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James Alexander/Mar 30, 2016 Hamlet without the Prince would not be a very good play. Janet Yellen’s March 29th speech features a world economy without the Fed. It’s not a very good description of the world economy. The FOMC left the target range for the federal funds rate unchanged in January and March, in large part reflecting the changes in baseline conditions that I noted earlier. In particular, developments abroad imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for the federal funds rate than was anticipated in December. “Developments abroad” since December… Read More

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Marcus Nunes/Mar 28, 2016 And a serious one when perpetrated by the IMF´s Chief-Economist with colleagues who write: Oil Prices and the Global Economy: It’s Complicated: Even though oil is a less important production input than it was three decades ago, that reasoning should work in reverse when oil prices fall, leading to lower production costs, more hiring, and reduced inflation. But this channel causes a problem when central banks cannot lower interest rates. Because the policy interest rate cannot fall further, the decline in inflation (actual and expected) owing to lower production costs raises the real rate of interest,… Read More

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Marcus Nunes/Mar 27, 2016 Not being able to think ‘outside the box’, economists are recycling ‘theories’. In recent days, two have ‘shot up (again) in the charts’: Secular Stagnation and Stagflation. Maybe they´re not unrelated. David Andolfatto links them at the start of his recent post “Secular stagnation then and now”: Secular stagnation refers to a prolonged and indefinite period of slow growth and high unemployment (or subnormal factor utilization). When was the last time this happened in the United States? Most people are likely to say the 1930s. In fact, it was the 1970s. Also, when many, like Time,… Read More

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Mark Sadowski/Mar 20, 2016 Evan Soltas writes on a theme that is much in vogue lately: “Fiscal Policy and the ZLB”: I have been doing some reading for my undergraduate thesis, which looks at the role of credit-supply shocks in the Spain during its housing boom and bust, and I came across some interesting thoughts from Bob Hall. Commenting on research by Alan Auerbach and Yuriy Gorodnichenko, Hall makes some useful points that contradict a lot of the received wisdom about the efficacy of fiscal policy: I conclude that the chapter uncovers a proposition of great importance in macroeconomics—that the… Read More

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Marcus Nunes/Mar 18, 2016 The “Teal Book”: Rest in peace, Green Book and Blue Book. The Federal Reserve‘s confidential briefing books that policymakers have used for decades received an overhaul for the Federal Open Market Committee meeting that begins today. The new document merges the two prior books, named for the color of their covers, into one: the Teal Book. The “Teal book” is released with a five year-lag, just like the transcripts. We have now access to the December 2010 Teal Book or “Report to the FOMC on Economic Conditions and Monetary Policy”. As you would expect, it´s a… Read More

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James Alexander/Mar 16, 2016 It had already been argued here last month that the FOMC looked like it was splitting judged by the Janu ary 2016 Minutes. We said that this was a good idea given the hopeless leadership from the Yellen/Fischer axis. It has also been looking like William Dudley, newly reappointed as governor of the NY Fed, has been expressing the market views even more clearly. Letting markets set monetary policy is a good thing, the sum of all views and not just those of a few people sitting on a committee. Well, it looks like the split… Read More

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James Alexander/Mar 10, 2016 Mr Draghi is like a car driver who has his foot pressed down hard on the accelerator (the instruments, QE, -ve rates, TLRTO, etc, etc) but hasn’t taken the car out of first gear, or maybe second (the inflation ceiling). The measures announced today were all in line or better than expected in terms of instruments. and the markets liked it. He had managed to surpass already high expectations. But, dear oh dear, he messed up when talking about the future. ‘No more rate cuts until the facts change’. The trouble is the facts NOW are… Read More

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James Alexander/Mar 3, 2016 My last post was on the need to change the 2% inflation target to higher one or, better still, switch to NGDP growth targeting. However, by even talking about inflation I feel it is easy to get sucked into a black hole of nonsense chatter about a concept so hard to practically measure. Nominal GDP (as measured by the value of output, total income or total expenditure) is the reality. Real GDP is a highly artificial construct. And inflation is also a highly artificial construct, the mere residual between the reality of actual Nominal GDP and… Read More

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Someone once said “humans are pattern-seeking story-telling animals”. That´s true in general and for economists in particular. At times like the present, when uncertainty is high and sentiment volatile, trying to “pin-down” where we are and get some indication of where we are going is a useful endeavor, even if the suggested outcomes are not “comforting”. Forecasts give us an indication of the road ahead, even if the uncertainty around the forecast may be wide. To gauge where we are we look to the past to check for patterns. Those may be thought of as road signs that say, for… Read More

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James Alexander/Feb 24, 2016 Mark Carney is supposedly handsome, but I don’t really feel qualified to comment. One observation I would make is that handsome friends seem to be prone to unreliability. A bit like Hugh Grant, allegedly. Carney’s lack of commitment was made clear from the day his appointment was announced when it was revealed that the new standard eight-year term for Governors of the Bank of England would, in fact only be five years for him, a special concession he negotiated. Mmm. At Christmas a puff piece on Carney in the FT was followed two days later by… Read More

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