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Roger Farmer

Roger Farmer

ROGER E. A. FARMER is a Distinguished Professor of Economics at UCLA and served as Department Chair from July 2008 through December 2012. He was the Senior Houblon-Norman Fellow at the Bank of England, January-December 2013.

Articles by Roger Farmer

Why deficits are sustainable and inflation has a life of its own

January 14, 2019

My new working paper “The Fiscal Theory of the Price Level in Overlapping Generations Models” is now available here. The paper, joint with Pawel Zabczyk of the IMF, is also available as CEPR Discussion Paper 13432 and as NBER Working Paper 23445. Here is a teaser from the abstract“We demonstrate that the Fiscal Theory of …

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Social Progress is not an Illusion

January 12, 2019

I recently came across this critical review of Steven Pinker’s book, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress, by Jeremy Lent in the online magazine, Open Democracy. Jeremy makes some good points, but then proceeds dramatically to overstate his case by painting a monothlithic concept of ‘free market economics’ as the enemy of …

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Don’t Trust the Markets

December 26, 2018

In a week when the Vix is at a seven-year high and the markets are back to the trading range of the summer of 2017, now seems like a good time to revisit the theme of market efficiency. Here is a link to the pre-publication version of an academic paper I published this year in …

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Taxing the Intangible Economy

July 11, 2018

With a slowdown in productivity growth hurting Western governments’ ability to deliver goods and services, new forms of revenue generation are needed. One possible solution is to tax capital gains at the same rate as other income.

LONDON – Some very clever people, including the president of the European Central Bank, Mario Draghi, and Andy Haldane, chief economist at the Bank of England, are expressing concerns over the slowdown in productivity growth. And, given that productivity (measured as GDP per hour worked) is the ultimate driver of increases in living standards, they are right to be worried. For most people in the West, wages and living standards have stagnated for decades. If you were a factory worker in the north

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Conference at the Bank of England

July 2, 2018

Last year I co-organize d a highly successful conference at the Bank of England on Economics and Psychology. You can find links to videos from most of the conference presenters here. This year I am co-organizing a second conference with the title, “Economics and Psychology: New Ways of Thinking about economic policy”. The conference will …

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Lend Me Your Ears: Friedman and The Role of Financial Policy

June 5, 2018

I was invited by Matías Vernengo, Co-Editor of the Review of Keynesian Economics, to write a paper, ‘The Role of Financial Policy’ in honour of the 50th anniversary of Friedman’s Presidential Address to the American Economic Association. The Review will be publishing a special edition later this year and I am honoured to be writing in the …

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Taming the Lion

June 3, 2018

In the nineteenth and early twentieth centuries the business cycle was a wild ride. Part of the damage inflicted by financial crises was caused by price instability. That problem was successfully solved in the 1980s when the Fed adopted inflation targeting. The success proved chimeric.  My last post argued for a second policy, designed to …

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Bulls and Bears: Why central banks should stabilize the stock market

May 30, 2018

My paper, Pricing Assets in a Perpetual Youth Model was recently published in the Review of Economic Dynamics. The paper uses mathematics to make a point.  But the idea is simple and worth explaining in English.   The paper constructs a formal mathematical model to capture the idea that free trade in capital markets does …

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Moving the Overton Window: Let the Debate Continue

April 19, 2018

The NIESR Rebuilding Macroeconomics project is stirring a great deal of controversy. And that’s a good thing. I am part of the management team. But I can only speak for myself here. In my opinion,  we should be generating dialogue between heterodox non-mainstream groups and conventional macroeconomists. Mainstream economists, and heterodox economists alike, should each stop being …

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Standing on the Shoulders of Giants

April 14, 2018

I have rarely read anything as unhelpful to the task of Rebuilding Macroeconomics as Howard Reed’s poisonous attack on the foundations of the dismal science. I have a lot of sympathy for Howard’s position. But if you are young and committed, with a desire to rebuild economics, your first job is to understand the edifice you …

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Large Scale Econometric Models: Do they Have a Future?

March 27, 2018

Here is an intriguing question: How is the Large Hadron Collider like the National Institute Global Economic Model? Read on! It was a great pleasure to organize a session on econometric models for the Royal Economic Society Conference at the University of Sussex. In my new role as Research Director at the National Institute of …

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What Does it Mean to Have Rational Expectations?

March 18, 2018

This is a follow up to my ergodicity post from last week. Both posts are inspired by conversations I had with my Co-Hub-Leader Jean Philippe Bouchaud (for the Rebuilding Macroeconomics Hub: Why are Economies Unstable?) on the role of the ergodicity assumption in science. Content warning: This is more technical than many of my posts with no apologies. It …

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The Household Fallacy

March 12, 2018

My new working paper, joint with Pawel Zabczyk, is out now as an NBER working paper, a CEPR discussion paper and a NIESR discussion paper. Here is the abstract:  We refer to the idea that government must ‘tighten its belt’ as a necessary policy response to higher indebtedness as the household fallacy. We provide a reason …

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March 12, 2018

Last Thursday, Jean-Philippe Bouchaud and I held the first meeting of the Rebuilding Macroeconomics project’s Instability Hub. There were roughly twenty people, some in attendance in person and some attending through Zoom. As expected, what emerged was an eclectic mix of ideas, some better presented or better formed than others. The overarching theme that emerged …

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Confidence and Crashes

February 7, 2018

The Dow dropped 4.6% on Monday February 5th.  This was the biggest recorded point drop, 1,175, in history. The markets regained some ground on Tuesday and, as of writing this post, we have simply wiped out the gains that have accumulated since the beginning of January. But we are not yet out of the woods. …

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What We Know for Sure that Just Ain’t So

January 31, 2018

“What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.” Mark TwainDavid Smith has a piece in the Times yesterday that, as always, is worth reading. But David is a little too certain for my taste. I prefer to follow the dictum that prediction …

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Freedom of the Press and Internet Filters

January 28, 2018

Here are a few thoughts that were inspired by Richard Baldwin’s tweet, Random Sunday Findings… “Freedom of the Press is guaranteed only to those who own one”. A.J. Liebling. It was naïve to think that the internet would change the balance in favor of a more balanced flow of ideas when social media filters the content …

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A UK Sovereign Wealth Fund

December 17, 2017

In a recent piece in the Financial Times, Tristan Hansen and Eric Lonergan make the case for the U.K. government to “think big and tap the bond markets to invest in a bold growth agenda for the UK economy”.  They go on to argue that “A sovereign wealth fund, [SWF] tasked with boosting socially useful …

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How much debt do we need? My answer: 70% of GDP

December 9, 2017

In a post in 2015 I pointed out that government debt is not a bad thing. Here, I elaborate on that idea and I ask, and answer, a simple question: how much debt do we need? My answer: 70% of GDP is a good guess.In a recent post, Simon Wren-Lewis asks and answers some of …

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Is Unemployment Too Low?

December 2, 2017

GDP increases over time for two reasons. First, the economy produces more output because we use more labour and more capital. Second, the economy produces more output because we use better techniques over time. Traveling from London to Glasgow on a high-speed train is much faster than travelling there in a horse-drawn carriage. An increase …

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Making Sense of Chaos with the Windy-Boat

November 15, 2017

Last week my Rebuild Macro colleague Doyne Farmer, asked “Are Business Cycles Chaotic?”  Doyne’s answer is that economies are complex chaotic systems. He draws an analogy with meteorology and he compares the mathematics of business cycles to the science of the weather. I agree with Doyne on this point. But why do we care?I wrote …

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Tax Reform: A Proposal for the Chancellor

November 12, 2017

Given the upcoming autumn budget, I have a proposal for the Chancellor to consider. Replace taxes on dividends, capital gains and inheritance with a tax on wealth. Currently these three taxes combined raise £41b in revenue. A 1.2% wealth tax on those with net wealth greater than £700,000 would raise approximately this amount with £2b …

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Macroeconomics: Religion or Science?

November 5, 2017

Writing in 1999 in a widely cited paper “The Science of Monetary Policy”, three leading economists, Richard Clarida, Jordi Galí and Mark Gertler, CGG, make the case that monetary policy is a science. Although there is some truth to that claim, CGG could equally well have titled their paper; “Macroeconomics: Religion or Science?”Science and religion …

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Why the MPC will and should raise interest rates

October 31, 2017

Simon Wren-Lewis has a very nice post on why the MPC should not raise interest rates on Thursday and there is much that he says that I agree with. But the Bank has been signaling a rate rise now for sometime and if it fails to deliver on Thursday, the credibility of the MPC will …

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How to Fix the Curse of the Five

October 29, 2017

I recently came across this video link to a session held at the 2017 ASSA meetings on the ‘Curse of the Top Five’. The session was organised by Jim Heckman and involves a panel discussion with participation by Heckman, George Akerlof, Angus Deaton, Drew Fudenberg and Lars Hansen. I’m going to concentrate here on the …

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Reflections on My Interview with Cloud Yip: Part 2

October 22, 2017

Cloud Yip is running a series of interviews under the title of “Where is the General Theory of the 21st Century” and I was privileged to be included in that series. Last week I put up my first post about the interview. This week’s post is the second in a series where I expand on …

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My Interview with Cloud Yip: Part 1:

October 15, 2017

A couple of months ago, I had the pleasure of speaking with Cloud Yip. Cloud is running a series of interviews under the title of “Where is the General Theory of the 21st Century” and I was privileged to be included in that series. The interview was published in its entirety a couple of weeks …

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And the 2017 Economics Nobel Prize goes to …

October 9, 2017

Today’s announcement of a Nobel Prize for Richard Thaler is richly deserved and I congratulate the Nobel committee for recognising the importance of the growing influence of behavioural economics that Richard helped to create. This is a significant ‘nudge’ towards recognising the importance of beliefs as fundamental, an idea that I use in my own …

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Keynesian Economics Without the Phillips Curve

October 1, 2017

Policy makers at central banks have been puzzled by the fact that inflation is weak even though the unemployment rate is low and the economy is operating at or close to capacity. Their puzzlement arises from the fact that they are looking at data through the lens of the New Keynesian (NK) model in which …

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