tag:blogger.com,1999:blog-2499715909956774229.post852672203411723111..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Core InflationStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-2499715909956774229.post-28811995525273639822011-04-13T08:42:46.212-07:002011-04-13T08:42:46.212-07:00you could just read the fed transcripts.you could just read the fed transcripts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-31788371330147671692011-04-12T06:19:01.542-07:002011-04-12T06:19:01.542-07:00Joao,
Thanks, I should have thought of this. Hetz...Joao,<br /><br />Thanks, I should have thought of this. Hetzel is an excellent student of the period and the policy debates.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28066859412133058592011-04-11T19:04:13.533-07:002011-04-11T19:04:13.533-07:00This piece by Robert Hetzel is one of the best and...This piece by Robert Hetzel is one of the best and very readable account of the "mindset" of monetary policy makers in the 1970´s:<br />http://www.richmondfed.org/publications/research/economic_quarterly/1998/winter/pdf/hetzel.pdfJoão Marcushttps://www.blogger.com/profile/13658264244033012660noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19549223463845538592011-04-11T18:59:08.129-07:002011-04-11T18:59:08.129-07:00That would be deeply appreciated. Google Scholar ...That would be deeply appreciated. Google Scholar searches leave one swamped.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-77893433034859553272011-04-11T18:46:44.226-07:002011-04-11T18:46:44.226-07:00I think it would help you to go back and read some...I think it would help you to go back and read some of the accounts of the policy discussion from the mid to late 1970s, and into the Volcker era. I don't have references off the top of my head, but maybe some other readers know where to look.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-11171776114900020492011-04-11T17:43:10.378-07:002011-04-11T17:43:10.378-07:00Whoops - didn't html-ize those links. Cut and...Whoops - didn't html-ize those links. Cut and paste if you care to see if what I was getting at was worthwhile. Cheers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58219010585789004992011-04-11T17:42:04.935-07:002011-04-11T17:42:04.935-07:00This post got me looking at different data series ...This post got me looking at different data series on FRED. It's interesting how CPI less food and energy disengaged from the CPI in general:<br /><br />http://tinyurl.com/68xe8we<br /><br />Mr. Plosser's quote:<br /><br />"If we look back to the lessons of the 1970s, we see that it is not the price of oil that caused the Great Inflation, but a monetary policy stance that was too accommodative."<br /><br />But is that what we see?<br /><br />http://tinyurl.com/3j5utcg<br /><br />Just eyeballing this, doesn't it suggest an accommodating monetary policy in the face of a sustained disinflation? Inflation was declining, so "oil did it" seems to have been a rational conclusion on the part of the Fed, as well as the assumption that unemployment could be dealt with through monetary policy now that the supply shock was over. As soon as that disinflation seemed to stop, the Fed Funds rate started increasing.<br /><br />This sloppier graph seems to express the idea even better:<br /><br />http://tinyurl.com/3wqyfar<br /><br />They could have rationally attributed the discontinuation of the disinflation to occasional spikes in the price of oil from the '76 to '78 period. After that, when inflation started increasing in a manner that couldn't clearly or initially be attributed to oil - especially with no obvious supply shock increase in unemployment - the Fed responded accordingly be increasing the Fed Funds rate.<br /><br />Regardless of what the actual Fed targets were at that point - aggregate targeting, whatever - looking at it through a Fed Funds lens, it doesn't seem all that bad an attempted pursuit of the dual mandate to my undergraduate eyes.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56968600789642360082011-04-11T17:34:24.252-07:002011-04-11T17:34:24.252-07:00I'd make an inverse "stickiness" hie...I'd make an inverse "stickiness" hierarchy: Headline Inflation > Core Inflation > Wage Inflation. You could argue that the inflation spiral cannot get started unless somehow headline inflation "propagates" down to wage inflation. Supply shocks are going to have much more of an effect on headline inflation, oil and food being the best examples. Aggregate demand and demand for labor will have more to do with wage inflation. Monetary policy is supposed to be able to have an effect on aggregate demand - so unless policy allows for wage growth, seems the spiral can't get started just by high commodity prices.Garyhttps://www.blogger.com/profile/08580497879135994296noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-29643841394743778562011-04-11T13:22:20.861-07:002011-04-11T13:22:20.861-07:00Steve
I surmized that from your discussion "I...Steve<br />I surmized that from your discussion "IT is bad" was implied! If no one knows which "inflation" to target"...João Marcushttps://www.blogger.com/profile/13658264244033012660noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-32431236362410696672011-04-11T09:02:29.277-07:002011-04-11T09:02:29.277-07:00Joao,
You seem to have misunderstood. I'm not...Joao,<br /><br />You seem to have misunderstood. I'm not saying that inflation targeting is a bad thing, I'm questioning the conventional focus by central bankers and others on core inflation measures.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-16670270132871030952011-04-11T08:19:51.580-07:002011-04-11T08:19:51.580-07:00Steve
I link to a post I did commenting yours
http...Steve<br />I link to a post I did commenting yours<br />http://thefaintofheart.wordpress.com/2011/04/11/no-consensus-on-inflation/João Marcushttps://www.blogger.com/profile/13658264244033012660noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-33328018080625477192011-04-11T05:15:29.581-07:002011-04-11T05:15:29.581-07:00there is a Borio paper which questions the assumpt...there is a Borio paper which questions the assumption of downward nominal rigidity in wages, based on historical evidence. reference to follow.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-90729598787882876872011-04-11T04:41:30.677-07:002011-04-11T04:41:30.677-07:00David,
Thanks for the reference. Yes, a standard ...David,<br /><br />Thanks for the reference. Yes, a standard argument that I heard last year when worry was spreading about the possibility of deflation in the US, was essentially the Akerlof story.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-71157184894468396872011-04-10T19:32:28.972-07:002011-04-10T19:32:28.972-07:00Stephen:
Chris Haynes and John James has an inter...Stephen:<br /><br />Chris Haynes and John James has an interesting AER paper where they look at whether there is downward nominal wage stickiness in a non-inflationary regime. They specifically look at the U.S. 19th century where there was secular deflation at times. They find no evidence of downward nominal wage stickiness. One implication of their finding is that nominal wage stickiness is conditional upon the monetary regime. <br /><br />This paper raises questions about famous Akerloff et al. (1996) that claims downward nominal rigidity is a fundamental preference of workers. The Hanes-James paper suggests that the current downward nominal wage stickiness may simply be a function of our inflationary-biased monetary policy regime.<br /><br />Here is a link to the paper:<br />http://www.rau.ro/intranet/Aer/2003/9304/93041414.pdfDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-54945630112443494982011-04-10T18:32:58.781-07:002011-04-10T18:32:58.781-07:00Nick,
Often people think about this issue in term...Nick,<br /><br />Often people think about this issue in terms of variability in interest rates vs. money. For example, in the National Banking era in the US, short-term nominal interest rates were highly variable (including seasonally). From 1914 on, short-term nominal interest rates are smooth and money is variable. When a central bank targets something, something else has to give, and that applies to prices too. I think it's the key to figuring out whether prices are sticky in a way that matters. You're thinking about some candidates for natural experiments and, as you say, the only question is whether the data is any good.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27134298774611401522011-04-10T18:17:26.508-07:002011-04-10T18:17:26.508-07:00Interesting point. The gold standard would be an e...Interesting point. The gold standard would be an example to illustrate your point. "Amazing how sticky the price of gold was in the olden days!"<br /><br />But might data from the gold standard be also a way to test the extent to which the definition of core inflation is policy-invariant? (If the data are good enough).<br /><br />Or, maybe we could try different frequencies too. If prices that were sticky/flexible on weekly or monthly data also turned out to be sticky/flexible on annual data?Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com