July 17, 2018

In his intro to the Congressional Hearing today, Powell said: “Monetary policy affects everyone and should be a mystery to no one.” Which brought to my mind Greenspan´s tirade shortly after taking the Fed´s helm: “Since I’ve become a central banker, I’ve learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.” -Alan Greenspan, 1987 The undeniable fact is that to the great majority of people, monetary policy will always be a mystery. It´s therefore an impossible dream to think it “should be a mystery to no one”. Greenspan recognized… Read More

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Having been on a “trade war watch” for several weeks it seems as if markets really aren’t considering Trump’s grandstanding such a big deal. Tariffs will hurt both the US and its trading “foes”, for sure, but not cause huge damage to NGDP growth. Perhaps these new trade barriers will reduce real growth a bit but not by much. The war generates headlines and pages of copy but signifies little. Some patterns of demand will switch as will some production. Trump is powerless to stop Harley Davidson setting up a factory in China to serve China. He can’t stop the… Read More

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Euro Area Woes

David Beckworth wrote an enlightening essay on the Eurozone in the National Review “The Euro Zone Should Integrate or Separate”. According to Beckworth: The Proximate Cause of Economic Pain As the above figures show, some euro-zone economies have fared much worse than others since the crisis. A major reason for that divergent performance is that one monetary policy cannot work equally well for very different economies. This challenge can be illustrated using Taylor Rules, which seek to establish what interest-rate targets the European Central Bank (ECB) should set based on changes in inflation and slack in the economy. Studies that estimate Taylor Rules… Read More

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