tag:blogger.com,1999:blog-2546602206734889307.post8839630527274087358..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Getting unhinged by ‘unhinged’: macroeconomic trade-offs and taboosMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2546602206734889307.post-50503969523282144332013-07-23T21:34:42.180+00:002013-07-23T21:34:42.180+00:00I think you're right that 'unhinged' i...I think you're right that 'unhinged' is unhelpful, because it's a vivid word and implies an analogy with hinges when there isn't one. (Like Carney's use of the words 'escape velocity'). However, one explanation for what is going through the typical central banker's mind might be found in, say, a sticky price model with constant gain least squares learning. In such a model, provided there are only small shocks, and the central bank acts promptly, inflation expectations and inflation can be brought back to target quickly, and with relatively small output cost. But when there are large shocks, or a succession of medium sized shocks which the central bank misses, the system can easily explode without the central bank itself changing its targets. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-65645147896340595972013-07-23T14:51:43.642+00:002013-07-23T14:51:43.642+00:00Prof Simon,
You propose cutting unemployment whil...Prof Simon,<br /><br />You propose cutting unemployment while not bothering too much about the inflationary consequences. Assuming NAIRU has not risen since the crunch (and I don’t see why it should have) there is no reason to suppose returning unemployment to pre-crunch levels would raise inflation too much. And that sort of ties up with your conclusion on the 19th July that the size of the output gap has been underestimated. <br /><br />But, if NAIRU has in fact risen, then we need to think long and hard about exactly why it has risen. E.g. – just one possibility – could be that the proportion of the so called unemployed who are not seriously looking for work has risen.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75085215215589445342013-07-23T08:26:04.148+00:002013-07-23T08:26:04.148+00:00There is stability and then there is stability.
I...There is stability and then there is stability.<br /><br />I believe that the Japanese did not have the stagflation which the UK underwent due to OPEC I and II, yet land prices in major Japanese cities 1991-2006 fell by 68% (Shiller and Akerlof, 2009).<br /><br />The late Alec Cairncross wrote of the returning inflation in the 1980s as "old habits die hard", but didn't the UK have a new habit, the housing bubble explained through spurious ideas of globalisation? <br /><br />I have a copy of Martin Daunton's 'A Property-owning Democracy", with a preface written just before the 1983-8 bubble burst, in which the economic historian proffers the fear that the London home market in particular is in a bubble - not least as he was trying to buy a home there at the time. <br /><br />I heard on Radio Four this morning the City analyst of choice (I don't think they have names, do they?) talking of the Japanese fiscal stimulus, and the BBC's Simon Jack making sure he didn't say fiscal stimulus. <br /><br />So politically and economically, it's all eyes on Abe's Japan, as their right-wing government seems more frightened of the Chinese than of their creditor class, and what impact that will have on the UK debate.<br /><br /><br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-76730235810861927882013-07-23T07:51:19.332+00:002013-07-23T07:51:19.332+00:00The major trend the last decades as far as inflati...The major trend the last decades as far as inflation goes is lowering it and stabilize it.<br />Both have had a considerable influence on the yield investors demand for things like money/debt kind of things and subsequently for stuff that are mostly bought with a lot of leverage (like houses). <br />Yield demand has dropped during that period because of this.<br />As a consequence of lower yields asset prices have gone up and have gone up considerably.<br /><br />This makes structurally reversing this trend extremely difficult. Basically all pensionrights would (considerably) drop in value and so would most houses. A similar thing plays in the businesssector.<br /><br />It is unlikely that CBs and government can over a longer period fully control these higher 'natural' yield demands if inflation would go up and would become less stable. Such an unnatural situation longer time will lead to higher demand for loans and lower supply (say looking for yield what we see now).<br /><br />So it is imho a trade off the pros of higher inflation in a high debt enviroment especially and the cons (dropping asset prices including pensions). Priority setting and depending on a specific situation.<br /><br />To optimize the thing one could think of shorter term increase the expectations so the positive Macro effect will occur while keeping longer term expectations low (and not cause huge asset price drops).<br /><br />This also more or less indicates that if you have to get Japan going this is very hard to optimize in that way, the problem is way too large. You either need very high inflation or during a very long time and likely both. Difficult to see that this will not start to play via longer term expectations into higher yield demands.<br />So imho unless there is an emergency scenario playing (like alternative being a default) this is something more suitable of smaller or medium size dips or as one of several measures.<br />It worked imho fine, on a macrolevel at least, with UK RE. Higher inflation took so much hot air out of the market that the bubble may be not is gone, but not like France or Belgium still constitutes a huge danger that could tank the economy basically at any time. Giving some push to consumption without people worrying too much about things as their pensions. Well managed debubbling I would say.<br /><br />NB A lot of inflation now seems caused by rising VAT and other taxes. Difficult to see that this will give a big boost (except a one time effect ico VAT rises).<br /><br />NB I am not sure how the internal devaluation in the EZ will work out in this respect. Hard to see how increasing inflation at Macro/EZ level will not jeopardize internal revaluation. Making the inflation tool effectively ineffective. <br /> Riknoreply@blogger.com