global financial crash yay!
- Thread starter sufi
- Start date
yeah, completely insane. It's asking for a major contraction in those countries. If they follow through with that, and stick to the austerity programs, they are going to cause a huge crisis.
and all just to satisfy some discredited, macro dark ages, zombie ideas. I found Krugman's post pretty timely:
http://krugman.blogs.nytimes.com/2010/02/06/brains-brains/
This whole deficit hawk thing across the world right now is basically 'Chicago strikes back'
and all just to satisfy some discredited, macro dark ages, zombie ideas. I found Krugman's post pretty timely:
http://krugman.blogs.nytimes.com/2010/02/06/brains-brains/
This whole deficit hawk thing across the world right now is basically 'Chicago strikes back'
vimothy
yurp
http://www.businessweek.com/news/20...ek-imf-help-on-greece-s-deficit-update1-.html
http://www.reuters.com/article/idUSLDE61421120100205
I.e., not only will the EU not lend to Greece, they don't want anyone else to because that would be embarrassing. I think that describing this position as liquidationist is possibly too kind.
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vimothy
yurp
Werd:
“On Friday, Portugal’s opposition parties defeated a government austerity plan and passed their own bill allowing the country’s autonomous regions to rack up even more debt.”
http://tinyurl.com/yl8urf3
“On Friday, Portugal’s opposition parties defeated a government austerity plan and passed their own bill allowing the country’s autonomous regions to rack up even more debt.”
http://tinyurl.com/yl8urf3
yeah, I hope the austerity program isn't their actual solution. Under the EU plan Greece cuts its deficit from 13% of GDP to 3% of GDP by 2012, which would be disastrous. I really hope that's not what they mean when they say that they are "fully convinced that the EU and the Economic and Monetary Union have instruments enough to cope with this challenge"
vimothy
yurp
Following on from Keynes, above:
http://angrybear.blogspot.com/2010/02/globalizationlifted-from-comments.html
http://angrybear.blogspot.com/2010/02/globalizationlifted-from-comments.html
yes my man Stiglitz. The other quote is good as well:
"...note that the world's economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground."
Now you see why I like him?
"...note that the world's economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground."
Now you see why I like him?
vimothy
yurp
The CAD is Keynes' black hole / economic sink of aggregate demand. Yes, I get it now.
Something that has occurred to me though, is that if China were suddenly "repaid", that purchasing power would come hurtling back into the US economy (since that debt is dollar denominated). It is not so terrible that China might one day "ask for its money back".
Something that has occurred to me though, is that if China were suddenly "repaid", that purchasing power would come hurtling back into the US economy (since that debt is dollar denominated). It is not so terrible that China might one day "ask for its money back".
one thing that's tripping me up on PK vs. neo-wicksellian models is the lack of a natural rate of interest. I still think in terms of there being a natural rate
reading this paper now:
http://aix1.uottawa.ca/~robinson/english/wp/2005/dal-rope.pdf
reading this paper now:
http://aix1.uottawa.ca/~robinson/english/wp/2005/dal-rope.pdf
vimothy
yurp
vimothy
yurp
A stitch in time.
Probably have to print off that paper to read it properly. I can't read anything long on a screen. But I think that intuitively the natural rate makes sense: the rate at which NGDP is stable. I have been trying to organise my thoughts:
Notes on the natural rate.
Natural rate:
For monetarism, read "money supply" instead of "natural rate".
New Consensus paradigm updates monetarism for a neo-Wicksellian banking sysetm where CB controls base rate not money supply.
Natural rate is... the rate at which money supply growth is neutral in the long run?
Thoughts: Does this contradict money supply endogeneity? What does money supply endogeneity mean with respect to the natural rate? WTF is this money supply endogeneity anyway?
Money supply endogeneity is: CB targets a base rate; liquidity preference of market determines differential; supply of loans infinitely elastic at a given interest rate, and collateral and regulatory requirements
Probably have to print off that paper to read it properly. I can't read anything long on a screen. But I think that intuitively the natural rate makes sense: the rate at which NGDP is stable. I have been trying to organise my thoughts:
Notes on the natural rate.
Natural rate:
- no trade off between inflation and unemployment;
- monetary policy is neutral in the long run;
For monetarism, read "money supply" instead of "natural rate".
New Consensus paradigm updates monetarism for a neo-Wicksellian banking sysetm where CB controls base rate not money supply.
Natural rate is... the rate at which money supply growth is neutral in the long run?
Thoughts: Does this contradict money supply endogeneity? What does money supply endogeneity mean with respect to the natural rate? WTF is this money supply endogeneity anyway?
Money supply endogeneity is: CB targets a base rate; liquidity preference of market determines differential; supply of loans infinitely elastic at a given interest rate, and collateral and regulatory requirements
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"Natural rate is... the rate at which money supply growth is neutral in the long run?"
hmm.. I think so. basically the natural rate of interest is the interest rate at which the output gap is closed. So last year during the crisis GS estimated the natural real rate at something like -9%, so the natural rate would be something like -7%. That's what the interest rate would have had to have been close the output gap, according to Taylor rule, if weren't stuck at the ZLB.
The PK position seems to be that there's no one natural rate, but many, all along the flat part of the PK phillips curve. So basically you could target a number of output levels and the natural rate would stabilize where you choose, at a stable inflation rate. If I understand them, "THE" natural rate doesn't really exist, and if we targeted lower unemployment via fiscal policy the economy would stabilize at that level of higher output, without an increased inflation rate.
This seems to imply that the output level that we associate with the natural rate could actually be at the lower bound of a range of output levels determined by fiscal spending
hmm.. I think so. basically the natural rate of interest is the interest rate at which the output gap is closed. So last year during the crisis GS estimated the natural real rate at something like -9%, so the natural rate would be something like -7%. That's what the interest rate would have had to have been close the output gap, according to Taylor rule, if weren't stuck at the ZLB.
The PK position seems to be that there's no one natural rate, but many, all along the flat part of the PK phillips curve. So basically you could target a number of output levels and the natural rate would stabilize where you choose, at a stable inflation rate. If I understand them, "THE" natural rate doesn't really exist, and if we targeted lower unemployment via fiscal policy the economy would stabilize at that level of higher output, without an increased inflation rate.
This seems to imply that the output level that we associate with the natural rate could actually be at the lower bound of a range of output levels determined by fiscal spending
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vimothy
yurp
Re the natural rate, this is pretty helpful:
Understanding Nominal GNP Targeting:
http://research.stlouisfed.org/publications/review/89/11/Understanding_Nov_Dec1989.pdf
Understanding Nominal GNP Targeting:
http://research.stlouisfed.org/publications/review/89/11/Understanding_Nov_Dec1989.pdf
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it's decent background, but a lot of it seems pretty old
I'm really not a fan of NGNP/NGDP targeting. It seems like a step backwards, not separating inflation from real gdp. Say you had GDP growing at 5% and inflation running at 1%, and you had a 5% ngdp target, would you actually want to raise interest rates to lower NGDP to 5%? why?
Inflation targeting at say 3% or 4% is the smarter way of executing that sort of system, presuming that there is one natural rate
I'm interested in the possibilities for fiscal output targeting combined with monetary inflation targeting under a PK regime
I'm trying to make sense of this bit from Lavoie:
"In this case, if the current inflation rate is the target rate, central bank policy should set the
interest rate at a fair rate, based on income distribution considerations, in particular the distribution
between debtors and creditors, and allow fiscal policy to set the output/capacity level, as more recently
recommended by Arestis and Sawyer (2003)"
I'm really not a fan of NGNP/NGDP targeting. It seems like a step backwards, not separating inflation from real gdp. Say you had GDP growing at 5% and inflation running at 1%, and you had a 5% ngdp target, would you actually want to raise interest rates to lower NGDP to 5%? why?
Inflation targeting at say 3% or 4% is the smarter way of executing that sort of system, presuming that there is one natural rate
I'm interested in the possibilities for fiscal output targeting combined with monetary inflation targeting under a PK regime
I'm trying to make sense of this bit from Lavoie:
"In this case, if the current inflation rate is the target rate, central bank policy should set the
interest rate at a fair rate, based on income distribution considerations, in particular the distribution
between debtors and creditors, and allow fiscal policy to set the output/capacity level, as more recently
recommended by Arestis and Sawyer (2003)"
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vimothy
yurp
Yeah it's just an old monetarist tract. (Incidentally, Friedman is supposed to have said of NGDP targeting: Sounds great, what happens when inflation is at 6% and real GDP is at -1%)?
Just trying to read current monetary regime in terms of that. And I'm not sure how to integrate a Taylor Rule either.
Natural rate:
Where Wicksell writes "commodity prices", read: potential output, full employment or natural rate of unemployment, full information level of output, or aggregate supply. Characterised by short and long run supply curves. Therefore,
Aggregate demand shocks temporarily raise (lower) output, leading to increased (decreased) output in the short run, and higher (lower) prices for no change in output in the long run.
Aggregate supply shocks shift both short run and long run supply curves. So a negative shock to AS will raise prices and reduce output in the short run, then prices will rise and output will fall again slightly as the economy transitions to its new level of aggregate supply (the vertical potential output curve). For positive shocks the reverse is true. This is shown in fig. 3 of that Fed paper. Assuming symmetrical shocks and ceteris paribus, the for full information level outcomes with: no supply shock, positive supply shock, negative supply shock, there is an AD curve that generates the same the same level of total nominal income at all three states. Rather than attempting to stabilise individual components (price level or output), NGDP targeting would try to set the money supply so that their product (PQ = NGDP) stays constant, i.e increase income elasticity of agg demand. (You can compare the effects of inflation or output targeting to NGDP targeting on the other graphs in the paper). That's the (monetarist) theory, anyway.
The neo-Wicksellian policy update is then the rate of interest (instead of money stock) that stabilises total output, the price level, or total nominal income (their product).
Taylor Rule:
Taylor Rule tries to maintain a level of monetary stimulus consistent with past policy over a set period.
Just trying to read current monetary regime in terms of that. And I'm not sure how to integrate a Taylor Rule either.
Natural rate:
"There is a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them." (Wicksell)
Where Wicksell writes "commodity prices", read: potential output, full employment or natural rate of unemployment, full information level of output, or aggregate supply. Characterised by short and long run supply curves. Therefore,
- Short run: upward sloping supply curve; degree of elasticity depending on amount of slack in the economy.
- Long run: perfectly inelastic; real resource constraint fixing potential output at a given limit.
Aggregate demand shocks temporarily raise (lower) output, leading to increased (decreased) output in the short run, and higher (lower) prices for no change in output in the long run.
Aggregate supply shocks shift both short run and long run supply curves. So a negative shock to AS will raise prices and reduce output in the short run, then prices will rise and output will fall again slightly as the economy transitions to its new level of aggregate supply (the vertical potential output curve). For positive shocks the reverse is true. This is shown in fig. 3 of that Fed paper. Assuming symmetrical shocks and ceteris paribus, the for full information level outcomes with: no supply shock, positive supply shock, negative supply shock, there is an AD curve that generates the same the same level of total nominal income at all three states. Rather than attempting to stabilise individual components (price level or output), NGDP targeting would try to set the money supply so that their product (PQ = NGDP) stays constant, i.e increase income elasticity of agg demand. (You can compare the effects of inflation or output targeting to NGDP targeting on the other graphs in the paper). That's the (monetarist) theory, anyway.
The neo-Wicksellian policy update is then the rate of interest (instead of money stock) that stabilises total output, the price level, or total nominal income (their product).
Taylor Rule:
"a statistical regression of the funds rate on the inflation rate and on the gap between the unemployment rate and the Congressional Budget Office's estimate of the natural, or normal, rate of unemployment." (Rudebusch)
Taylor Rule tries to maintain a level of monetary stimulus consistent with past policy over a set period.
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That's where the problems come in. I always just thought it was basically mistaken (the nairu, and therefore the natural rate estimate used by the Fed), always overestimated due to inflation hawk bias. Greenspan blew right through their estimates in the 90s.
Now I'm starting to see that the "natural interest rate" can be stabilized at a number of different equilibria. So Taylor Rule inflation targeting basically confirmed whatever natural rate of unemployment that the CBO estimated . Whenever they reached the plateau part of the PK phillips curve, and unemployment came down, they would raise rates in anticipation of inflation, and dampen off growth - even if there was no inflation. The interest rate would be set to a level corresponding to this unemployment estimate, so there was a sort of tautology at work in their models. Self-fulfilling prophecy I guess you could say. Greenspan didn't follow this, and didn't see increased inflation.
NAIRU: Dangerous Dogma at the Fed
BY DEAN BAKER
http://s01.middlebury.edu/EC250A/pdfs/nairu.pdf
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Here's the SFC/PK take on the natural rate
http://aix1.uottawa.ca/~robinson/english/wp/2008/ROBINSON_WP08_03.pdf
http://aix1.uottawa.ca/~robinson/english/wp/2008/ROBINSON_WP08_03.pdf