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David Andolfatto
The views and opinions expressed by me in this blog are my own and should in no way be attributed to the Federal Reserve Bank of St. Louis, or to the Federal Reserve System.

David Andolfatto: Macro Mania

A public finance case for keeping the Fed’s balance sheet large

Former Fed Chair Ben Bernanke recently asked a question concerning the optimal long-run size of the Fed's balance sheet (Should the Fed keep its balance sheet large?). Bernanke comes down on the side of "keeping the balance sheet close to its current size in the long run." While he does not explicitly say how "size" is defined, I think it's clear he means the size of the balance sheet measured relative to the size of the economy (say, as measured by nominal GDP). According to this measure...

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Can the blockchain kill fake news?

Bloomberg View columnist Megan McArdle has an interesting article on fake news: Fact-Checking's Infinite Regress Problem. Fake news constitutes blocks of information fabricated either wholly or in part from falsehoods to serve a political end. It is an act of commission, as opposed to a related act of omission: reporting blocks of true information chosen selectively to serve a political end. A natural response to the problem of fake news is the emergence of fact-checkers. But on what...

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Some recent economic developments in Japan

Most economic commentators seem to agree that the Japanese economy has been languishing for a very long time.  What is it about Japan that gives this impression? In this post, I suggest that while Japan certainly has its share of difficulties, the common impression of stagnant economic performance seems overstated.For some people, almost everything you need to know about Japanese macroeconomic performance is encapsulated in this diagram: This chart tells us that the Japanese economy...

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The failure to inflate Japan

On January 22, 2013, the Government and the Bank of Japan issued a rare joint statement on overcoming deflation and achieving sustainable economic growth. The purpose of the statement was to introduce a two percent inflation target. It was issued jointly to emphasize that the monetary and fiscal authorities could be expected to coordinate for the purpose of achieving their shared goal--a clear attempt to enhance the credibility of the new inflation target.On April 4, 2013, the BOJ explained...

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U.S. postwar growth and the pop in epop

Here's the picture of real per capita GDP growth in the postwar United States. While this is an impressive record of economic development, the recent trajectory away from (log-linear) trend has many people concerned. I share this concern. But I sometimes wonder whether the assumption of (log-linear) trend does not distort our view a little bit. In particular, one might alternatively view the pattern of economic development as "naturally" alternating between episodes or more or less rapid...

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Beveridge curves

The Beveridge Curve refers to relationship between job vacancies and unemployment or, more generally, between business sector recruiting activity and household sector job search activity.Theoretically, the Beveridge Curve should be negatively-sloped in V-U space. When economic prospects look promising, firms wanting to expand capacity begin to post more vacancies. For a given level of unemployment, there is an increase in labor market tightness (V/U) which makes finding a job easier for...

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Jackson Hole and Fed Communication

Fed chair Janet Yellen gave what I considered to be a good speech at this year's Jackson Hole conference (see here).  Not everyone seems impressed, however. The Fed has no credibility, it seems. For example, it keeps saying it's going to do things, like raise its policy interest rate, only to repeatedly back off. I mean, what the heck? Don't they even know what they're doing?At some level, this degree of frustration is understandable. (I am less sympathetic, however, when it comes to...

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DSGE Theory

This post is for my students, and whoever else is interested in what DSGE theory is and why I find it useful.Dynamic Stochastic General Equilibrium (DSGE) theory refers to a methodology employed by macroeconomists to build DSGE models -- mathematical representations of the macroeconomy. DSGE models, like all models, are used for a variety of purposes. They are used to help organize thinking. They are used to interpret data. They are used to help make conditional forecasts. They are used to...

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Some questions concerning equity-financed banking

John Cochrane has another fun and provocative post making his pitch for equity-financed banking. He makes a lot of great points. But I'm still left feeling a little uneasy. In particular, I wonder whether some of his sweeping claims have any firm theoretical backing. It could be I just haven't thought hard enough or long enough about it. In any case, in the spirit of promoting discussion, let me describe some of the things that bother me.Actually, before I start, I should preface my concerns...

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Why the Blockchain should be familiar to you

From L2R: Michael Casey (MIT Media Lab), David Andolfatto (FRB SL), Simon Johnson (MIT) and John Schindler (FSB) I'm freshly returned from Consensus 2016: Making Blockchain Real where I participated in a panel on "Digital Cash for Central Bankers." Michael Casey did a stellar job in crafting the session. It was fun and informative to have Simon Johnson and John Schindler as co-panelists. As we didn't get booed off the stage, I think maybe the audience enjoyed what we had to say as well....

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