tag:blogger.com,1999:blog-2499715909956774229.post2748127766559159240..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Inflation and Monetary PolicyStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2499715909956774229.post-56260091031776135352010-10-22T09:17:05.182-07:002010-10-22T09:17:05.182-07:00"Bernanke cannot really tell us why the infla..."Bernanke cannot really tell us why the inflation rate should not be -1%, 0%, 4%, or even 10%, rather than 2%, and neither can I."<br /><br />This is late, and I shouldn't put this off any longer till i have more time to put into it:<br /><br />Balance Sheet Repair!<br /><br />Higher inflation would do wonders via balance sheet repair, to consumers, businesses (except finance, but that includes some of the worst, slimiest elements), and the government. This is a huge NET benefit.<br /><br />2) It makes real wages more flexible -- and there is great evidence for a lot of inflexibility with nominal wage cuts.<br /><br />3) It gives the Fed a lot more ammo in cutting real short term rates.<br /><br />These benefits are far from trivial.<br /><br />Inflation that's higher in magnitude than say 4%, tends to be more volatile, and just psychologically people don't like it, and it makes it harder to plan (yes, despite the assumptions that so many freshwater economists like to take literally, humans aren't super fast calculating robots). Also, the deflation rate is the minimum real interest rate -- you might not want that rate at like 10% or more.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75666849355104578052010-10-16T14:08:32.837-07:002010-10-16T14:08:32.837-07:00Yes, once the MBS are on the balance sheet of the ...Yes, once the MBS are on the balance sheet of the Fed, it does not make much difference whether they are MBS or long Treasuries, though I think it was ill-advised for the FEd to get into the business of buying private assets anyway. It looks like the issue then is that the Fed should be specific about its intentions for the size of its balance sheet and the maturity structure of its assets. However, while the Fed seems to be moving toward QEII, they also appear to be in the dark about what form this would take. Do they make a one-time purchase, do they increase the quantity of long-maturity assets at some rate (and what rate?) for some period of time? How and when do they reverse this, if at all?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15592339280051637682010-10-16T12:52:39.658-07:002010-10-16T12:52:39.658-07:00Is there any difference between holding $1T+ in MB...Is there any difference between holding $1T+ in MBS and in T-bond? Both are the same as Fed is posing large potential of sudden large monetary contraction in the future, by selling so. If people are to worry about those $1T+ MBS on Fed balance sheet, they should worry about sharp deflation in the future. Then holding extra money or reserve is complete rationalAnonymousnoreply@blogger.com