tag:blogger.com,1999:blog-2499715909956774229.post3399476289892982191..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Deflation in Sweden: Svensson's Advice is the Problem, Not the SolutionStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger39125tag:blogger.com,1999:blog-2499715909956774229.post-35764331337934543542014-05-19T03:26:03.906-07:002014-05-19T03:26:03.906-07:00I agree with Piketty the obsession with making an ...I agree with Piketty the obsession with making an argument in algebra which can be expressed well in English is about identity. It is a way of differentiating yourself from the others and forming a club. Good mathematics is good. But it should complement analysis not supplement it - ie use technical appendixes. The more people who can read the research, the more available it is to others working outside the discipline. This is good for research and healthy for democracy. Eg, give an article on Chinese monetary policy to someone who knows Chinese history - and see what they say. They would immediately demolish it for even not knowing the most basic things about its institutions and why they are there.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28161204205080539382014-05-19T03:18:24.469-07:002014-05-19T03:18:24.469-07:00"I am only interested in the science. Really...."I am only interested in the science. Really."<br /><br />What about the facts?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-50077788150744136712014-04-30T10:21:06.268-07:002014-04-30T10:21:06.268-07:00March inflation came in up a little at 1.6% yoy, I...March inflation came in up a little at 1.6% yoy, Index Value = 101.Charlie Clarkehttps://www.blogger.com/profile/02079017903923824877noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-10881655444636490412014-04-28T14:54:15.123-07:002014-04-28T14:54:15.123-07:00Weird isn't it. Some of those "progressiv...Weird isn't it. Some of those "progressive" economists you mention are the last people I would want to be stuck in an elevator with. I never defended Fama though. That's inaccurate. I defended Prescott though. I'm not "pretending" about anything. I am only interested in the science. Really.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7262682642041174402014-04-28T14:48:17.644-07:002014-04-28T14:48:17.644-07:00Rule of thumb: If it shows up in a scatter plot, i...Rule of thumb: If it shows up in a scatter plot, it's not so long-run as you think.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-60253004035169120742014-04-27T10:37:46.668-07:002014-04-27T10:37:46.668-07:00It is funny to see how you always try to pretend i...It is funny to see how you always try to pretend in vain that the topic is methodology while it is in fact content. All the people you have an issue with are progressive economists and all the people you defend (like Fama's counterfactual straight-out-of-the-asylum claim that monetary policy is always ineffective) are right-wing economists.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-54965739300835280652014-04-27T03:09:31.880-07:002014-04-27T03:09:31.880-07:00"It's just the Fisher relation. It has to..."It's just the Fisher relation. It has to hold in the long run." <br /><br />Aha, doing long-run macro to analyze short-run problems. No wonder you get things so wrong.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-74690166167956315312014-04-26T03:04:14.214-07:002014-04-26T03:04:14.214-07:00If something *does* work, doing more of it may not...If something *does* work, doing more of it may not help.<br /><br />Placebo painkillers really work, but you can't get an arbitrary response by varying the quantity of sugar...<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-80834334506704120532014-04-24T12:00:25.329-07:002014-04-24T12:00:25.329-07:00"Yet, other progressive economists will say y..."Yet, other progressive economists will say you are wrong because they will not accept a rise in the Fed rate. They fear a premature recession."<br /><br />Exactly. The fear is overblown. As usual, there's a tradeoff. You get to have inflation at the target rate of 2% (which we're assuming is optimal) forever, weighed against whatever short-run costs we face due non-neutralities of money. The latter should not be a big deal if we're only talking about an increase in the short rate (for now) of 100 to 200 basis points (which can occur in steps of 25 basis points each). In the meantime, we're experiencing problems due to the fact that - as indeed the Riksbank and Svensson recognize - that borrowers are suffering from the unanticipated low inflation.Steve Williamsonhttps://www.blogger.com/profile/16629774961390533020noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28259559545915382372014-04-24T09:11:04.244-07:002014-04-24T09:11:04.244-07:00I think this tells you more about Piketty than it ...I think this tells you more about Piketty than it does the state of the economics profession.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-65093300084370694502014-04-24T05:32:30.112-07:002014-04-24T05:32:30.112-07:00I just wanted to reply to both. This is Piketty to...I just wanted to reply to both. This is Piketty to Yglesias: http://www.vox.com/2014/4/24/5643780/who-is-thomas-piketty#interview<br /><br />"Matthew Yglesias: In your book there's a very amusing criticism of American economists and what you call their childish mathematical obsessions. What’s being done wrong?<br /><br />Thomas Piketty: It's not only in US. It's economists everywhere. I think what they're doing wrong is that in order to distinguish themselves from other disciplines, in order to look like we all are scientists, they use too much complicated math just for the sake of it.<br /><br />Math is fine. Math is very cool. But very often, they tend to push for more sophisticated math just to push off other people. It's an easy way to have the appearance of scientificity. For a real mathematician or physicist, the math will not be terribly impressive but it's enough to impress those economics departments that are less good at math and those social scientists who are less good at math.<br /><br />I think math is useful, if you have a good ratio of facts to theory. But most of the time the economists do the opposite. There are incredibly sophisticated mathematical models with a very tiny empirical component.<br /><br />For the most part it's like [Pierre] Bourdieu, "La Distinction," with art taste. It's a way to distinguish your self from the commoners and to look more sophisticated.”<br /><br />The guy is not a mathematically illiterate having graduated from Ecole Normale Superieure in MathAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-62023002370997380502014-04-23T13:26:22.253-07:002014-04-23T13:26:22.253-07:00Economics is indeed a science. We have theory. We ...Economics is indeed a science. We have theory. We have data. We use the data help us with the theory, and we use the theory to help us with the data. Mathematics and statistics are extremely useful for scientists. Economists would be foolish to leave these powerful tools on the shelf. We're not trying to fool anyone. We're doing the hard work of trying to figure out how the world works and make it better. Don't be so cynical. People might just dismiss you as a crank.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-64012290264897923692014-04-23T11:02:43.740-07:002014-04-23T11:02:43.740-07:00“Too often economists are trained to look scientif...“Too often economists are trained to look scientific and more scientific than other Social Sciences by in fact using too much complicated math and not going sufficiently after the historical data.<br />You know, when I started as a young AP in a US University [Ed. Note: MIT] I found really striking that everybody was expecting me to prove new mathematical theorems and I realised that we had very little knowledge of the fact we want to explain.<br />Math can be useful if it is simple and allows you to explain a larger number of facts, but if we don’t even know what to explain what’s the point of proving theorems?<br /><br />I think part of it is because it’s an easy way to look scientific. Using a lot of techniques is a way to put off other people and to pretend that what we are doing is really scientific."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58278812784419053572014-04-23T07:17:01.136-07:002014-04-23T07:17:01.136-07:00I see what's going on. Thanks. I'll just s...I see what's going on. Thanks. I'll just scratch the last number, and fix the chart when I get a chance.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43234914404409208702014-04-23T02:09:46.609-07:002014-04-23T02:09:46.609-07:00So how does this additional info from Lars EO addr...So how does this additional info from Lars EO address the principal statement of "the Problem, Not the solution"? I think the world as we now it would need a follow up on this particular question as it might put Macro enonomics back to square one. The sooner the better... /swedeAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-22421662533314240392014-04-22T20:46:14.824-07:002014-04-22T20:46:14.824-07:00The March numbers won't be available until Apr...The March numbers won't be available until April 30th. The March you see at that site is only for the "Ku-area of Tokyo." So the year over year is against a totally different series. The January and February numbers are from all of Japan. I think you are correct until you put the March data. That data is from a completely different series for Tokyo. That's why the year over year look wrong, they are compared to the rest of the Tokyo series. Charlie Clarkehttps://www.blogger.com/profile/02079017903923824877noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56888808484931479292014-04-22T19:19:11.370-07:002014-04-22T19:19:11.370-07:00I checked this again and it looks right. I didn...I checked this again and it looks right. I didn't splice times series with different base years, or something like that. The weird part is that the Bank of Japan's year-over-year numbers don't look right. Notice, as well, that, from here:<br /><br /> http://www.stat.go.jp/english/data/cpi/1581.htm<br /><br />(which is the same place I got the 3 observations for this year), the B of J's claim is that the monthly increase in the CPI in March is 0.4%, but you can see that it's actually about -0.9%.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-21644114700519751142014-04-22T19:05:27.517-07:002014-04-22T19:05:27.517-07:00Charlie,
here is a direct link to one of the FRED ...Charlie,<br />here is a direct link to one of the FRED charts that I use in looking at Japan. It includes Japan's unit labor cost, inflation and labor share. You can change the parameters as you wish.<br />http://research.stlouisfed.org/fred2/graph/?g=ydJEdward Lamberthttp://effectivedemand.typepad.comnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-47485590582046540872014-04-22T19:02:05.170-07:002014-04-22T19:02:05.170-07:00I got up to December from FRED:
http://research.s...I got up to December from FRED:<br /><br />http://research.stlouisfed.org/fred2/series/JPNCPIALLMINMEI<br /><br />Then, January, February, and March (preliminary) came from the Bank of Japan's web site.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-68249137242179963452014-04-22T17:47:56.240-07:002014-04-22T17:47:56.240-07:00Where did you get the inflation data for Japan? I...Where did you get the inflation data for Japan? I can't find a series that looks like that. I think the official inflation data is here: http://www.stat.go.jp/english/data/cpi/<br /><br />The most recent report is here: http://www.stat.go.jp/english/data/cpi/1581.htm<br /><br />It shows in February year over year the cpi index rose 1.5%.<br /><br />For March, it only lists preliminary Tokyo results. CPI for the Tokyo area is up 1.3%. The only .4% numbers I see are core year over year for Tokyo area or .4% monthly headline.<br /><br />Maybe there is an error?Charlie Clarkehttps://www.blogger.com/profile/02079017903923824877noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19827636804498248702014-04-22T12:52:33.175-07:002014-04-22T12:52:33.175-07:00The model says that, if long Treasuries are indeed...The model says that, if long Treasuries are indeed worse collateral than short Treasuries, then a floor system (reserves outstanding, and interest paid on reserves at the market rate) is optimal, and the central bank should convert all of the long-term Treasuries into reserves - given the short-term interest rate. Then, the question is - what's the optimal short term interest rate given that policy? There's an implied optimal inflation rate that pops out of the model, but I did not go to much effort to characterize what it is, though there is no presumption that a scarcity of collateral (and a low real rate) implies that the zero lower bound is optimal. It's certainly not true in general that QE produces deflation in the model - just less inflation. An important implication of the model is that the nominal interest rate can be at the zero lower bound and there can be positive inflation - QE or no QE.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-79699001787166989842014-04-22T10:01:27.220-07:002014-04-22T10:01:27.220-07:00The long run Fisher effect is not at all weird. I ...The long run Fisher effect is not at all weird. I agree with it. Yet, other progressive economists will say you are wrong because they will not accept a rise in the Fed rate. They fear a premature recession.<br />I would link to my work on the natural level of potential GDP, but the server for my blog, typepad.com, is offline due to some kind of hacker attack. If my blog ever comes back up, you can do a search on effectivedemand.com for potential GDP.<br />Briefly, right now the natural level of real GDP in the US is between $16.050 and $16.100 trillion.This is based on a calculation of effective demand which limits the business cycle. Effective demand is determined by labor share, which will limit the utilization rates of labor and capital. The recent drop in labor share has pushed the natural level below the previous full employment level. I see a NAIRU between 6.3% and 6.7%.<br />I would say that inflation is falling due to low relative labor income from low labor share. Monetary expansion is taking place among higher incomes, but not among lower incomes. <br /><br />Yet, there are forces pulling down labor share, like from China where labor share dropped substantially from 1997 to 2007. The drop in labor share in China put pressure on the US to do the same. Inflation stayed low in China in spite of large capital inflows. Inflation is muted in the US as well. But there are consequences for effective demand when labor share drops. The biggest consequence is a drop in potential output.<br /><br />So a summary... crisis hit, Fed rate went to zero, economy started to recover, yet labor share fell dropping potential output, Fed did not see this, Fed saw a much higher potential output, so their Taylor rule showed a negative Fed rate, when in reality, with a lower potential GDP or even a higher NAIRU in the Taylor rule, the Fed rate comes out positive. Since then the Fed counts on the wealth effect to spur spending, However monetary expansion bifurcated giving liquidity to capital income but not labor income, inflation stays muted and low... and then the Fed says that the Fed rate must stay on ZLB trend in order to reach the "false" CBO potential GDP... Fed forecasts a negative real rate to take us to full employment... but really a positive real rate will get us to full employment.<br />With the Fed rate on ZLB trend for so long into the future, your Fisher effect comes into play embedding low inflation which was already muted by low money expansion among labor income.<br />The real natural rate looks to be around 2%. Real GDP is reaching its natural level of $16.100 trillion. With an inflation of 2%, the Fed rate should be closing in on 3% fairly soon. The Fed should have started to raise the Fed rate around 2 years ago. And it should be at least 2% by now. The Fed does not realize that the LRAS curve has shifted down due to lower effective demand. So they are way behind the LRAS curve. <br />So, your work on the Fisher effect is immensely important and I sense there are "Fisher" forces raising the real rate toward 2%, while other forces, like forward guidance, try to push the real rate lower. Yet, the Fisher effect supported by the bifurcation in monetary expansion is winning the battle over the real rate. So like you, I see inflation staying stubbornly low for quite some time.<br />I do see pressures to raise wages. But so far there is not enough to raise labor share, which is the critical component to change potential utilization of labor and capital. As well, I think it is too late in the business cycle to substantially raise labor income. Profit rates are already peaking, and if the push to raise labor income is too strong, there will be an economic contraction. <br /><br />To wrap up, I agree with you. Getting the Fed rate off of the long run ZLB trend would open the door to higher inflation. But the global economy is fragile. Emerging markets fear a higher Fed rate. The debt servicing costs of the govt would rise. The stock market would contract. Yet, accepting all that stress, the economy would be healthier.Edward Lamberthttp://effectivedemand.typepad.comnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-985354458546062072014-04-22T08:33:02.633-07:002014-04-22T08:33:02.633-07:00Stephen,
In your model, shouldn't the Fed jus...Stephen,<br /><br />In your model, shouldn't the Fed just buy all the outstanding Treasury debt (and just forgive it)? In your model that would produce lots of deflation, but "good" deflation, correct?Charlie Clarkehttps://www.blogger.com/profile/02079017903923824877noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-53159948416350401552014-04-22T06:42:57.669-07:002014-04-22T06:42:57.669-07:00By, the way, I'm puzzled why you think it'...By, the way, I'm puzzled why you think it's weird to take seriously the long run implications of the Fisher relation, which is at the core of essentially all mainstream monetary economics, while proposing some "monetary bifurcation" theory of inflation. I'd like to see you formalize that.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-67746126426702795432014-04-22T06:34:52.744-07:002014-04-22T06:34:52.744-07:00"Finding the mechanisms for your approach to ..."Finding the mechanisms for your approach to the Fisher relation is a deeply complicated process."<br /><br />No. I've written these things down formally. Not with all the short-run effects you might want to think about, but the theory is there. And the basics are just standard monetary economics. Nothing fancy going on.<br /><br />"the idea that inflation will rise as real output gets closer to its natural level."<br /><br />Questions:<br /><br />1. What determines that "natural level," and what is it right now in the United States?<br />2. Seems that Keynesians would say that output has been increasing toward that natural level for the last 2 years. Why is inflation falling?<br /><br />Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.com