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Tag Archives: Monetary Policy

Dudley on reserves

Bill Dudley, ex President of the New York Fed, has an excellent Bloomberg editorial on reserves.Reserves are accounts that banks hold at the Fed. The Fed used to pay no interest on these accounts. Accordingly, banks held very small quantities, as little as $10 billion in all, and they managed that quantity very carefully against legal reserve requirements, and having just enough around to make payments. To control interest rates, the Fed used to change the supply of reserves, and then watch...

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Conference announcement

If you're working on fiscal issues, especially fiscal theory of the price level, here is a good conference you should submit to or attend. Don't wait, the deadline is today. Yes, this is self-interested -- I'm going and giving a talk so it's entirely in my interest that the other papers are interesting! The conference website is here

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Increased Price Flexibility is Destabilising in New Keynesian Models. (And a Price-Level Path Target is Stabilising)

Start with a very simple New Keynesian "IS" (or "Aggregate Demand") equation: y(t) = E[y(t+1)] - a[r(t)-r*(t)] The "real" (inflation-adjusted) interest rate r(t) is defined as the "one period" nominal interest rate, minus expected inflation for the following "one period". In order to stabilise output y(t), relative to expected future output E[y(t+1)], the central bank needs to ensure that the real interest rate r(t) always equals some "natural rate" r*(t), which varies over time as shocks...

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A Fast and Fun Way to Learn about Rules Versus Discretion

The Hoover Institution has initiated a fascinating Perspectives on Policy video series in which experienced experts give clear explanations of key policy issues assisted by the latest in animation technology. This is not the typical video of talking heads as you might expect.  In this imaginative series tabletop cartoon figures join the experts, move around the screen, bend and twist to show emotions, and even wave at each other from time to time. Topics range from economics, including...

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Low bond yields

Why are interest rates so low?Here is the 10 year bond yield, by itself and subtracting the previous year's inflation (CPI less food and energy). The 10 year yield has basically been on a downward trend since 1987.  One should subtract expected 10 year future inflation, not past inflation, and you can see the extra volatility that past inflation induces. But you can also see that real yields have fallen with the same pattern.There is lots of discussion. A falling marginal product of...

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Summers tweet stream on secular stagnation

Larry Summers has an interesting tweet stream (HT Marginal Revolution) on the state of monetary policy. Much I agree with and find insightful:Can central banking as we know it be the primary tool of macroeconomic stabilization in the industrial world over the next decade?...There is little room for interest rate cuts..QE and forward guidance have been tried on a substantial scale....It is hard to believe that changing adverbs here and there or altering the timing of press conferences or the...

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On not “running out of ammo”: Monetary Policy as Farmland Price Policy

Imagine a central bank that pegs the price of farmland. It announces it will buy or sell unlimited amounts of farmland for $10,000 per hectare. So "one dollar" doesn't mean some number of ounces of gold; it means "one square meter of farmland". So the central bank owns farmland, which it rents out to farmers at market rents. It uses those rents to pay for paper and ink and economists' salaries, and gives the rest to the government which owns the central bank. Or it could have a crawling...

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Gold Oped

Now that 30  days have passed, I can post the whole July 18 gold oped in the Wall Street Journal.Some of President Trump’s potential nominees to the Federal Reserve Board have expressed sympathy for a return to the gold standard. Conventional monetary-policy experts deride the idea—and not wholly without reason. The gold standard won’t work for a 21st-century monetary and financial system. It is possible, however, to emulate its best features without actually restoring the gold...

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What killed real wage growth?

This is the Project Link chart that most startles me: What killed the growth in real wages in the early 1970s? I've been trying to come up with an answer to this question, and I think I have one. I'm not entirely sure that it's the correct answer, but I think it's a plausible conjecture. Of course, an obvious thing for a Canadian economist to do is to check what was going in in the US at the time: Something happened to real wage growth in the US as well an in Canada in the...

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Preparing for the monetary rocky horror

Over at Newsroom (ungated), I discuss the importance of RBNZ being very clear about its intentions should it find itself in a position to pursue unorthodox monetary policy. As Doctor Frankenfurter prepared to step up the reactor power input three more points and bring life to the Rocky Horror in the classic Rocky Horror Picture Show, he welcomed the assembled “unconventional conventionists” who would witness his triumph.Unconventional monetary policy is a bit like Doctor Frankenfurter’s...

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