Macro Issues

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In trying to “square the circle”, the Fed is courting disaster!

Tim Duy summarizes the problem as the Fed sees it: The Federal Reserve can’t catch a break on the inflation numbers, which are simply not helping in its drive to normalize monetary policy. Monetary policy makers have three possible responses to the weak inflation data. First, they can define down the extent of an acceptable

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Unfathomable Monetary Policy Parameters

While Stanley Fischer defended central bank discretion, John Williams, of the San Francisco Fed defended a change in the monetary framework and strategy, arguing for a change in the monetary policy target, from inflation targeting to price level targeting: It’s been said that “getting over a painful experience is much like crossing monkey bars. You have

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U.S. orthodox macroeconomists are criticizing the Trump Administration’s proposed business tax cuts for widening federal deficits in the years ahead, by possibly a few trillion dollars. But why? Do we not live in the Age of Mobius-Strip Economics? The central bank the Bank of Japan has been buying back trillions of dollars of Japanese government

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The ZLB is a Central Bank ‘construct’

In his latest post, Bernanke starts off: If inflation is too low or unemployment too high, the Fed normally responds by pushing down short-term interest rates to boost spending. However, the scope for rate cuts is  limited by the fact that interest rates cannot fall (much) below zero, as people always have the option of

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How monetary policy unraveled

Today, George Selgin posted A Stable Spending Catechism, a nice primer on NGDP Level Targeting. Here I show how the Fed´s monetary policy unraveled when it forfeited “Stable Spending growth”. In the 1990s, a period known in economics as the “Great Moderation,” it seemed the Fed could do no wrong. Policy makers and voters saw

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Monetary Policy failure

In 2011, Christina Romer wrote a very perceptive piece for the NYT: “The Hope That Flows From History”. Some snippets: AFTER the grim economic developments of the last few weeks, it’s easy to lose hope. Could the Great Recession of 2008 drag on for years, just as the Great Depression did in the 1930s? Adding to the

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The Holy Grail even yet for many macroeconomists is 0% inflation, and barring that, some rate under 2% (but always leaning towards the nirvana of 0%). News from the Bank of Japan suggests that paper cash and low inflation rates do not mix. As in, there is more than $7,000 in cash (yen equivalent) in

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Stop trying to change the x in the x% target. Get rid of it

In “Rethinking the Widely Held 2% Inflation Target”, we read: Inflation has finally returned to the Federal Reserve’s 2% goal after undershooting it for nearly five years. Now, just as the central bank has inflation where it wants it, economists and central bankers are starting to think such a rigid goal is a mistake. After that

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All productivity analyses miss the "wood for the trees"

All economists agree that productivity is very important. It is a remarkable failure of economics that economists understand so little about what causes it to grow, or atrophy. In yet another exhaustive examination Bank of England Chief Economist and MPC Member Andy Haldane again shows how even the most intelligent people continue to miss the wood for

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The nominal GDP forecast has held north of 4.1% since our last update, though it has not risen with stock prices. This is because stocks are only one input into the system, and other inputs: yield spreads, TIPS spreads, commodities, have held steady or even retreated somewhat. Bond spreads that compare a short maturity to

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