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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

David Andolfatto, Vice President of the St. Louis Fed, created MacroMania as a resource for people wanting a better understanding the Fed’s marcoeconomic policy. His commentary is incisive and thorough, particularly his thoughts on Bitcoin and blockchain technology.

A Natural Rate of Interest

This post was motivated by a conversation with Eric Lonergan. It began with a simple question: what should be the interest rate paid on reserves? I answered that according to theories I'm familiar with, reserves should earn the "natural" rate of interest, which I defined as the sum of population and productivity growth. So, assuming 2% "real" growth and 2% inflation, reserves (and government debt more generally) should be yielding around 4%. I think it's fair to say most people did not find...

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Is it time for some unpleasant monetarist arithmetic?

The title of this post alludes to a paper written by Tom Sargent and Neil Wallace 40 years ago "Some Unpleasant Monetarist Arithmetic." The startling conclusion of this paper is that a central bank (limited to interest rate policy and/or open market operations) does not have unilateral control over the long-run rate of inflation. The result is made all the more powerful by the fact that it relies mostly on arithmetic and only minimally on theory. So, what's the basic idea? First, begin with...

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A Journey in Macroeconomic Thinking

I've been thinking a bit lately about theories of the business cycle (a lot of time for reflection in these days of COVID-19). At least, I've been thinking of the way some of these theories have evolved over my lifetime and from the perspective of my own training in the field. From my (very narrow) perspective as a researcher and advisor at a central bank, the journey beginning c. 1960 seems like it's taken the following steps: (1) Phillips Curve and some Natural Rate Hypothesis; (2) Real...

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David Andolfatto on Central Bank Digital Currencies (CBDC)

Paul Buitink talks to St. Louis Fed economist David Andolfatto about Central Bank Digital Currencies (CBDC). What are they, do we need them at all and can will they co-exist with crypto-currencies. A deep dive into design, pros and cons. Follow David at: https://twitter.com/dandolfa Follow Paul at: https://twitter.com/paulbuitink

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Cochrane on debt II

Yesterday, I posted a reply to John Cochrane's Sept 4 post on the national debt. John alerted me to his Sept 6 update, which I somehow missed. Given this update (together with some personal correspondence), let me offer my own update. John begins with an equation describing the flow of government revenue and expenditure. With a debt/GDP ratio of one, the sustainable (primary) deficit/GDP ratio is given by g - r, where g = growth rate of NGDP and r = nominal interest rate on government debt...

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Cochrane on why debt matters

The stock of national debt is now larger than our annual national income in the United States. Is this something to worry about? Does it matter how big the debt-to-GDP ratio gets? Is there any limit to how large it can grow and, if so, what is it this limit and what factors determine it? A lot of people have been asking these questions lately. John Cochrane is the latest to opine on these questions here: Debt Matters. I'm not even sure where to begin. I suppose we can start with the famous...

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The Spirit of St. Louis: A View from Inside the Fed (w/ Pedro da Costa and David Andolfatto)

David Andolfatto, economist and senior vice president at the Federal Reserve Bank of St. Louis, joins Pedro da Costa, senior reporter at Market News International, to give a peek behind the curtain into the Fed’s monetary policy at this unique market juncture. Andolfatto analyzes the most recent economic data and estimates that we are headed towards a “W-shaped” recovery. He then describes the remaining tools the Fed still has at its disposal. Da Costa and Andolfatto also...

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Why the Fed Should Create a Standing Repo Facility

      I was invited recently to take part on a panel discussion on Modernizing Liquidity Provision as part of a conference hosted jointly by CATO and the Mercatus Center entitled A Fed for Next Time: Ideas for a Crisis-Ready Central Bank.  My post today is basically a transcript of the presentation I gave in my session. I'd like to thank George Selgin and David Beckworth for inviting me to speak on why the Fed should create a standing repo facility, an idea that Jane Ihrig and I promoted...

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