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Links (7/15/19)

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Why Is Inflation Low Globally? - FRBSF A hot economy eventually boosts inflation. Such is the simple wisdom of the Phillips curve. Yet inflation across developed countries has been remarkably weak since the 2008 global financial crisis, even though unemployment rates are near historical lows. What is behind this recent disconnect between inflation and unemployment? Contrasting the experiences of developed and developing economies before and after the financial crisis shows that broader factors than monetary policy are at play. Inflation has declined globally, and this trend preceded the financial crisis. Libra's dramatic call to regulatory action - Cecchetti & Schoenholtz The stated objectives of creating Libra are to improve the efficiency of payments, reducing costs and speeding

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  • Why Is Inflation Low Globally? - FRBSF A hot economy eventually boosts inflation. Such is the simple wisdom of the Phillips curve. Yet inflation across developed countries has been remarkably weak since the 2008 global financial crisis, even though unemployment rates are near historical lows. What is behind this recent disconnect between inflation and unemployment? Contrasting the experiences of developed and developing economies before and after the financial crisis shows that broader factors than monetary policy are at play. Inflation has declined globally, and this trend preceded the financial crisis.
  • Libra's dramatic call to regulatory action - Cecchetti & Schoenholtz The stated objectives of creating Libra are to improve the efficiency of payments, reducing costs and speeding transfers; and to improve financial access. While these are laudable goals, it is essential that we achieve them without facilitating criminal exploitation of the payments system or reducing the ability of authorities to monitor and mitigate systemic risk. In addition, any broad-based financial innovation should facilitate the stabilization of consumption. On all of these criteria, we see Libra as doing more harm than good.
  • Taking Malthus seriously - VoxEU The econometric evidence for the Malthusian trap in pre-industrial Europe has been weak. The column presents a new Malthusian model that, combined with new historical data for 17 countries, provides evidence of a much stronger Malthusian trap than the one found by previous research. This helps to explain the economic stagnation from the dark ages to the industrial revolution.
  • Goldbugs for Trump - Paul Krugman It’s not surprising, then, that Trump is also trying to stuff the Federal Reserve Board with political allies. What may seem surprising is that many of his would-be appointees, like Stephen Moore and now Judy Shelton, have long records of supporting the gold standard or something like it. This should put them at odds with his efforts to politicize the Fed. After all, one of the supposed points of a gold standard is to remove any hint of politics from monetary policy. And with gold prices rising lately, gold standard advocates should be calling for the Fed to raise rates, not lower them. But of course both Moore and Shelton have endorsed Trump’s demand for rate cuts. This creates a dual puzzle: Why does Trump want these people, and why are they so willing to cater to his wishes?
  • The Flattening of the Phillips Curve: Policy Implications Depend on the Cause - FRB Cleveland According to the historical relationship known as the Phillips curve, strengthening of the economy is commonly associated with increasing inflation. With inflation having only modestly picked up in the past few years as the economy has become more robust, many believe the Phillips curve relationship has weakened, with the curve becoming flatter. I show that the flattening can be due to very different types of structural changes and that knowing the type of change that has occurred is crucial for choosing the appropriate monetary policy.
  • Dr. Shelton Remains Outspoken: She Should Have Known Better - Uneasy Money I started blogging in July 2011, and in one of my first blogposts I discussed an article in the now defunct Weekly Standard by Dr. Judy Shelton entitled “Gold Standard or Bust.” I wrote then:
  • Is Plutocracy Really the Problem? - J. Bradford DeLong After the 2008 financial crisis, economic policymakers in the United States did enough to avert another Great Depression, but fell far short of what was needed to ensure a strong recovery. Attributing that failure to the malign influence of the plutocracy is tempting, but it misses the root of the problem.
  • What’s Driving Populism? - Dani Rodrik If authoritarian populism is rooted in economics, then the appropriate remedy is a populism of another kind – targeting economic injustice and inclusion, but pluralist in its politics and not necessarily damaging to democracy. If it is rooted in culture and values, however, there are fewer options.
  • Is AI Just Recycled Intelligence, Which Needs Economics to Help It Along? - Tim Taylor The Harvard Data Science Review has just published its first issue. Many of us in economics are cousins of burgeoning data science field, and will find it of interest. As one example, Harvard provost (and economist) Alan Garber offers a broad-based essay on "Data Science: What the Educated Citizen Needs to Know." Others may be more intrigued by the efforts of Mark Glickman, Jason Brown, and Ryan Song to use a machine learning approach to figure out whether Lennon or McCartney is more likely to have authored certain songs by the Beatles that are officially attributed to both, in "(A) Data in the Life: Authorship Attribution in Lennon-McCartney Songs." But my attention was especially caught by an essay by Michael I. Jordan called "Artificial Intelligence—The Revolution Hasn’t Happened Yet,"
  • The New Fama Puzzle Persists - In previous posts [1] [2], I described how in data up to the beginning of 2016, the Fama puzzle was overturned for major currencies. One question was whether the change would persist post-crisis and post-Zero Lower Bound (ZLB) exit. The short answer is, so far, yes.
  • ABM fundamentalism - Understanding Society One element of our conversation was especially enlightening to me. I have written a number of times in Understanding Society and elsewhere about the utility of ABM models, and one line of thought I have developed is a critique of what I have labeled "ABM fundamentalism" -- the view that ABM models are the best possible technique for constructing social explanations for every possible subject in the social sciences (link). This view is expressed in Joshua Epstein's slogan, "If you didn't grow it, you didn't explain it." I maintain that ABM is a useful technique, but only one of many methods appropriate to the problem of constructing explanations of interesting sociological outcomes (link). So I advocate for theoretical and methodological pluralism when it comes to the ABM program. I asked Gianluca whether he would agree that ABM fundamentalism is incorrect, and was surprised to find that he defends the universal applicability of ABM as a tool to implement any sociological theory.
  • Trump and the Merchants of Detention - Paul Krugman Is it cruelty, or is it corruption? That’s a question that comes up whenever we learn about some new, extraordinary abuse by the Trump administration — something that seems to happen just about every week. And the answer, usually, is “both.”
  • From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market - Liberty Street Economics How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market.
  • Protecting the Federal Reserve - Cecchetti & Schoenholtz Last week, President Trump tweeted his intention to nominate Dr. Judy Shelton to the Board of Governors of the Federal Reserve System. In our view, Dr. Shelton fails to meet the criteria that we previously articulated for membership on the Board. We hope that the Senate will block her nomination.
  • Interregional mobility and monetary policy – Bank Underground According to conventional wisdom, a currency area benefits from internal labour mobility. If independent stabilisation policies are unavailable, the argument goes, factor mobility helps regions respond to shocks. Reasonable as it sounds, few attempts have been made to test this intuition in state-of-the-art macroeconomic models. In a recent Staff Working Paper (also available here), we build a DSGE model of a currency area with internal migration to go through the maths. So does the old intuition hold up? The short answer, we think, is yes. Internal labour mobility eases the burden on monetary policy by reducing regional labour markets imbalances. But policymakers can improve welfare by putting greater weight on unemployment.
  • Global Dimensions of U.S. Monetary Policy - NBER This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, r*) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term -- after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
Mark Thoma
Mark Allen Thoma (born December 15, 1956) is a macroeconomist and econometrician and a Professor of Economics at the Department of Economics of the University of Oregon. Thoma is best known as a regular columnist for The Fiscal Times through his blog "Economist's View", which Paul Krugman called "the best place by far to keep up with the latest in economic discourse", and as an analyst at CBS MoneyWatch. He is also a regular contributor to EconoMonitor.

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