tag:blogger.com,1999:blog-2499715909956774229.post1585223332430174012..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: Should We Think of Confidence as Exogenous?Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-2499715909956774229.post-35387118857384986092016-07-10T05:16:24.104-07:002016-07-10T05:16:24.104-07:00Thank you for this very informative post.Thank you for this very informative post.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-69392392554911365292016-06-25T19:53:24.679-07:002016-06-25T19:53:24.679-07:00Thanks.Thanks.Anonymoushttps://www.blogger.com/profile/11677815746117897839noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3547533802803392292016-06-25T07:10:07.152-07:002016-06-25T07:10:07.152-07:00Easier said than done. What you're talking abo...Easier said than done. What you're talking about is extremely difficult. Hansen and Sargent tried something related - summarized in their book:<br /><br />http://press.princeton.edu/titles/8535.html<br /><br />That's highly technical, and it hasn't been influential. But, contrary to how you're thinking about this, we're not so diverse when acting in groups. People have a remarkable tendency to converge to similar ways of thinking, which is interesting. There are plenty of paths that may be productive, and that's what research is all about. But, for the time being, RE is productive, and a very helpful way to structure how we think about the world. I wouldn't throw it out for anything else I've seen.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-66999843836698548932016-06-24T15:26:05.413-07:002016-06-24T15:26:05.413-07:00I don't think the economics profession is conf...I don't think the economics profession is confused, or that scientific questions should be decided by taking a poll. I was trying to stress the point that the decisions of private agents and public policymakers are guided by many different, often conflicting, beliefs. This is not to say that all of these viewpoints should be assigned an equal value as scientific theories or models, but rather that this diversity of views makes a difference in how the economy actually works and what the consequences of alternative policies will be. There's bit more explication and justification here (http://www.the-human-predicament.com/2015/09/rational-expectations-and.html), but I know you're busy. Anonymoushttps://www.blogger.com/profile/11677815746117897839noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-89687836211470480802016-06-24T11:25:10.278-07:002016-06-24T11:25:10.278-07:00More simply: We don't do science by taking a p...More simply: We don't do science by taking a poll.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-60924682333110932462016-06-24T11:22:17.733-07:002016-06-24T11:22:17.733-07:00I understand that, from your viewpoint, the econom...I understand that, from your viewpoint, the economics profession looks pretty confused, without any firm conclusions on anything. But, I see my job as distilling all of that stuff, using what I know, and then giving you the best advice I can. I think economists do know things that are useful to society, and I'm sorry the stream of information coming from the profession is so noisy. On the Booth School project, that's one of the silliest exercises I've ever seen. It consists of asking people questions which, for any given question, most of them have spent no time thinking about. For example, here's one on banking regulation:<br /><br />http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_dbCps0eT0oB32E5<br /><br />There are only a handful of people on that panel who have ever had any contact with research on banking regulation in their lives. Autor is a labor economist, Judd does taxation and computational economics, Samuelson is a theorist, Thaler is a behavioralist. But they're all happy to answer the question. And if we actually implemented policy based on their advice, it could have very large repercussions. Maybe that's part of our problem - too many economists with inflated ideas about what they know about work in subfields outside their own.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75453648001096425602016-06-24T09:36:16.231-07:002016-06-24T09:36:16.231-07:00“Question is, why would [most of the public think ...“Question is, why would [most of the public think higher interest rates are deflationary], and what happens if people have been confused by economists and central bankers who have a faulty view - perhaps of their own models?” <br /><br />Before attempting a reply, it’s worth taking stock of the general terrain by which I mean the presence of the Bulls the Bears in every speculative market, the diversity of economic models used by central banks, corporations, labor organizations, state governments, university endowments, and, of course, the Nobel prize awarded to Fama and Shiller in the same year. Whatever its origin, and reasons for persistence, it’s hard to overlook the brute fact that people are guided by a diversity of views about the way the economy works and hold conflicting beliefs about future prices among many other things. Mordecai Kurz has pursued the reasons for, and consequences of, diverse beliefs.<br /><br />Even if your model shows that, on plausible assumptions, a higher interest rate goes hand-in-hand with higher prices, most of the public could still believe (and probably does believe) the opposite simply because it’s the conventional view, and doesn’t confront, I think, anything close to unanimous opposition from the economics profession. If the Booth School of Business had asked its panel of first-class economists whether a four-fold increase in the Fed’s balance sheet would bring deflation or inflation, what do you think the result would have been?<br />Anonymoushttps://www.blogger.com/profile/11677815746117897839noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-80301604139988470552016-06-23T12:01:37.443-07:002016-06-23T12:01:37.443-07:00"Didn’t Lucas and Sargent, in their 1979 pole..."Didn’t Lucas and Sargent, in their 1979 polemic, “After Keynesian Macroeconomics,” describe their programmatic alternative “in terms of some older paradigm,” i.e., “classical economics” and its presumptions of rational, self-interested agents and markets that clear?"<br /><br />Here's a key sentence from Lucas and Sargent's paper: "In recent years, the meaning of the term equilibrium has changed so dramatically that a theorist of the 1930s would not recognize it." So, Lucas and Sargent weren't saying, "oh, we found a microfoundation for classical economics," or some such.<br /><br />"if most of the public thinks higher interest rates are deflationary, will we get the same result"<br /><br />Question is, why would they think that, and what happens if people have been confused by economists and central bankers who have a faulty view - perhaps of their own models?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-91668062879778470032016-06-23T11:09:46.283-07:002016-06-23T11:09:46.283-07:00Stephen, I agree with you about the benefits of co...Stephen, I agree with you about the benefits of controversy.<br /><br />You write, “But, Roger falls into a habit common to others who call themselves Keynesians, which is to describe what he does in terms of some older paradigm.” Didn’t Lucas and Sargent, in their 1979 polemic, “After Keynesian Macroeconomics,” describe their programmatic alternative “in terms of some older paradigm,” i.e., “classical economics” and its presumptions of rational, self-interested agents and markets that clear?<br /><br />You complain about Roger’s use of Keynes’s phrase, “animal spirits,” because (if I may read between the lines), Roger’s mathematical machinery is much more powerful, from a scientific point of view, than Keynes’s “mere words,” to invoke another insult from Lucas.<br /><br />Of course, Keynes had reasons for using “mere words,” one of which is that “facts and expectations are not given in a definite and calculable form.” What will the European Union look like ten years from now? The Republican Party? The state of macroeconomics? Was Keynes wrong to point out that constrained maximization only works if we have a clear understanding of our circumstances and their possible lines of development? Lucas was only half right when he said we need better theories, not better verbal descriptions.<br /><br />You write, “Now you can see the danger of non-confrontation – the policymakers with the power may not get it, though they are under the illusion that they do.” Imagine this discussion: Economist with hard-to-understand theory says to central bank policymaker, “I’ve got a model which shows that if you raise the interest rate, prices will also rise.” Policymaker says, “Yes, I can see the logic leading to your conclusion, but if most of the public thinks higher interest rates are deflationary, will we get the same result?” <br /><br />Do you see “a danger of non-confrontation” with Mordecai Kurz’s claim that “belief diversity is not only a well-established empirical fact, but forecast data also reveal no tendency for persistent merging of opinions about any important variable”? (“Symposium: on the role of market beliefs in economic dynamics, an introduction,” Econ Theory [2007]).<br />Anonymoushttps://www.blogger.com/profile/11677815746117897839noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-86801375898970326612016-06-22T08:25:17.631-07:002016-06-22T08:25:17.631-07:00Don't worry. Roger doesn't like some of wh...Don't worry. Roger doesn't like some of what I do, and he's not shy about telling me so. This is just about science.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-33612755767749403282016-06-22T07:59:57.714-07:002016-06-22T07:59:57.714-07:00Two thumbs up for an excellent post. I really hope...Two thumbs up for an excellent post. I really hope that you and Roger clear up the misunderstanding. I know that you have great respect for his work as your textbook is one of very few (maybe the only one?) undergraduate Macroeconomics textbook that has a section devoted to Roger's work with increasing returns and multiple equilibria. Hope Roger can see that. Constantine Alexandrakishttps://www.blogger.com/profile/03148709241309623293noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7986689011801540002016-06-22T05:11:07.573-07:002016-06-22T05:11:07.573-07:00I see the confusion. Bad wording in the last parag...I see the confusion. Bad wording in the last paragraph. Corrected.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-23814176440166868072016-06-22T04:53:55.730-07:002016-06-22T04:53:55.730-07:00oops. fixed.oops. fixed.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72309942447618727662016-06-21T23:52:28.111-07:002016-06-21T23:52:28.111-07:00"there indeed exists a model from which one c..."there indeed exists a model from which one could conclude that an increase in the central bank’s nominal interest rate target will increase inflation. That model is a static IS-LM model with a Phillips curve and fixed (i.e. exogenous) inflation expectations."<br /><br />Shouldn't that be "decrease inflation".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-1937569748334727502016-06-21T18:36:07.195-07:002016-06-21T18:36:07.195-07:00No, see my reply to Roger's comment above. Rom...No, see my reply to Roger's comment above. Romer was accusing people of using math to hide their dishonesty, which is not Roger's game at all. He has good intentions.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-35626620073543401062016-06-21T18:33:55.470-07:002016-06-21T18:33:55.470-07:00See my reply to Roger below.See my reply to Roger below.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-70011791173224514542016-06-21T18:33:28.973-07:002016-06-21T18:33:28.973-07:00Fixed. I did part of this on a plane without wifi,...Fixed. I did part of this on a plane without wifi, and put the links in later. Missed the most important one.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-1700994364981948682016-06-21T18:28:34.561-07:002016-06-21T18:28:34.561-07:00no, I never thought you were intentionally mislead...no, I never thought you were intentionally misleading anyone. I think this is your honest attempt to make yourself understood. Just trying to be helpful by letting you know what may or may not be working for you. I would gladly insult a parrot (or a dead parrot), but you're definitely not one of those.<br /><br />But, sorry, beliefs are not "fundamental" in your model, in the sense that economists agree on. There is some set of assumptions and interpretations that we have to agree on to make progress.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-14045598951462642342016-06-21T16:35:31.957-07:002016-06-21T16:35:31.957-07:00Great post. I think one could read this post as cr...Great post. I think one could read this post as critiquing Farmer for "mathiness", in the way Romer used the term (whether he was doing so accurately or inaccurately!): showing one thing with math in formal models, but then using the English language to say another thing.<br /><br />I hope Farmer responds -- I think everyone could benefit from a back-and-forth!BJHnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7027785452763038012016-06-21T15:28:26.448-07:002016-06-21T15:28:26.448-07:00You may be unable to distinguish between bears and...You may be unable to distinguish between bears and chickens Steve. I'm not and nor are the readers of our blogs. And to argue that my goal is to deliberately mislead policy makers into making bad choices is Insulting. But you knew that.<br /><br />"Better to get in our faces with your ideas, and bear the consequences". Quite. <br /><br />I argue that beliefs are fundamental. That is a clear statement. Yes it is "Farmerian" rather than Keynesian. But I have always been clear in my writing that, while I draw on the best ideas of my predecessors, I am not a parrot. Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-33151178074866622972016-06-21T14:47:03.637-07:002016-06-21T14:47:03.637-07:00BTW, I think (unless I missed it) you forgot the l...BTW, I think (unless I missed it) you forgot the link to Roger's new paper. Did you mean this one, with Konstantin Platanov? http://www.rogerfarmer.com/s/Animal_Spirits_in_a_Monetary_Model-2.pdfNick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75291342540372027742016-06-21T14:42:13.610-07:002016-06-21T14:42:13.610-07:00You lost me here: " "Beliefs" as we...You lost me here: " "Beliefs" as we typically understand them, are in fact endogenous in Roger's model."<br /><br />Can't Roger just *assert* that a particular belief (or belief function) is exogenous in his model? There is nothing in that assertion that would be contradicted by the rest of his model. It's just an assumption, that we can agree or disagree with.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com