Macro Issues

The Japanese economy has seemed a bit of a puzzle to many. Unemployment has fallen and GDP per capita has grown, but not GDP itself. There has been huge active monetary easing but inflation has not budged much. Officially, a recession was announced but it passed much of the population by without much notice. What has been going on? Are the numbers wrong? Well, in an interesting report the FT today alerted us to the Bank of Japan’s look into the country’s GDP data. The BoJ has suspected that the official statistics might be undercooking the size of the country’s economy. Sadly,…...

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What´s that stance?

The Statement at the closing of the December/15 FOMC meeting when, after seven years of the FF rate remaining in the 0 to 0.25 percent range, the FF rate was raised 25 bp, reads: Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. If policy remains accommodative after…...

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Economic Slack: A misleading guide to policy

The view of economic slack is a recurrent topic in FOMC discussions. As John Williams, President of the San Francisco Fed said recently: “I understand the desire to try to help everybody in the economy, but I think that just running an overly hot economy for too long risks creating the conditions that then could lead to a recession that undoes all of that”. An “overly hot” economy is one in which inflation will soon rear its ugly head…However, it´s hard to fathom why they might be so worried if inflation, as measured by the PCE-Core, has remained significantly below…...

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One of the few reasonable arguments for the case that the US economy is near full employment, and that the Fed’s short term interest rate target should be lifted, is that the unemployment rate is low. Indeed, the jobless rate is fairly low from an historical perspective, but it is just one of many important indicators and doesn’t tell us enough about the state of the economy to fully inform monetary policy decisions. This is the conclusion one would be forced to draw even if one subscribed to the conventional, inflation targeting view, the view that we at NGDP Advisers…...

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