tag:blogger.com,1999:blog-2546602206734889307.post9013486504449497586..comments2024-03-19T09:54:37.187+00:00Comments on mainly macro: More (dark) thoughts on interest ratesMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger26125tag:blogger.com,1999:blog-2546602206734889307.post-56319069136908436332015-11-05T18:10:49.402+00:002015-11-05T18:10:49.402+00:00What needs to happen for interest rates to fall?What needs to happen for interest rates to fall?Sherry Z.noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-1504593210710403882015-10-21T11:30:44.570+00:002015-10-21T11:30:44.570+00:00Nice post. Everything goes really crazy after the ...Nice post. Everything goes really crazy after the financial crunch. Let's hope for the betterLocalottohttp://localotto.com/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70121626975739136102015-09-15T11:53:25.819+00:002015-09-15T11:53:25.819+00:00To be honest i do not think the odds that the UK l...To be honest i do not think the odds that the UK lost 15% of its productive capacity compared to its trend aren't that low. It happens elsewhere as well, look at Italy, Brazil or Russia. I think it could also be instructive to look at the way growth is calculated to explain the recent slowdown. If you have a bubble inflating and popping the losses following the bubble popping will be weighted higher than the gains before because gdp calculation is price weighted and price of the big inflated sectors were highest before the bubble popped.<br />I have also made this point on my blog a couple of years ago, it is in German though so you most likely need to use the translation function: http://makrointelligenz.blogspot.de/2012/10/wirtschaftswachstum-und-seine.htmlMakrointelligenzhttps://www.blogger.com/profile/07305478203133746792noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82331364749862288502015-09-14T15:55:51.133+00:002015-09-14T15:55:51.133+00:00Relaxing planning restrictions in/around London wo...Relaxing planning restrictions in/around London would <br /><br />(1) Boost the UK's labour productivity as more people would be able to take advantage of London's high wages<br />(2) Transfer wealth from older, richer property owners to younger poorer graduates/professionals<br /><br />Foreign cities remain pleasant with far higher population densities. I'm surprised at the Left's inability to advocate such a beneficial progressive policy.olihttps://www.blogger.com/profile/10855362945404507217noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58846958537995970012015-09-12T22:03:03.573+00:002015-09-12T22:03:03.573+00:00Well weak output and zero productivity growth are ...Well weak output and zero productivity growth are indeed symptomatic. The other smoking gun is the historically low investment rate that has prevailed since 2008. There are a few possibilities here - no need to rely on discouraged workers. Firms have greater incentive to innovate when labour is expensive and even though unemployment has not been so high the labour income share has been falling. Public sector cuts hardly put upward pressure on wages. Investment falls and the productivity potential of the economy falls. Moreover private and public investment are likely to be complementary so absence of the latter entails reductions in the former.<br /><br />Magnusnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43703783842320101962015-09-11T12:45:22.975+00:002015-09-11T12:45:22.975+00:00Land Value Tax and targeted fiscal policy needed.Land Value Tax and targeted fiscal policy needed.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16908521065396265692015-09-11T10:39:02.832+00:002015-09-11T10:39:02.832+00:00Thanks a lot Nick. Though the explosiveness that y...Thanks a lot Nick. Though the explosiveness that you describe (in inflation, presumably?) does make me nervous about how far you could push a NK model. <br /><br />@David: The point is that the UK is now close to pre-crisis unemployment rates. This is why the Bank of England and others are skeptical that there's much spare capacity left in the economy, (I believe they think that output is less than 1% below potential, whereas SWL notes that actual output/head is 15% below the pre-crisis trend). I'm not sure what your Portugal anecdote has to do with it.<br /><br />@Magnus: Aside from the weak performance of output and productivity what's your evidence for hysteresis? In the 1980s, there was a plausible channel to do with "excluded workers" - the long term unemployed being shut out of the labour market. That isn't true now, at least in the UK. I'm not saying I discount it completely, but I just don't see the channel through which it could occur. Delong and Summers simply assume that hysteresis occurs, without either explaining why (e.g. discouraged workers) or providing any evidence.blenheimnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20170872904628955112015-09-10T16:09:00.472+00:002015-09-10T16:09:00.472+00:00It seems to me obvious that if one sector of the e...It seems to me obvious that if one sector of the economy (housing) is out of sync with overall economic conditions, any response is much more likely to be successful if addressed to that sector rather than tightening the entire economy.<br /><br />In the old days I believe the Bank (or possibly Treasury) imposed quantitative limits on the amount that could be lent to the housing sector. These would probably be impracticable today but the housing market is basically so regulated (Stamp Duty, land registration) that it should not be beyond the wit of man, or even civil servants and economists, to work out a financial deterrence to 'irrational exuberance' in the sector. Whether the Daily Mail would allow it, is of course another question!DavidShttps://www.blogger.com/profile/11679346381085854499noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-33446624734152038942015-09-10T16:08:42.783+00:002015-09-10T16:08:42.783+00:00blenheim: to add to what Simon said: If monetary p...blenheim: to add to what Simon said: If monetary policy is "bad enough" in a NK model, then, as prices get more and more flexible, it does not approach RBC in the limit. Instead it approaches either explosion or implosion. To see (roughly) why this is so, start with an ISLM model, then ask what happens if the central bank holds the nominal interest rate fixed when shocks hit (horizontal LM, and so vertical AD curve).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4606907856135371422015-09-10T15:56:45.734+00:002015-09-10T15:56:45.734+00:00Good grief I had no idea that undergraduate econom...Good grief I had no idea that undergraduate economics has regressed so far.<br /><br />So "in the long run, output was supply determined (the AS curve was vertical)". Yes - in the model. But as a certain gentleman whose name is apparently not now known in undergraduate courses once said "In the long run we are all dead". And even if you think that an exaggeration, in the short to medium run, while output is somehow returning to capacity, the unemployed people (and machines and capital) are not producing. <br /><br />I remember discussing this issue in the context of regional economics with a very bright new recruit who pointed out that any government intervention must by definition be inferior to the results of the market. I suggested he visit Portugal (crunch place at the time) and review the results of the market there.<br /><br />But my point is really that any response to a crisis that starts "In the long run ..." or "By definition ..." is very unlikely to have any relevance to the world we live in.DavidShttps://www.blogger.com/profile/11679346381085854499noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-38356075113982651352015-09-10T14:31:39.452+00:002015-09-10T14:31:39.452+00:00I'm sure I've pointed you to this already ...I'm sure I've pointed you to this already and been ignored? But in case not: bailoutswindle dot com<br /><br />Force banks to provide honestly priced finance to SMEs, kickstarting the economy by making the bank-levy the cost to the state of providing unemployment benefits; and linking bankers' top-rate of income tax to ten times the percentage rate of unemployment.<br />Since big business is bypassing bank finance (according to M King - remember him?) then the only way banks can influence employment is be lending to SMEs.<br />Please tell me why this wouldn't happen (you'd be the first economist to do that) if you say it wouldn't.Harry Alffahttps://www.blogger.com/profile/12373844683436620254noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7647065618040265782015-09-10T11:19:47.279+00:002015-09-10T11:19:47.279+00:00Oh, man. Secular stagnation. The new normal. A ...Oh, man. Secular stagnation. The new normal. A kink in the potential output chart. Any coincidence with the property bubble is irrelevant. These are the tenets of our faith. <br /><br />Only apostates say, as Delong, "We have deep problems that are the result of the failure to spur a strong recovery."<br /><br />Only communists spend recklessly to replace lost demand. <br /><br />johnhttps://www.blogger.com/profile/01628063779348336042noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-40717176498687645322015-09-10T08:42:28.708+00:002015-09-10T08:42:28.708+00:00http://theposey.com/world-wide-domination-system-b...<a href="http://theposey.com/world-wide-domination-system-by-ben-wetkins-review/" rel="nofollow"><br />http://theposey.com/world-wide-domination-system-by-ben-wetkins-review/</a><br /><br /><a href="http://rockthestock.biz/gold-digger-software-review/" rel="nofollow"><br />http://rockthestock.biz/gold-digger-software-review/</a><br /><br /><a href="http://cfpickitup.com/gold-digger-review-all-the-ways-to-earn-online/" rel="nofollow"><br />http://cfpickitup.com/gold-digger-review-all-the-ways-to-earn-online/</a><br />Trading binary options is the new trend among investors - especially those who are new to the industry and want to see fast gains. However, it's not easy to navigate among all those brokers, programs and binary options software options that have flooded the internet. What's even worse, many of them are simply scams that are created to "free" you from the burden of your money.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-57149171930060438162015-09-10T08:25:51.953+00:002015-09-10T08:25:51.953+00:00Great post. "Normalizing interest rates"...Great post. "Normalizing interest rates" is one of the most frustrating ideas in modern economic policy. Higher interest rates are an intermediary target that seem to have become a final target in the minds of some.W. Pedenhttps://www.blogger.com/profile/15799200383624207846noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59387606162373038652015-09-10T07:14:38.248+00:002015-09-10T07:14:38.248+00:00SW-L;
" If you had told me ten years ago ......SW-L;<br />" If you had told me ten years ago ... I would have said <b>you were thinking about some corrupt state and not the UK</b>." <br /><br />Ah! Glad you have finally come around; this whole scenario has nothing to do with economics, technocratic steering of the economy or any sound, reasonable and rational economic management. It's ideological. Them v Us. And we're losing.<br /><br />"what will it take to wake people up?"<br />As many 'awake' people as possible going door-to-door until the sleepers get up. It's already happening; feel free to join in.AllanWhttps://www.blogger.com/profile/05056883330644304960noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60977804250829393842015-09-09T23:55:13.769+00:002015-09-09T23:55:13.769+00:00Thanks a lot, Professor. I suppose that I was thin...Thanks a lot, Professor. I suppose that I was thinking that in the limit, as the Calvo parameter goes to zero (or as time goes to infinity) the NK model becomes like an RBC model. Again, maybe that's because I think of NK = RBC+Calvo+Monopolistic Competition: as you point out in the link that's the way it's taught and maybe that's not the right way to think about it. But if you put a central bank into an RBC model it would be powerless, as money is neutral. So I'm a bit puzzled why in the NK model, after a long enough time, the same isn't true. I need to think about this some more.<br /><br />As an alternative, if by "deficient demand" we mean high demand for money, then I suppose that prolonged low inflation would lead to higher real money balances, which could increase demand. Though this might not be quantitatively important.<br />blenheimnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71257812310562391452015-09-09T23:43:18.491+00:002015-09-09T23:43:18.491+00:00I understand the thrust of the piece and am sympat...I understand the thrust of the piece and am sympathetic. But the nature of the bet does not appear well specified. Maybe, I am missing something.Martin Wolfhttps://www.blogger.com/profile/06865994744430634646noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7545640724658239862015-09-09T23:41:51.821+00:002015-09-09T23:41:51.821+00:00This comment has been removed by the author.Martin Wolfhttps://www.blogger.com/profile/06865994744430634646noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82501658149939318672015-09-09T22:30:29.397+00:002015-09-09T22:30:29.397+00:00Is there an argument to signal and/or carry out in...Is there an argument to signal and/or carry out interest rate rises in order to dampen the housing market?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-25195804392642929942015-09-09T15:48:55.875+00:002015-09-09T15:48:55.875+00:00blenheim: your error, which is very common, reflec...blenheim: your error, which is very common, reflects how the subject is taught. Just how are prices moving supposed to restore demand to pre-recession levels. The way it works in NK and trad Keynesian models is via monetary policy, but that cannot happen when we are at the ZLB and we have inflation targets. More here<br /><br />http://mainlymacro.blogspot.co.uk/2014/05/sticky-prices-how-we-confuse-students.html<br /><br />So if monetary policy cannot lead to a recovery in demand, why does the recovery not happen anyway, as for example consumers finish rebuilding their asset/liability positions? The answer to that is demand depends on expectations of future income, so if those expectations become pessimistic then there is no reason to expect demand to adjust to supply. And if consumers are following the prevailing wisdom for the UK, they will be pessimisticMainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-74208903408411092752015-09-09T15:25:45.009+00:002015-09-09T15:25:45.009+00:00Hysteresis.
http://www.brookings.edu/~/media/Proj...Hysteresis.<br /><br />http://www.brookings.edu/~/media/Projects/BPEA/Spring%202012/2012a_DeLong.pdf<br /><br />Noone is claiming that the current output gap is 15%. Just as you are not (I hope) claiming that the natural level of output that we have now is exactly the same as that we would have had regardless of the demand-side policies. Because, unfortunately, that is the implication of much of undergraduate-level macroeconomics.<br /><br />Deficient demand, by construction, is very directly visible in austerity plus now meaningful expectations of rate rises, together with low private-sector confidence. Magnusnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30871459346396111612015-09-09T14:54:35.716+00:002015-09-09T14:54:35.716+00:0015% of GDP is (obviously) huge. But I'm curiou...15% of GDP is (obviously) huge. But I'm curious why you think it's evidence of deficient demand, rather than supply. As an undergraduate I was taught that IS-LM applied in the short run, when prices were sticky (or fixed) but in the long run, output was supply determined (the AS curve was vertical). This result is also present in New Keynesian models - the output gap is the different between the flex- and sticky-price equilibrium, so once prices have had a chance to reset (which after 7+ years, it seems likely that they have) then the output gap is zero, absent new shocks. <br /><br />I suspect that this logic is why the Bank of England's own estimates of the output gap are now very small - i.e. they take most of the deviation from this trend-line as supply, rather than demand-driven. I suspect that this is directly driving the current discussion.<br /><br />I take your point about the asymmetry of payoffs in case of raising rates too early. But how do you explain such persistent deficient demand in theory? Is there a new friction that you think can/could explain it in a NK framework? Until such a friction is incorporated into models, I suspect that the discussion at the Bank elsewhere will neglect persistent demand deficiency.blenheimnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75979159900594275322015-09-09T13:15:02.546+00:002015-09-09T13:15:02.546+00:00I like the BBC News 24 man Ben Thompson, who has s...I like the BBC News 24 man Ben Thompson, who has spent many years being (easily) seconded to the City to watch the screen to see if interest rates will rise, and then being disappointed when it hasn't happened. <br /><br />Yet he keeps coming back for more, dressed always like a US television evangelical in that finely pressed suit. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73017840161300165652015-09-09T12:41:54.393+00:002015-09-09T12:41:54.393+00:00Reality is worse than your nightmare. You might al...Reality is worse than your nightmare. You might also have mentioned that Her Majesty's Most Loyal Opposition would have effectively endorsed the government's austerity position.<br /><br />The people who are supporting Jeremy Corbyn in droves can see what is going on.<br /><br />It would help the waking-up process if more people in prominent positions also publicly endorsed him...Magnusnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48694734436329669032015-09-09T11:51:15.539+00:002015-09-09T11:51:15.539+00:00" Economies do appear to suffer some permanen..." Economies do appear to suffer some permanent loss to potential output after financial crises"<br /><br />Why would this be a mystery? Think of all the businesses that went bust during the crisis and its aftermath - never to return again. <br /><br />HenryAnonymousnoreply@blogger.com