tag:blogger.com,1999:blog-2499715909956774229.post8051842495798835519..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Liquidity Traps, Money, Inflation, and Bond YieldsStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-2499715909956774229.post-8208064537395408222013-02-23T02:04:00.856-08:002013-02-23T02:04:00.856-08:00This is just the logical extension of standard day...This is just the logical extension of standard day-to-day central banking practice.<br /><br /><a href="http://www.MedicinesFast.com" rel="nofollow">purchase cialis</a><br />Anonymoushttps://www.blogger.com/profile/03493083152641931097noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-80062401344576065432011-09-12T08:28:20.934-07:002011-09-12T08:28:20.934-07:00Many high Street banks who sold so called Bank Swa...Many high Street banks who sold so called <a href="%E2%80%9Dwww.bankswaps.co.uk/%E2%80%9D" rel="nofollow">Bank Swaps</a> are now bracing themselves for a possible yet another wave of claim similar to those brought by people with miss sold PPI.Mar k Walusimbihttps://www.blogger.com/profile/12090561600874781788noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19739387325360957582011-09-10T06:29:04.148-07:002011-09-10T06:29:04.148-07:00Debt does not have to be backed by promises of new...Debt does not have to be backed by promises of new taxes - there is an alternative.<br />Govt spending on tangible productive assets can be backed by a promise to sell the assets in due course, hopefully a politically more acceptable strategy.<br />The 'loan' is thus for a capital expenditure, rather than a running cost.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-6883092419116475872011-08-30T12:07:14.018-07:002011-08-30T12:07:14.018-07:00Steve, thanks for the clarifications. I should loo...Steve, thanks for the clarifications. I should look up your papers with models to have a better idea of what you have in mind. But I would enjoy if you were to write a post sometime on why it is that the power to tax allows the government to provide liquidity better then private agents.<br /><br />-RVAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-62563397505698240072011-08-29T12:45:08.034-07:002011-08-29T12:45:08.034-07:00not an economist, but quote "The nominal inte...not an economist, but quote "The nominal interest rate is essentially a measure of the scarcity of money as a medium of exchange" where is the psychology, eg can the interest rate can be zero while you have scarce money if people are scared ?ezra abramsnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-63813056465259422242011-08-25T14:18:44.283-07:002011-08-25T14:18:44.283-07:00"What we do know is that the Riksbank grew it..."What we do know is that the Riksbank grew its balance sheet to 25% of GDP, versus the Fed's 15%."<br /><br />i think the BOE expanded their bs even more (as % of GDP) yet growth there has been disappointing (relative to expectations, relative to pre-crisis trend, etc.). so it would seem bs expansion is not the (only) explanation (and nor is the exchange rate).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82083840443052575472011-08-24T12:09:10.320-07:002011-08-24T12:09:10.320-07:00David,
But you could think of Canada as a success...David,<br /><br />But you could think of Canada as a success too. There was no serious expansion in the Bank of Canada's balance sheet. They are now back to "normal" monetary policy with essentially zero overnight reserves.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-49820598204485230202011-08-24T12:02:21.730-07:002011-08-24T12:02:21.730-07:00Steve,
One more thing. Their success can be seen ...Steve,<br /><br />One more thing. Their success can be seen in the fact that they returned nominal spending to its pre-crisis level. In effect, they did what amounted to NGDP level targeting. See the figures in these two posts:<br /><br />http://macromarketmusings.blogspot.com/2011/06/what-catch-up-growth-under-nominal-gdp.html<br /><br />http://macromarketmusings.blogspot.com/2011/06/what-successful-and-unsuccessful.htmlDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73486979524967388482011-08-24T11:58:50.542-07:002011-08-24T11:58:50.542-07:00Steve,
The only other thing going on that I know ...Steve,<br /><br />The only other thing going on that I know is they have a larger social safety, which makes for a larger automatic stabilizer. However, it is not clear how important this was to their success.<br /><br />What we do know is that the Riksbank grew its balance sheet to 25% of GDP, versus the Fed's 15%. Also, they had an explicit, well understood inflation target unlike the Fed. Finally, the negative interest rate on reserves was apparently more symbolic than real. So that leaves the large expansion of Riksbank's balance sheet and the better anchoring of inflation expectations via their inflation target. It is hard to reconcile this with the claim that QE is ineffective.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72014458143340172782011-08-24T11:02:26.784-07:002011-08-24T11:02:26.784-07:00Hi David,
I don't know enough about Sweden to...Hi David,<br /><br />I don't know enough about Sweden to say. You would have to figure out whether the "success" was actually tied to monetary policy, or there was something else going on. The fact that the Riksbank was effectively taxing reserve balances I thought was interesting. I discussed that here:<br /><br />http://newmonetarism.blogspot.com/2010/12/zero-lower-bound-does-not-bind.html<br /><br />anonymous,<br /><br />Unfortunately this is me blogging vs. Nobu and company with an explicit model. In my loose model of words, the two key Fed liabilities - currency and reserves - each have specific roles in particular kinds of transactions. Those roles give the Fed its particular advantage in financial intermediation. In Kiyotaki-Moore, the Fed seems to have an advantage in intermediating private assets.<br /><br />"Unless somehow you think that the liquidity of treasuries is intrinsically linked to its ability to raise taxes, but this is not in your post."<br /><br />Yes, good point. The power to tax is critical.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15217431453912502142011-08-24T10:10:46.805-07:002011-08-24T10:10:46.805-07:00Steve, your summary broadly agrees with my underst...Steve, your summary broadly agrees with my understanding of the model and of the paper. What confuses me is that I don't see how your implicit model is so different from theirs.<br /><br />In your post is that you seem to be making the following arguments:<br /><br />1) Money/Reserves and Treasuries are perfect substitutes insofar as liquidity is concerned. So swapping one for the other does nothing.<br /><br />2) What you want is to increase the total amount of liquidity, i.e., Money AND Treasuries.<br /><br />3) The government is able to do this by issuing treasury notes. The financial sector is unable to do this. So the government should do it.<br /><br />It seems that in step 3 you are making an assumption very similar to Kiyotaki and Moore '08. The difference is that while they are talking about the gov't doing financial intermediation, you are talking about it issuing debt and backing it with future taxes. I can see merits and demerits in both proposals, but I don't see how they are so fundamentally different in the main mechanism through which they work. Unless somehow you think that the liquidity of treasuries is intrinsically linked to its ability to raise taxes, but this is not in your post.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-83256119620846008452011-08-24T09:52:07.309-07:002011-08-24T09:52:07.309-07:00Steve,
How do you square the success of Sweden...Steve,<br /><br />How do you square the success of Sweden's monetary policy with your view outline above? <br /><br />http://macromarketmusings.blogspot.com/2011/06/what-successful-and-unsuccessful.htmlDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59970528002739890662011-08-24T08:35:16.149-07:002011-08-24T08:35:16.149-07:00RV,
I have not read the paper, which is posted he...RV,<br /><br />I have not read the paper, which is posted here:<br /><br />http://www.frbsf.org/economics/conferences/1003/delnegro_eggertsson_ferrero_kiyotaki.pdf<br /><br />However, I read the abstract, and I think I see where it's going. It's basically Kiyotaki-Moore (2008) with New Keynesian sticky wages and prices, and then they look at QE at the zero lower bound. I'm familiar with Kiyotaki-Moore. That model gives the central bank an advantage in producing liquidity by assumption. There are two assets. Capital is illiquid by assumption - it's hard to sell existing claims to it, and there are limitations on issuing new claims to it. This produces liquidity constraints that firms face when they want to invest. There is a straightforward policy which relaxes those liquidity constraints, which is for the central bank to intermediate all the capital - i.e. issue money to purchase the entire capital stock. For me, that makes the model very unappealing. It does not get at what advantages and disadvantages the central bank has as a financial intermediary, and those things are critical for evaluating policy.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-68317518921475153812011-08-24T07:55:15.098-07:002011-08-24T07:55:15.098-07:00Steve,
How does your policy proposals square with...Steve,<br /><br />How does your policy proposals square with the Del Negro, Eggertson, Ferrero and Kiyotaki paper? That paper was meant to be about QE1, which is closer to a fiscal policy in the sense that the government was swapping illiquid IOU's to liquid gov't paper. By doing so it was not so much running a deficit as it was changing its own portoflio and the portfolio of the private sector. <br /><br />-RVAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3232848953837552832011-08-24T03:36:07.454-07:002011-08-24T03:36:07.454-07:00One of the key trends of the past quarter century,...One of the key trends of the past quarter century, besides the growth of shadow banking, was the erosion of transparent price discovery on exchanges in favour of ill-transparent, decentralised, fragmented OTC trading markets. The assets that grew fastest during this era (OTC derivatives, RMBS, etc.) were all traded through intermediaries in these decentralised markets. Of course, as confidence in the intermediaries eroded, the liquidity of these markets collapsed. Investors holding OTC assets find they cannot price or trade them. <br /><br />Perhaps it is time to consider structual market reforms which would encourage more exchange trading, concentrating liquidity and price discovery without manipulation by credit intermediaries with access to central bank liquidity. In essence, this was the 1934 Securities Exchange Act and Glass Steagall Act objective.<br /><br />Liquid assets are traded in size, with transparent pricing. Time to nudge the market back toward issuing and trading liquid assets?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-23475122344256439202011-08-23T15:22:07.414-07:002011-08-23T15:22:07.414-07:00"If, as you concede, the Fed should be able t..."If, as you concede, the Fed should be able to make a difference for inflation by buying up private assets, then why shouldn't the Fed be able to pack a punch by simply signaling a commitment to do so via a price level target?"<br /><br />No, I didn't "concede" something. I said that's a different story. If the Fed buys private assets, the result depends on what they are. In extreme cases where the Fed is not very good at screening the assets, it could run into adverse selection and moral hazard problems, i.e. the Fed could be a bad banker. But suppose that the Fed is as good a banker as the private sector. Then, if it buys private assets on the same terms as the private sector under the current circumstances, this is neutral - same result. If it buys assets on better terms than the private sector is offering, then some credit reallocation is going on, and the Fed will incur a loss on its portfolio which has to be made up somewhere. Some people benefit, some lose, and it's not clear if you get more inflation or less. The credit reallocation illustrates why the private asset purchases are a bad idea. If you start buying private debt on a regular basis for example, then everyone learns that they can benefit if the Fed buys their debt. United Airlines gets in trouble for example, and lobbyists start making the case that the Fed should by United Airlines debt. Where does that stop. Not sure what you are thinking with the commitment and price level targeting.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-70220381644900598522011-08-23T15:08:35.193-07:002011-08-23T15:08:35.193-07:00Let's put aside your contention that Fed buyin...Let's put aside your contention that Fed buying up all the treasuries won't matter for now. If, as you concede, the Fed should be able to make a difference for inflation by buying up private assets, then why shouldn't the Fed be able to pack a punch by simply signaling a commitment to do so via a price level target?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-45750444604238175972011-08-23T14:33:02.589-07:002011-08-23T14:33:02.589-07:00"Let's say the Fed committed to buying up..."Let's say the Fed committed to buying up as many treasuries, foreign exchange, stocks, etc. as needed until inflation hit some permanently higher target inflation rate like 6%."<br /><br />The Fed can buy all the government debt it wants right now, and that will be irrelevant, for inflation or anything else. Once you get into private assets - stocks, for example, as you mention - that's another story. But there are good reasons why having the central bank purchase private assets is a bad idea.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-49783151052919405152011-08-23T14:23:15.401-07:002011-08-23T14:23:15.401-07:00Stephen:
The Fed can swap reserves for T-bills or...Stephen:<br /><br /><i>The Fed can swap reserves for T-bills or reserves for long-maturity Treasuries all it wants, but because this essentially amounts to intermediation activities the private sector can accomplish as well, this will have no effect.</i><br /><br />Let's say the Fed committed to buying up as many treasuries, foreign exchange, stocks, etc. as needed until inflation hit some permanently higher target inflation rate like 6%. And assume this was clearly understood and believed by the public. It hard to believe the Fed would have no effect on investors' portfolios and that such a regime change in monetary policy would not lead to a change in the velocity of broad money (e.g. M3). Explain why this would not be the case.Anonymousnoreply@blogger.com