tag:blogger.com,1999:blog-2499715909956774229.post3807248908923887207..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Hawks, Doves, and HyenasStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-2499715909956774229.post-61927718506172881062013-08-04T05:40:42.518-07:002013-08-04T05:40:42.518-07:00"Looks like IS-LM matches the data better tha..."Looks like IS-LM matches the data better than your model."<br /><br />That statement makes no sense. IS-LM is not a dynamic model, and can't even make a start in fitting aggregate time series. My model is not quantitative, and therefore not set up to even address anything in the time series. You could do that if you wanted to, though.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48383053514002007882013-08-04T01:25:11.224-07:002013-08-04T01:25:11.224-07:00"straightforward IS-LM has done a pretty admi..."straightforward IS-LM has done a pretty admirable job of explaining the state of the world today"<br /><br />I know that's Krugman's line, and it's just silly. IS-LM is just not useful, given the alternatives.<br /><br />Looks like IS-LM matches the data better than your model. So much about silliness and usefulness.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-18072917146084604692013-08-03T13:12:37.563-07:002013-08-03T13:12:37.563-07:00"It's hard to find anyone who calls thems..."It's hard to find anyone who calls themselves New Classical these days..."<br /><br />I don't think anyone you would call a "new classical" ever actually applied that name to his or herself.<br /><br />"At the time of their founding in the mid-1970s New Classical economists did not share the monetarist belief that monetary policy could systematically impact the economy..."<br /><br />Old monetarism was not about "beliefs." It was mainly based on empirical work, e.g. Friedman and Schwartz. Further, Friedman wasn't really about systematic effects of monetary policy. You could think of Lucas's Expectations and the Neutrality of Money as a formalization of some of what Friedman was thinking. As well, Friedman liked talking about "long and variable lags," i.e. the effects of monetary policy were not "systematic" in his mind.<br /><br />"New Keynesians abandoned Walras and market-clearing."<br /><br />Not quite right. It's not Walrasian alright, but there's a well-defined equilibrium concept.<br /><br />"they are in fact important parts of the New Keynesian toolkit"<br /><br />Wrong. There are reduced-form versions of New Keynesian models, e.g. the three-equation model with the "IS curve," "Phillips curve" and the Taylor rule. If you think that's the same thing as AS-AD etc., then you don't understand it properly.<br /><br />"It is no exageration to say that Janet Yellen is a founding mother of New Keynesian economics."<br /><br />Oh boy. Now you're really getting carried away.<br /><br />"you are really a New Classical economist who simply doesn't know, or refuses to admit, that is indeed what you are."<br /><br />You'll have to tell me what you think a new classical economist is, exactly. When I hear those words, I'm imagining someone who uses straight competitive equilibrium models - preferences, endowments, and technology, complete markets, perfect information, no problems of enforcement, commitment, etc. Relative to that frictionless paradigm, if you read my work you'll find that my models are loaded with frictions - private information, limited commitment, for example. In my model environments, things get very screwed up - people need to use banks and monetary arrangements to trade, and there are important problems that the government needs to solve. There can be multiple equilibria, credit can rationed, etc. Relative to Woodford-style New Keynesian economics - that's complete markets, full information, and one friction, sticky prices - it's well at the other end of the spectrum. Basically, you don't know what you're talking about.<br /><br />With regard to the P.S.: Here's another sense in which you don't know what you're talking about. Plosser was on the Shadow Open Market Committee before he came to the Fed. That's a well-known group of Old Monetarists that has existed since the 1970s.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-84175946560421251092013-08-03T11:27:05.761-07:002013-08-03T11:27:05.761-07:00Contemporary research economics is dominated by Ne...Contemporary research economics is dominated by New Keynesian economics. New Keynesian economics has adapted from the New Classical school the RBC hypotheses including rational expectations and associated methods, combining it with nominal rigidities (price stickiness) and other market imperfections. It has led to the development of dynamic stochastic general equilibrium (DSGE) models.<br /><br />Brock and Mirman, and Kydland-Prescott are key aspects of RBC hypothesis and hence came to New Keynesian economics via the New Classical school. It's hard to find anyone who calls themselves New Classical these days, although the phrase pops up as a Freudian slip in papers from time to time (e.g. Lee Ohanian). At the time of their founding in the mid-1970s New Classical economists did not share the monetarist belief that monetary policy could systematically impact the economy and broke with Keynesian economic theory completely, while the monetarists had built on Keynesian ideas. New Classical economics had pointed out the inherent contradiction of the neoclassical synthesis, that is, Walrasian microeconomics with market-clearing and general equilibrium could not lead to Keynesian macroeconomics where markets failed to clear. New Keynesians recognized this paradox, but, while the New Classicals abandoned Keynes, New Keynesians abandoned Walras and market-clearing.<br /><br />So when you deride IS-LM, AD-AS and the Phillips curve as Old Keynesian ideas found only in some undergraduate textbooks, they are in fact important parts of the New Keynesian toolkit, and a substantial portion of the best selling introductory graduate macroeconomics textbooks, such as David Romer's "Advanced Macroeconomics," is in fact devoted to a discussion of these models. <br /><br />In your discussion of New Keynesian economics you manage to leave out all of the defining characteristics that in fact separate New Keynesian economics from New Classical economics, namely, in addition to Old Keynesian ideas, nominal and real rigidities, coordination failure, efficiency wages, and insider-outsider models. Interestingly, Yellen's earliest and best cited papers make fundamental contributions to the study of the concepts of nominal rigidities and efficiency wages. <br /><br />So Yellen's familiarity with IS-LM, AD-AS and the Phillips curve is characteristic of all New Keynesian economists. (Otherwise why call them *Keynesian* at all?) And her important contributions to the distinguishing concepts of New Keynesian economics make her a New Keynesian economist in the best sense. It is no exageration to say that Janet Yellen is a founding mother of New Keynesian economics. <br /><br />In contrast, your confused description of the economic schools reinforces my opinion that you are really a New Classical economist who simply doesn't know, or refuses to admit, that is indeed what you are.<br /><br />P.S. Charles Plosser is not an Old Monetarist but rather a founding father of Real Business Cycle Theory (RBC), a school of economics for which money and prices don't even exist, and that tells you pretty much all you need to know about his thinking on monetary policy. Esther George and Dick Fisher are difficult to classify simply because they aren't even economists much less macroeconomists. Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-61804718805635660032013-08-03T08:49:36.977-07:002013-08-03T08:49:36.977-07:00"I don't think it's fair to say that ..."I don't think it's fair to say that Krugman "doesn't like" Summers."<br /><br />Actually, I think it's clear he's anti-Summers and pro-Yellen. You can't speak out against a fellow Cambridge insider, though.<br /><br />"I also seriously doubt that Summers is as ignorant of the last thirty years of research as this post seems to suggest..."<br /><br />He's willfully ignorant of some things. He thinks he got it early in the 1980s, and has stopped paying attention.<br /><br />"straightforward IS-LM has done a pretty admirable job of explaining the state of the world today"<br /><br />I know that's Krugman's line, and it's just silly. IS-LM is just not useful, given the alternatives.<br /><br />"a lot better than the "new era" RBC work of the past few decades, which has pretty much gone down in flames."<br /><br />Here you're being inconsistent. Obviously it hasn't gone down in flames, as neoclassical growth theory is central to what economists who work on growth do, and the RBC model is central to New Keynesianism, which obviously you think is alive and well.<br /><br />"Mike Woodford-style NGDP targeting"<br /><br />What Woodford does with his models is not NGDP targeting. He may have said something about that (and Evans may have mentioned it), but the New Keynesian work that backs up forward guidance has nothing to do with NGDP targeting, and as far as I know NGDP targeting is not collectively taken seriously on the FOMC.<br /><br />Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-83666143689169290992013-08-03T08:34:36.872-07:002013-08-03T08:34:36.872-07:00Those things sometimes go together. Particularly i...Those things sometimes go together. Particularly in academic settings, people can score points by thinking quickly, deciding what they should think, and then going with it. Having a big voice, and training in high school debate helps. The problem is that the quick and sharp type often has a short attention span. More often the quiet person in the back of the room who actually spends some time pondering the problem gets it right.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-40636352955131252852013-08-03T01:02:20.945-07:002013-08-03T01:02:20.945-07:00I don't think it's fair to say that Krugma...I don't think it's fair to say that Krugman "doesn't like" Summers. It seems pretty clear to me that Krugman has a lot of respect for Summers as a thinker-- it's hard not to; Summers is smart as hell. I also seriously doubt that Summers is as ignorant of the last thirty years of research as this post seems to suggest-- I think he just recognizes that straightforward IS-LM has done a pretty admirable job of explaining the state of the world today; a lot better than the "new era" RBC work of the past few decades, which has pretty much gone down in flames.<br /><br />But I also think the distinction between "old Keynesians" and "New Keynesians" isn't as neat as this post wants to make it seem. What I hear people like Krugman and Summers (and, even more strongly, Richard Koo) saying is that Mike Woodford-style NGDP targeting is worth pursuing, but that the mechanisms through which it would be effective (influencing expectations) are inherently difficult, and that there's no guarantee of success. I think that point is almost certainly true-- if influencing market expectations were easy, Ben Bernanke would have done it by now. And I think Yellen is even less skeptical than Krugman on this point; she does head the Fed's communication committee, whose communication strategy is substantially substantive rather than just communicative.<br /><br />But my takeaway from reading Krugman on this issue (while Summers has been opaque on it, I'd guess he's pretty much in the same place) is that he thinks the "New Keynesian" approach is worthwhile, but that success is far from guaranteed.Alex I.https://www.blogger.com/profile/04869946728729605519noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-47360119117555970582013-08-02T15:37:52.293-07:002013-08-02T15:37:52.293-07:00That is precious, thanks for the laugh.That is precious, thanks for the laugh.CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-12630276336763761942013-08-02T14:57:08.648-07:002013-08-02T14:57:08.648-07:00Nice post. On the one hand, Summers in quick and ...Nice post. On the one hand, Summers in quick and sharp, while on the other he is opinionated and shallow. Miss Harvardnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15920325641940972522013-08-02T14:35:14.250-07:002013-08-02T14:35:14.250-07:00I think in some contexts you might want to be rela...I think in some contexts you might want to be relatively "hawkish" and in other circumstances "dovish".<br /><br />To switch to a different set of animals, what do you think of the <a href="http://www.themoneyillusion.com/?p=22706" rel="nofollow">turkey vs hummingbird</a> distinction?Wonks Anonymousnoreply@blogger.com