Monday , February 27 2017
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David Beckworth

David Beckworth

I am an associate professor of economics at Western Kentucky University, an adjunct scholar at the Cato Institute, and a former economist at the U.S. Department of Treasury.

Articles by David Beckworth

Macro Musings Podcast: Hester Peirce

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My latest Macro Musings podcast is with Hester Peirce. Hestor is a Senior Research Fellow and director of the Financial Markets Working Group at the Mercatus Center. She previously served on Senator Richard Shelby’s staff on the Senate Committee on Banking, Housing, and Urban Affairs. In that position, she worked on financial regulatory reform following the financial crisis of 2008 as well as oversight of the regulatory implementation of the Dodd-Frank Act. Hester also served at the Securities and Exchange Commission as a staff attorney and as counsel to Commissioner Paul S. Atkins.  Hester was also nominated by President Obama to be an SEC Commisioner.

Hester joined me to discuss a new book she co-edited with Ben Klutsey titled “Reframing Financial Regulation:

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Macro Musings Podcast: Sebastian Mallaby

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My latest Macro Musings podcast is with Sebastian Mallaby.
Sebastian is a senior fellow at the Council on Foreign Relations and a contributing columnist to the Washington Post. Previously, he worked with the Financial Times and the Economist magazine and is the author of several books. He joined me to talk about his latest book “The Man Who Knew: The Life and Times of Alan Greenspan”.

This was a fascinating conversation throughout. You can listen to the podcast on Soundcloud, iTunes, or your favorite podcast app. You can also listen via the embedded player above. And remember to subscribe since more episodes are coming.

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The Monetary Superpower: As Strong As Ever

In a forthcoming paper, Chris Crowe and I argue the Fed is a monetary superpower:

[A] defining feature of the US financial system is that its central bank, the Federal Reserve, has inordinate influence over global monetary conditions. Because of this influence, it shapes the growth path of global aggregate demand more than any other central bank does. This global reach of the Federal Reserve arises for three reasons. 

First, many emerging and some advanced economies either explicitly or implicitly peg their currency to the US dollar given its reserve currency status. Doing so, as first noted by Mundell (1963), implies these countries have delegated their monetary policy to the Federal Reserve as they have moved towards open capital markets over the past few decades. 

These “dollar

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Macro Musings Podcast: Eswar Prasad

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My latest Macro Musings podcast is with Eswar Prasad. Eswar is a professor of economics at Cornell University and a senior fellow at Brookings Institution. He joined me to talk about his new book, Gaining Currency: the Rise of the Renminbi. 

We began by reviewing the history of money in China. Many people know that China had the first paper currency, but few appreciate that China had the first debates over monetary theory and role of the state in money creation. China also had the first currency war–literally a physical war between two competing central banks in China–as well as its own interesting monetary history during the Great Depression of the 1930s. 

We then moved to China’s exchange rate regime and the thorny question of whether China’s currency being

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Macro Musings Podcast: Jesus Fernandez-Villaverde

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My latest Macro Musing podcast is with Jesus Fernandez-Villaverde.  Jesus is a professor of economics the University of Pennsylvania, a research associate with the National Bureau of Economic Research, and a research affiliate with the Centre for Economic Policy Research. 

Jesus does theoretical macroeconomic modeling, econometrics, and economic history. He has several books coming out on those topics and recently coauthored a chapter in the Handbook of Macroeconomics titled "Solution and Estimation Methods for DSGE Models". He joined me to talk about European economic history and macroeconomic modeling on the show. 

Most of our conversation focused on German monetary history in the 20th century since it has been so consequential for the rest of the Europe. We

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Macro Musings Podcast: Gauti Eggertsson

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My latest Macro Musings is with Gauti Eggertson. Gauti is a professor of economics at Brown University and formerly worked in the research departments of the International Monetary Fund and the Federal Reserve Bank of New York. He has written widely on liquidity traps, deflation, and the zero lower bound (ZLB) and joined me to talk about these issues.

This was a fun conversation and a good look back at the challenges and shortcomings of macroeconomic policy since the crisis in 2008. One of the big takeaways from our conversation, at least for me, is that central banks during this time ignored many of the key findings in the literature when it comes to best practices at the ZLB.

Before getting to these missed opportunities, it is worth recalling the nature of

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Note to President Trump: It’s Policy Divergence, Not China, Driving the Dollar

President Trump is worried about the strong dollar:
In his interview with the Journal on Friday, Mr. Trump said the U.S. dollar was already “too strong” in part because China holds down its currency, the yuan. “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”

The real issue is not China but the diverging of the current and expected paths of monetary policy among the major advanced economies, particularly the United States and Europe. The Fed has been tightening and is expected to continue do so with further rate hikes in 2017. The ECB, on the other hand, is still running its QE program and is keeping it short-term policy rates pegged close to zero. 

This policy divergence can be seen in the figure below. It shows the 6-month interest

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Macro Musings Podcast: Anat Admati

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My latest Macro Musing podcast is with Anat Admati. Anat is a professor of finance and economics at Stanford University. Since the crisis in 2008, she has also been a fervent advocate of banks using more equity and less debt to fund their investments. As part of this effort, Anat coauthored the book "Bankers’ New Clothes: What’s Wrong with Banking and What to Do About it". She joined me to talk about these and other issues related to the stability of the U.S. banking system.

It was a fun and interesting conversation throughout. We covered everything from the distortions created by the Basel bank regulations to the still inordinate amount of bank leverage to the prospects for a safer financial system. One of the more sobering implications of our discussion is that

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Macro Musings Podcast: Allan Meltzer

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My latest Macro Musing podcast is with Allan Meltzer. Allan is a professor of economics at Carnegie Mellon University and a visiting fellow at the Hoover Institution. He is also a well-known monetarist and author of the authoritative multi-volume history of the Fed. 

We had a wide-ranging conversation on everything from Allan’s role in the Monetarist’s Counterrevolution to his reinterpretation of Keyne’s General Theory to his take on current Fed policies. Among other things, I learned that Allan formerly worked under Paul Volker in the Kennedy Administration.  

This was a fun interview and Allan showed he still has a lot of spunk in him. The interview taped live in front of audience at the Southern Economic Association meetings last November. 

You can listen

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Macro Musings Podcast: Ylan Mui

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My latest Macro Musings podcast is with Ylan Muy of the Washington Post. She was the Fed beat reporter for several years and now covers economic policy at the White House. She joined me to discuss what it was like covering the Fed and what we might expect going forward from President Trump’s economic policies.

This was a fascinating conversation throughout and we covered everything from the tight security of FOMC press meetings to the future of the Fed’s balance sheet to whether the Fed will ever have a truly symmetric 2% inflation target. We also considered whether Trump’s economic policies will truly live up to the market’s expectations for them. One thing we do know for sure is that 2017 will be an interesting year for U.S. economic policy and Ylan will have

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Macro Musings Podcast: Xmas Economics

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My latest Macro Musings podcast is a special holiday edition on the economics of Christmas.Two special guests joined me all the way from Germany to discuss this topic. My first guest was Anna Goeddeke, a professor of economics at ESB Business School in Reutlingen, Germany. My second guest was Laura Birg, a postdoctoral researcher at the Center for European, Governance, and Economic Development Research, University of Göttingen 

Together they coauthored an article in Economic Inquiry titled “Christmas Economics—a Sleigh Ride” that surveys and summarizes the economics literature on Christmas. It is a great read for this time of the year and was the basis of our conversation. We touched on a number of interesting topics like the seasonal business cycle, the deadweight

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The Trump Shock and Global Interest Rates

One more quick note on the Trump shock and interest rates. For some time I have been following the global safe asset shortage problem and how it has created a downward march of safe assets interest rates. This can be seen in the figure below:

The latest development in this story is that the safe asset interest rates have all started heading up, as seen in the above figure. Even Japan’s which is supposed to be targeted at 0 percent but has climbed to 0.8 percent. Now these yields have a long ways to go before reaching normal levels and they started rising before Trump’s election. But since the election the ascension of these interest rates has accelerated in many cases. This is a bit puzzling. It is one thing to think the Trump shock has changed the growth and inflation outlook in

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The Trump Shock and Interest Rates

I have a new piece in The Hill where I argue markets are increasingly seeing the Trump shock as an inflection point for the U.S. economy:

It seems the U.S. economy is finally poised for robust economic growth, something that has been missing for the past eight years. Such strong economic growth is expected to cause the demand for credit to increase and the supply of savings to decline 

Together, these forces are naturally pushing interest rates higher. The Fed’s interest rate hike today is simply piggybacking on this new reality. 

Here are some charts that document this upbeat economic outlook as seen from the treasury market. The first one shows the treasury market’s implicit inflation forecast (or "breakeven inflation") and real interest rate at the 10-year horizon. These come from

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Macro Musings Podcasts: The Macroeconomics of Star Wars and Star Trek

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My latest  Macro Musings podcast is special one where we look at the macroeconomics of Star Wars and Star Trek. We do so with the help of two guests who are experts on the economics of these two scifi franchises. [Update: sound quality starts out poor, but gets better a few minutes into the show.]

Our first guest is Zachary Feinstein. Zach is an assistant professor at Washington University in St. Louis and  the author of a study titled "It’s a Trap: Emperor Palpatine’s Poison Pill" where he provides a fascinating look at the financial consequences of the destruction of the second death star. This article received a lot of media coverage last year when Star Wars: the Force Awakens came out. For example, below is a screen shot from a Bloomberg interview discussing

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Macro Musings Podcast: Peter Conti-Brown

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My latest Macro Musings podcast is with Peter Conti-Brown. Peter is a financial historian and legal scholar at the University of Pennsylvania. He is also the author of a new book The Power and Independence of the Federal Reserve and joined me on the show to discuss it.

Our conversation begins with what Peter calls the three foundings of the Fed: 1913, 1935, and 1951. These were the pivotal dates where major changes were made in the legal structure of the Fed. These changes, however, only changed the legal infrastructure to the Fed. Important personalities continued to transform the institution. Peter points specifically to three Fed chairs for making the Fed what it is today: William McChesney Martin, Paul Volker, and Allan Greenspan.

We also cover the

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Can the Global Economy Survive a Stronger Dollar?

One of the big questions going into 2017 is how resilient the global economy will be to a further strengthening of the dollar. The Trump shock and the Fed’s desire to raise interest rates almost guarantee a strengthening of the dollar next year. Unfortunately, this is not the best time for a surging dollar since the global economy is ripe with dollar-denominated debt and anemic growth. 

The dollar’s initial surge took place between mid-2014 and late 2015 when it grew over 20 percent. This sharp rise was tied to the Fed talking up interest rate hikes while the ECB signaled lower future interest rates. The figure above shows this by reporting the spread between the U.S. and Eurozone 6-month interest rate, 6 months ahead along with the trade-weighted dollar. The figure shows that after

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What Goes Down Must Come Up

The Mercatus Center is running a colloquium on the low interest rate environment and its implications for the economy. The colloquium runs twelve days and each day a new essay will be published. Since this is leading up to the holidays, some are calling it the "twelve days of interest".

Today the colloquium ran my essay in which I make the case that the 10-year treasury interest rate will return to the range of 4.0 to 4.5 percent. This definitely goes against the conventional view that the natural interest rate or "r-star" has permanently fallen and will keep treasury yields depressed. This view is evident, for example, in the FOMC’s summary of economic projections (SEP) where members expect the long-run value of the federal funds rate to land near 3 percent. So why my contrarian

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Macro Musings Podcast: JP Koning

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My latest Macro Musings Podcast is with JP Koning. JP is an economist who works in the Canadian financial industry and is a walking encyclopedia on the institutional details of central banks and money. He runs a fantastic blog called Moneyness–a must read for anyone serious about understanding money and its history. JP joined me to talk about some of the more interesting institutional arrangements for central banks and money today.

We began our conversation by talking about central banks of Switzerland, Japan, South Africa, Belgium, and Greece. They are unique in that they have stocks that are traded on the stock market. As JP notes, however, these stocks function more like a perpetual bond than an actual stock.

Another fascinating central bank story is that

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Macro Musings Podcast: Mark Calabria

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My latest Macro Musings podcast is with Mark Calabria of the Cato Institute. We discussed his time doing financial regulation and Fed policy as a senior staffer on the U.S. Senate Committee on Banking, Housing, and Urban Affairs. We also spent some time discussing his new paper on applying behavioral economics to Fed policy.

This was a fascinating conversation throughout. You can listen to the podcast on Soundcloud, iTunes, or your favorite podcast app. You can also listen via the embedded player above. And remember to subscribe since more shows are coming.

Related Links

Mark Calabria’s Home Page

Mark Calabria’s Twitter Account

Mark Calabria’s New Paper

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Macro Musings Podcast: Roger Farmer

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My latest Macro Musings podcast is with Roger Farmer. Roger is a Professor of Economics at UCLA. He joined me to discuss his latest book, Prosperity for All: How to Prevent Financial Crises. 

This was a very fascinating conversation. Roger makes the case that modern macroeconomics as it is formally practiced has gone down the wrong path with the New Keynesian paradigm. He considers it a degenerative research agenda for several reasons. First, it is premised on the natural rate hypothesis (NRH) which he sees as incorrect. He uses the analogy of a child hitting a rocking horse to describe the NRH. The child hitting the horse will cause it to rock, but eventually it will come to rest. Likewise an economy buffeted by shocks will cause fluctuations but eventually the

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Monetary Policy Rules Conference: Presentation and Paper

Back in September I was part of the Monetary Policy Rules for a Post-Crisis World conference. It was jointly hosted by the Mercatus Center and the Cato Institute. There were many interesting presentations from folks like David Laidler, Perry Merhling, Robert Hetzel, Miles Kimball, Peter Ireland, John Taylor, and Scott Sumner. The panel moderators–Ylan Q. Mui, Ryan Avent, Cardiff Garcia, and Greg Ip–were great too!

I wanted to share the working paper I presented at the conference. It was titled The Fed’s Dirty Little Secret and now is posted online. This paper had its origins in an earlier blog post of mine. It was fun taking an idea sketched out on this blog and turning into a paper. Below is the paper’s abstract:

Despite the Federal Reserve’s use of QE programs, the U.S. economy

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Macro Musings Podcast: Mark Koyama

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My latest Macro Musings podcast is with Mark Koyama. Mark is an assistant professor of economics at George Mason University where he specializes in economic history, the roles institutions play in economics, and how culture and economics interact. Mark recently has recently written on the macroeconomics of ancient Rome and he joined me to talk about it.

This was a super fascinating conversation where we cover the history of Rome, the extent and depth of markets in ancient Rome, and the long-run growth prospects of Rome. We also discuss the the extent to which credit and financial markets were developed in Rome, including the well-documented financial panic of 33 AD that affected various part of the empire. 

Part of our conversation was motivated by Peter

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Macro Musings Podcast: Rudi Bachmann

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My latest podcast is with Rudiger Bachmann. Rudi is an associate professor of economics at the University of Notre Dame and a research affiliate at the Center for Economic Policy Research. Rudi has published widely on macroeconomic issues in top journals and is an active member of the German Economic Association. He also blogs and write popular press articles for the German media. Rudi joined me on the show to discuss German macroeconomics as well as some of his own research. 

Our conversation begins by noting that German macroeconomics appears to be very different than Anglo-American macroeconomics. Rudi notes that is partly a misperception problem, but there is indeed something different. What is different is how macroeconomics is currently practiced in Germany:

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The Return of Monetary Mischief to Zimbabwe?

Bloomberg is reporting that Zimbabwe might be up to some monetary mischief again. The government has started printing currency and, as first noted by JP Koning, the way they are doing it seems dubious. So, as a reminder to the government of Zimbabwe, it might be wise to revisit how bad the monetary mischief got back in 2008. You do not want to repeat that experience.

Steve Hanke found the monthly inflation rate hit 79.6 billion percent in November 2008 (89.7 sextillion percent on a year-on-year basis). That is how bad it got. This bout of hyperinflation began in early 2007 and ended in late 2008. At that point the government shut down the printing presses and allowed its citizens to freely use foreign currency. The country quickly dollarized and the country once again had a stable

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The Knowledge Problem In Monetary Policy

I have a new working paper with Josh Hendrickson titled Nominal GDP Targeting and the Taylor Rule on an Even Playing Field. Using a standard New Keynesian model, Josh and I show one of the advantages of a nominal GDP target is that it is more robust to the knowledge problem facing central bankers than is the standard approach that implicitly invokes some kind of Taylor rule.

Here is an excerpt from the paper on the knowledge problem:
One of the key challenges facing monetary policy authorities is the knowledge problem. As first noted by Hayek (1945), this problem arises because the information needed for optimal economic planning is distributed among many individual firms and households and therefore outside the knowledge of a central planning authority. This observation, when

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Macro Musings Podcast: Narayana Kocherlakota

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My latest Macro Musings podcast is with Narayana Kocherlakota. Narayana is a professor of economics at the University of Rochester. He has published widely in economics, including in the areas of money and the payment system, business cycles, financial economics, public finance, and dynamic contracts. He also writes regularly for Bloomberg View. 

Formerly, Narayana was the president of the Minneapolis Federal Reserve bank, where he served between 2009 and 2015.  He joined me to talk about his time at the Fed and his current views on Fed policy.

This was a fascinating conversation throughout and a must-listen episode for all Fed watchers. The first part of our conversation covered what it was like being a regional Fed president. This included, among other

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Has Macroeconomic Policy Been Different Since the Crisis?

Brad DeLong wonders whether macroeconomic policy has been different in the post-2009 recovery. If we assume the role of macroeconomic policy is to stabilize aggregate demand growth, then my answer is an unequivocal yes. Macroeconomic policy was very different during the recovery than in previous periods. It was different in two key ways. First, aggregate demand growth was kept below its pre-crisis trend growth rate. Since the recovery started in 2009Q3, NGDP growth has averaged 3.3 percent. This is well below the 5.4 percent of 1990-2007 period (blue line in the figure below) or a 5.7 percent for the entire Great Moderation period of 1985-2007. Any way you slice it, macroeconomic policy has dialed back the trend growth of nominal spending. This can be seen in the figure below.

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Macro Musings Podcast: Izabella Kaminska

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My latest Macro Musings podcast is with Izabella Kaminska. Izabella is part of Financial Times Alphaville, where she has been since 2008. She has written extensively on monetary policy, fiscal policy, financial technology, and is key force behind the Financial Times Festival of Finance. As a longtime follower of her work, it was a real treat to have her on the show.

We started our conversation by talking about blockchain technology and its implications for the payment system. Izabella is not optimistic about blockchain’s future and wonders whether it will fulfill the expectations and hopes many observers have set out for it. 

Next, we move on to the topic of universal banking. This is the idea that a central bank would open its balance sheet to anyone,

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Macro Musings Podcast: Claudio Borio

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My latest Macro Musings podcast is with Claudio Borio. Claudio is the director of the Monetary and Economic Department at the Bank for International Settlements (BIS) and has been at the BIS in various roles since 1987. Previously, he was an economist with the OECD. Claudio is the author of numerous publications in the fields of monetary policy, banking, finance and issues related to financial stability. He is a leading voice on macroprudential regulation as well on international monetary stability issues. Claudio joined me to talk about these and other issues.

We began our conversation by considering what it is like to work at the BIS, the banks for central banks. We then segue to a discussion on the period leading up to the Great  Recession, a time when the BIS

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Macro Musings Podcat: Andy Levin

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My latest Macro Musing podcast is with Andrew Levin. Andy is a professor of economics at Dartmouth College and previously served two decades as an economist at the Federal Reserve Board, including two years as a special adviser to Chairman Ben Bernanke and Vice Chair Janet Yellen. Andy, in short, has a deep understanding of the history and workings of the Board of Governors and the FOMC .

During his time as a special adviser he helped spearhead the advent of the FOMC press conference, the Summary of Economic Projections, and the now infamous dot plot graph. He also was involved with the FOMC’s official adoption of its 2 percent inflation target. Andy discusses these developments with me and how he would like to see them further refined. 

We also discussed what

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The Loflation Pandemic

The IMF reports in the latest WEO that the world has a low inflation problem:

By 2015, inflation rates in more than 85 percent of a broad sample of more than 120 economies were below long-term expectations, and about 20 percent were in deflation—that is, facing a fall in the aggregate price level for goods and services (Figure 3.2). While the recent decline in inflation coincided with a sharp drop in oil and other commodity prices, core inflation—which excludes the more volatile categories of food and energy prices—has remained below central bank targets for several consecutive years in most of the major advanced economies.

Here is the IMF’s figure that nicely summarizes this development:

This figure shows this trend toward low inflation started around the time of the Great

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Macro Musings Podcast: Morgan Ricks

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My latest Macro Musings podcast is with Morgan Ricks. Morgan is a law professor at Vanderbilt University where he specializes in financial regulation. Between 2009 and 2010, he was a senior policy adviser at the U.S. Treasury Department where  he dealt with financial stability initiatives and capital markets policies related to the financial crisis.

Before joining the Treasury Department, Morgan was a risk-arbitrage trader at Citadel Investment Group, a Chicago-based hedge fund. He previously served as a vice president in the investment banking division of Merrill Lynch & Co., where he specialized in strategic and capital-raising transactions for financial services companies.

Morgan is also the author of a new book “The Money Problem: Rethinking Financial

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The Bank of Japan: Monetary Mastery or Quantitative Quagmire?

The New Abenomics Program

The Bank of Japan (BoJ) just launched a new phase in its monetary easing program popularly known as Abenomics. It is doing so in the hopes of shoring up economic growth. This monetary program until today had involved a targeted expansion of the monetary base at ¥80 trillion a year matched by ¥80 trillion in government bond acquisitions. There were also targeted purchases of ETFs and REITs on a smaller scale.1

The new phase unveiled today consist of three key developments. First, the BoJ will target the 10-year government bond interest rate at zero percent. Second, it will aim to overshoot its 2% inflation target so that it is truly symmetric. Third, it will drop its quantity target for the monetary base and simply make its expansion conditional on the

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Macro Musings Podcast: Ryan Avent

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My latest Macro Musings podcast is with Ryan Avent. Ryan is a columnist at The Economist magazine. He has previously been the news editor, economics correspondent, and online economics editor for The Economist. He is the author of The Gated City. His work has appeared at the Journal of Economic Geography, the New York Times, the Washington Post, the New Republic, Bloomberg, Reuters, and many other places.

Ryan has a new book that just came out titled “The Wealth of Humans: Work Power, and Status in the 21st Century” He joined me to talk about his new book, his work, and some of the pressing macroeconomic issues of the day.

We begin our conversation by covering what it is like to be a journalist at The Economist. We then move on to his new book, which makes the

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Macro Musings Podcast: Michael Bordo

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My latest Macro Musings podcast is with Michael Bordo. Michael is a Professor of Economics at Rutgers University and a distinguished visiting fellow at the Hoover Institution at Stanford University. He has been a visiting scholar at numerous central banks and is a research associate of the National Bureau of Economic Research. Michael has published widely in the field of monetary economics and monetary history. Michael  joined me to talk about both recent and historical cases in monetary economics. 

We began by reviewing the Great Recession and what contributed to it. Among other things, we address whether growing inequality contributed to the recession. We also considered the evidence for the claim that recessions caused by financial crises necessarily lead to

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Macro Musings Podcast: Peter Ireland

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My latest Macro Musings podcast is with Peter Ireland. Peter is a professor of economics at Boston college, a research associate at the National Bureau of Economic Research, and a member of the shadow open market committee. Peter has also been a visiting scholar at numerous Federal Reserve banks. Peter has published widely in monetary economics and has been on the editorial board of a number of top journals. Peter joins me to talk about monetary policy.

We begin our conversation by talking about his journey into macroeconomics. Peter did his graduate work at the University of Chicago where he studied under Bob Lucas, John Cochrane, and Michael Woodford. He shares how the spirit of Milton Friedman was very much alive during his time there and what that meant for

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Macro Musings Podcast: Hugh Rockoff

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My latest Macro Musings podcast is with Hugh Rockoff. Hugh is a professor of economics at Rutgers University and has done extensive work on U.S. economic history. He is the coauthor of the popular textbook “History of the American Economy” and has served on the editorial boards of the Journal of Economic History and Explorations in Economic History.  

Hugh joined me for a fascinating conversation on U.S. monetary history. First, we discuss the idea of an optimal currency area (OCA) and consider how long it took the United States to become one. Hugh makes the case that it took about 150 years for the United States to become an OCA. As he notes, this does not bode well for the Eurozone. 

Second, we talked about the first two central banks of the United States,

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Macro Musings Podcast: Doug Irwin

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My latest Macro Musings podcast is with Doug Irwin. Doug is a professor of economics at Dartmouth College, a research associate with the National Bureau of Economic Research, and former staff member of the President’s Council of Economic Advisors. Doug also served as an economist at the Federal Reserve’s Board of Governors.

Doug is one of the leading experts on trade economics and has published widely on the topic, in both journals and books. His books include Free Trade Under Fire, Against the Tide, an Intellectual History of Free Trade, and Peddling Protectionism: Smooth-Hawley and the Great Depression. Doug is currently working on The Battle Over U.S. Trade Policy a Historical Look at U.S. Trade Policy Since the Founding of the Country and has also researched the

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The Unwinding of QE Has Begun

Don’t look now, but the Fed is quietly unwinding QE. As seen in the figure below, the Fed’s share of marketable treasuries has been shrinking:

To be clear, this is a passive unwinding of QE. The Fed’s treasury holdings have not changed, but the stock of marketable treasuries has grown. Nonetheless, this is still an unwinding according to the portfolio channel of monetary policy. This channel says the Fed’s taking of safe treasury assets from the public would force investors to rebalance their portfolios toward riskier assets. This rebalancing, in turn, would reduce risk premiums, lower interest rates, push up asset prices, and help shore up the recovery.

Now the portfolio channel should be working in reverse. The public is getting a larger share of treasuries relative to the Fed

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Macro Musings Podcast: Jason Taylor

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My latest Macro Musings podcast is with Jason Taylor. Jason is a professor of economics at Central Michigan University and is editor-in-chief of the journal Essays in Economic & Business History. He has published widely on…

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Macro Musings Podcast Brad DeLong

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My latest macro musings podcast is with Brad DeLong. Brad is a professor of economics at the University of California at Berkeley, a research associate of the National Bureau of Economic Research, and a former deputy assistant…

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Macro Musings Podcast: David Andolfatto

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My latest Macro Musings podcast is with David Andolfatto. David is a vice president of the St. Louis Federal Reserve Bank and a professor of economics at Simon Fraser University. He has published widely in the area of monetary eco…

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The Fed is Trapped in a Rate Hike Talk Cycle

To see this cycle, recall what has happened this year. After the FOMC did its 25 basis point hike in December 2015, FOMC members were talking up four more rate hikes in 2016. Then in early 2016 concerns emerged about financial stress and the global e…

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Macro Musings Podcast: Joseph Gagnon

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My latest Macro Musings podcast is with Joe Gagnon of the Peterson Institute for International Economics. Joe is a senior fellow at the Peterson Institute of International Economics and formerly worked for the Federal Reserve Bo…

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Brexit Post-Mortem

Okay, so Brexit did not cause the biggest money demand shock since 2008. Global equity markets, as noted by Kelly Evans, have regained much of their losses since the Brexit vote. Also, the initial surge in the trade-weighted dollar that had me worr…

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Macro Musings Podcast: Will Luther

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My latest Macro Musings podcast is with Will Luther, assistant professor of economics at Kenyon College and an adjunct scholar with Cato’s Center for Monetary and Financial Alternatives. Will joins me to discuss the origins…

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Brexit, Euroskepticism, and ECB Policy

Update: Now the Brexit is a reality, let me share my immediate concern with it: the further strengthening of the dollar. The global economy is already weighed down by the rise of the dollar that started in mid-2014. This is because (1) a sizable shar…

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Global Safe Yields Continue Their Downward March

So yields on Germany’s 10-year government bonds have gone negative. Put differently, investors are now paying the German government to take and hold their funds for ten years!  Many are blaming this development on Brexit fears and the ECB’s bond bu…

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Recession Watch and the Global Reach of Fed Policy

So the Fed’s talking up interest rate hikes put a stranglehold on the dollar bloc countries. Below is a figure from a recent coauthored paper of mine that shows how big the dollar bloc is as percent of the global economy (on a PPP basis). The dollar …

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Macro Musings Podcast: Ramesh Ponnuru

[embedded content] My latest Macro Musings podcast is with Ramesh Ponnuru. Ramesh is a National Review senior editor, Bloomberg view columnist, and a Visiting Fellow at the American Enterprise Institute. Ramesh has written widely on many topics from…

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Macro Musings Podcasts: Miles Kimball

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My latest Macro Musings podcast is with Miles Kimball, professor of economies at the University of Michigan and blogger at “Confessions of a Supply-Side Liberal”. Miles is a well-known advocate of breaching the zero lower bound vi…

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Macro Musings Podcasts: Cardiff Garcia

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My latest Macro Musings Podcast is with Cardiff Garcia, U.S. senior editor of  FT Alphaville and host of the podcast FT Alphachat. After spending many years engaging with Cardiff in the econ blogosphere, it was a lot of fun havin…

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The Poisoned Chalice of Macroeconomic Policy

The Eurozone experienced a second recession in 2011-2012, just a few years after the first one in 2008-2009. This second downturn was the fatal blow that turned Europe’s Great Recession into an outright depression. The standard explanation for the e…

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Macro Musings Podcast: John Cochrane

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My latest Macro Musing podcast is with John Cochrane, a Senior Fellow of the Hoover Institution and former professor of finance at the University of Chicago. In this week’s episode I got to sit down and talk the fiscal theory of th…

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Macro Musings Podcast: John Taylor

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My latest Macro Musing podcast is with John Taylor of Stanford University.  It was an interesting conversation throughout and we covered a lot of ground. We talked about the Taylor Rule, the Great Inflation, the housing boom period…

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A New Podcast on Macroeconomics

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Today is the launch of a new podcast series on macroeconomics called Macro Musing and I am privileged to be the host. Each week, with the help of a special guest, we will get to explore in depth various macroeconomic topics. If wa…

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Fed Commentary

Update: the Fed held steady today and signaled there would be fewer rate hikes this year. This was a slight move to easing and good news for China.  Interestingly, the Fed listed “global economic and financial developments” as one reason for its resp…

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ECB Stimulus in Perspective

The real reason for this failure [to create a robust recovery] is the Fed’s firm commitment to low inflation. Like a governor placed on a truck’s engine to control its speed, a commitment to low inflation helps prevent the economy from growing too fa…

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Should We Worry About A Global Economic Slowdown?

The International Monetary Fund is sounding louder and louder alarms about the state of the global economy. The problem is, few major economies seem to be hearing them. “The IMF’s latest reading of the global economy shows once again a weakening base…

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Responding to Our Critics

Bold theses should receive skeptical reactions, and ours did. We argued in the New York Times that, contrary to what just about everyone believes, the financial crisis and the Great Recession that blew up the American economy in 2008 were not the nec…

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More on the Fed’s Mistake of 2015

Janet Yellen’s Federal Reserve has done something that no other Fed has done since Paul Volcker aimed to quash runaway inflation in the early 1980s, even if it meant a recession — and it did. New Commerce Department data out Friday show that nominal …

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The Fed Did Not Make A Mistake In December

Many observers are now viewing the Fed’s decision in December to raise interest rates as a “policy error”. With volatility in financial markets, falling commodity prices, and a fourth quarter slowdown many believe the Fed got ahead of the recovery w…

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Revisiting the Causes of the Great Recession

Ramesh Ponnuru and I have an Op-Ed in today’s New York Times:
IT has become part of the accepted history of our time: The bursting of the housing bubble was the primary cause of a financial crisis, a sharp recession and prolonged slow growth. The sto…

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Has Macroeconomic Policy Been Overly Tight?

That is one reason why I am a big advocate of NGDP level targeting. It would allow for temporary deviations in the inflation rate while still providing a credible long-run nominal anchor. Until we get something like this, expect regular bouts of macr…

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A Small Step Toward Better Fed Policy

Imagine if this information had been available over the past seven years. The Fed could have pointed to it every time someone claimed, “The Fed has artificially lowered interest rates!” and shown that it was simply tracking the natural interest rate,…

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Upgrading to Abenomics 2.0

TOKYO–Raising Japan’s nominal gross domestic product to 600 trillion yen ($4.9 trillion) is a reachable goal, Prime Minister Shinzo Abe told a group of economists in Tokyo on Tuesday. “We are aiming to achieve a virtuous cycle of growth and redistri…

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Book for the Holidays

If you are looking for some holiday reading I highly recommend Scott Sumner’s new book, The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression. Here is a summary:

Economic historians have made great progress in …

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Time Traveling with the Fed

Reeling from shock, they ask what they should do instead of these policies. We inform them of the argument for a NGDP level target made by Scott Sumner, Christina Romer, and Michael Woodford. We also inform them that they should signal the seriousnes…

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Going All Natural at the Fed

The staff presented several briefings regarding the concept  of an equilibrium real interest rate—sometimes labeled the “neutral” or “natural” real interest rate, or “r*”—that can serve as a benchmark to help gauge the stance of monetary policy. Vari…

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How to Trigger a Panic Attack at the Fed

What does it take to create a panic attack at the Fed? How about a large credit and housing boom that wreaks havoc on household balance sheets? Nope, been there, done that with no loss of sleep. What about experiencing the sharpest recession since …

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Fact Checking the Fact Checkers

But what did the Fed do in 2008? It wasn’t tightening money. The Fed actually cut rates repeatedly in 2008. Some economists have argued policy makers didn’t cut rates fast enough given the economic conditions. But that’s only “tightening” if you meas…

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Ad Hoc Monetary Policy Redux

Just a few months ago the FOMC was signaling it would almost certainly raise interest rates, but now it has changed its mind.  This change would not be so bad if it were predictable, but it was not so.  No one expects the Fed to perfectly forecast th…

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A Plea to My Fellow Free Marketers

[S]even years of ZIRP — zero interest-rate policy — have not restored the economic dynamism essential for social mobility but have had the intended effect of driving liquidity into equities in search of high yields, thereby enriching the 10 percent o…

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People’s QE Has Been Tried Before and Failed

I am seeing more and more people get excited about “People’s QE”, the brainchild of UK labor party leader Jeremy Corbyn. For example, Roger Farmer sees it as similar in spirit to his own preferred approach, Ambrose Evans-Pritchard says “it is exactl…

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The Courage to Act in 2008

Ben Bernanke’s memoir is now out and is unapologetically pro-Fed. It is titled “The Courage to Act” Here is the cover quote:

The main point of Bernanke’s book is that absent the Fed’s interventions over the past seven years the U.S. economy would h…

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Doubling Down on Abenomics

The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years.In order to do so, it will enter a new p…

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The Monetary Superpower Strikes Again

For all practical purposes, Hong Kong delegated the determination of its monetary policy to the Federal Reserve through its unilateral decision in 1983 to peg the Hong Kong dollar to the U.S. dollar in an arrangement known as a currency board. As the…

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The Big Lesson of the Eurozone Crisis

Paul Krugman notes that Eurozone crisis is a vindication of that optimum currency area (OCA) theory. I agree but would note the crisis also sheds light on the specialization versus endogeneity debate surrounding the OCA criteria. Interestingly, Krug…

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Who Predicted the Eurozone Crisis?

Monnet was mistaken… If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe…What are the reasons for such conflicts? In the beginning ther…

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Was Grexit Invevitable?

Monnet was mistaken… If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe…What are the reasons for such conflicts? In the beginning ther…

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The Long Unwind of Excess Money Demand

Two years ago I was part of a panel discussion on Fed policy at the American Enterprise Institute. I talked about why money still matters as way to make the case that the economy was still being plagued by excess money demand. This problem occurs wh…

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The Penske View of Macroeconomic Policy

You can learn a lot about macroeconomic policy by driving a Penske truck. I did three years ago when I moved from Texas to Tennessee. The trip began with me driving a 26-foot Penske truck and my wife following in our car. I quickly discovered that …

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Why the Fed Will Raise Interest Rates This Year

Update: Here is the relationship between the U6 minus U3 unemployment rate spread and the expected nominal income growth series. I have used the 5-month centered moving average trend on expected nominal income growth to make the graph clearer:

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About that Dual Mandate…

The Federal Open Market Committee is in a pickle. After its last meeting, it suggested that it would soon start raising interest rates as a way to head off inflation. Recent inflation numbers, showing an uptick in the core inflation rate, make that s…

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