal). Not clear that is the margin on which monetary policy actually works. (ii) I've seen instances in which the high-tech people start taking NK - or the reduced form of it - way too seriously, and they make policy errors. That wouldn't be the first or last time that a central banker made a mistake. (iii) Sometimes NK is completely unhelpful - it tells you nothing about why central bank asset swaps for different kinds of assets (short vs. long maturity, government debt vs. private) should make a difference, or why it would make a difference if the central bank conducted direct lending to the financial sector or outright asset swaps. All of those things matter, particularly during financial crises (and in the aftermath apparently). You could say we just need to add that stuff to the model. But the NK people told us before the financial crisis that we didn't need to do it. I asked Mike about this once before the financial crisis and he said something like: Well there are a lot of frictions out there - too many to think about.<br /><br />So, I wouldn't take the wide adoption of NK as proof of its virtues.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.com