tag:blogger.com,1999:blog-2499715909956774229.post5701936898032372103..comments2024-05-02T08:05:13.647-07:00Comments on Stephen Williamson: New Monetarist Economics: Larry Summers at the IMFStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-2499715909956774229.post-23186043587168950072013-11-21T23:44:06.912-08:002013-11-21T23:44:06.912-08:00"That the Wicksellian natural rate of interes..."That the Wicksellian natural rate of interest is negative right now is pretty obvious"<br /><br />What is the evidence for this?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-71595442317228074192013-11-21T09:28:16.075-08:002013-11-21T09:28:16.075-08:00Until Keynes can offer a decent explanation for an...Until Keynes can offer a decent explanation for anything that doesn't rely on hand-waving away inconvenient facts I stick with Diamond-Mortenson-Pissarides.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-63243180695180590272013-11-20T14:50:35.665-08:002013-11-20T14:50:35.665-08:00That the Wicksellian natural rate of interest is n...That the Wicksellian natural rate of interest is negative right now is pretty obvious and while wage and price rigidity enhance the problem wage and price flexibility will not necessarily solved it.<br /><br />Once neoclassical economists can offer a decent explanation for persistent involuntary unemployment I am all ears. Until then I stick with Wicksell and Keynes.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3652410581579562572013-11-18T10:11:50.509-08:002013-11-18T10:11:50.509-08:00Giorgio Primiceri has a paper where they back out ...Giorgio Primiceri has a paper where they back out something that looks like a preference shock. But it is still insane to think of the Great Recession as a collective bout of patience.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-839744451376379542013-11-18T09:29:04.157-08:002013-11-18T09:29:04.157-08:00I don't disagree that this seems like a lousy ...I don't disagree that this seems like a lousy way to model the financial crisis. But I was wondering if the proponents of NK do try and take their models seriously. One step towards that would be to try and say something about the distribution of shocks.<br /><br />My birds eye view is that the way NK models are written down, there is no way to identify the preference shocks. Using time series to reproduce the data also seems not quite right -- I suspect there is a large parameter space of distributions that will reproduce the same data, that is, unless you have fantastic data, and data outside of the financial crisis. <br /><br />What I'm suggesting is that NK people should look at some other (testable) implications of the model that don't have anything to do with the financial crisis, and see if these other implications are consistent with the preference parameters they choose. I suspect this isn't being done. If it is, could you mention a reference? If it isn't, then preference shocks are just a free parameter. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72482685747184234882013-11-18T06:13:08.125-08:002013-11-18T06:13:08.125-08:00Again, I think that, if you're trying to model...Again, I think that, if you're trying to model the effect of the financial crisis, and you have to represent it by a preference shock, then you have the wrong model. However, if you buy into this approach, there are ways to measure the shocks. For example, you can write down the model in such a way that it's identified. Then, you construct time series for the shocks that will reproduce the data exactly.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-64562413290506649532013-11-17T18:59:23.540-08:002013-11-17T18:59:23.540-08:00Just to clarify, my impression is that macroeconom...Just to clarify, my impression is that macroeconomists (and even, say, people who do applied IO) who use preference shocks aren't very careful in justifying exactly how they picked a particular distribution of shocks. It is typically hard to back out the shocks from the model that they are applied in. You have to look at some other kinds of tradeoffs to figure out the shocks. And I'm not sure what macroeconomists who use preference shocks actually do.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-35271789729028809952013-11-17T18:54:07.673-08:002013-11-17T18:54:07.673-08:00Any thoughts on what sort of data might allow you ...Any thoughts on what sort of data might allow you to back out the distribution over shocks?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-41586995468533626812013-11-17T18:50:39.914-08:002013-11-17T18:50:39.914-08:00I'm not advocating this approach. This is what...I'm not advocating this approach. This is what NK people are saying. I don't think it makes any sense to think of the financial crisis in this way, but one approach would be to take a basic NK model, and fit it to the data in a way that allows you to back out the shocks.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-30448003310436779402013-11-17T18:37:34.390-08:002013-11-17T18:37:34.390-08:00" . . . we can model the financial crisis as ..." . . . we can model the financial crisis as a preference shock - the rate of time preference fell."<br /><br />Is there a way to measure how much time preference falls? Or more generally, the distribution of these preference shocks? Surely, such preference shocks must have other observable implications. Otherwise we must regard the distribution of preference shocks as a free parameter.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27719409226603030672013-11-17T15:23:19.298-08:002013-11-17T15:23:19.298-08:00No, but if the rate of time preference falls, then...No, but if the rate of time preference falls, then the natural rate falls. In a NK model, if wages and prices are flexible, then we get the equilibrium allocation for the underlying neoclassical growth model, and that equilibrium allocation is efficient. The natural rate of interest is the interest rate in that equilibrium. Thus, the natural rate is determined by whatever the fundamentals are in the model - preference shocks, TFP shocks, etc. One property that the neoclassical growth model has is that, in the deterministic steady state, the real interest rate is equal to the rate of time preference. Thus, in the absence of stochastic shocks, the real rate - the natural rate - converges to the rate of time preference.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-6265403848796282852013-11-17T14:53:18.797-08:002013-11-17T14:53:18.797-08:00Interesting. Do the terms "rate of time prefe...Interesting. Do the terms "rate of time preference" and the "natural rate of interest" mean the same thing in your post?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com