SW confuses many with the distinctions he wants to deny and with those he does make. He wants to deny the Freshwater-Saltwater divide is about much of anything than the fevered minds of 'journalists'-ie, Krugman, Delong, Noah Smith and Miles Kimball et. al; that is to say not journalists but economists he is taking issue with.
http://diaryofarepublicanhater.blogspot.com/2013/12/krugman-envy-stephen-williamson.html
Much of his kvetching over differences with how the Minneapolis Fed firings were handled seems like nothing but inside baseball to me. I disagree with him when he says things like this-in this case to Noah Smith in the comments secton:
"In terms of what you have written in this post, you just haven't got it. Here, you've mischaracterized my motives, as if I'm driven by anger and emotion. I've thought about these issues carefully, and gone to some effort to try to correctly characterize what is going on. You seem to be embedded in some fantasy wrestling match world of smackdowns, good guys, bad guys, winners, and losers."
"I'll give your original post with Miles credit for being well-written. But, forget the nuance. It's primarily a work of fiction. What's going on in Minneapolis is pure Shakespearean tragedy. There are no winners in that episode. This ain't Star Wars."
"So, get your mind off your own hurt feelings. You're a good writer. Just get to know your subject before you write about it."
"After that episode, I realised there was a big difference in kind. It's not about microfoundations (which is mostly a difference in degree). It's something else. Those economists who can't see any problems with the idea that if the central bank wants to increase inflation it simply has to set a higher nominal interest rate are on a different planet, where Wicksell never existed."
"The freshwater/saltwater distinction (if that is what it is) is bigger than I thought it was."
"In New Keynesian theory, the basic idea is that the key inefficiency that monetary policy should be correcting arises from the sticky price friction. It is costly or impossible for firms to change prices frequently, and if there is general inflation or deflation there will be relative price distortions that cause welfare losses. In the New Keynesian framework, price stability will generally fix the problem, subject to some slippage due to what the central bank can and cannot observe at any given time. However, a particular problem, which I think is the key to how New Keynesians think about the current state of the world, is that the nominal interest rate cannot fall below zero (the "zero lower bound"). In a severe downturn, from standard intertemporal economics, efficient allocation of resources dictates that the real interest rate should be low, but this is not going to be consistent with price stability and a non-negative nominal interest rate. The best the central bank can do is to set its policy target nominal interest rate to zero, and the real interest rate is then too high relative to what it would be in an efficient flexible price world. This is essentially the story that Bob Hall told on Wednesday, and it's consistent with all or most of the New Keynesian work I have seen at the SED meetings here in Montreal."
http://diaryofarepublicanhater.blogspot.com/2013/12/krugman-envy-stephen-williamson.html
Much of his kvetching over differences with how the Minneapolis Fed firings were handled seems like nothing but inside baseball to me. I disagree with him when he says things like this-in this case to Noah Smith in the comments secton:
"In terms of what you have written in this post, you just haven't got it. Here, you've mischaracterized my motives, as if I'm driven by anger and emotion. I've thought about these issues carefully, and gone to some effort to try to correctly characterize what is going on. You seem to be embedded in some fantasy wrestling match world of smackdowns, good guys, bad guys, winners, and losers."
"I'll give your original post with Miles credit for being well-written. But, forget the nuance. It's primarily a work of fiction. What's going on in Minneapolis is pure Shakespearean tragedy. There are no winners in that episode. This ain't Star Wars."
"So, get your mind off your own hurt feelings. You're a good writer. Just get to know your subject before you write about it."
It's suggesting that you have to be part of the inside baseball to have any opinion or any ability to do analysis and this is false. It's a typical position of all institutions that don't want any outside scrutiny to say that is you're not part of it you are entitled to no opinion about it. That's how someone like Sumner defends mainstream macro everyday-'sorry, you're too illiterate to even have a discussion with about that.'
For more on his way of looking at things see him here for his analysis of the Minneapolis Fed firings.
Interestingly, he has recently managed to rather than convert more to the idea that there is no meaningful FW-SW divide actually made others like Nick Rowe who would have tended to agree with Williamson prior to his recent posts about QE to wonder if maybe there is a meaningful distinction after all.
Before that episode, I thought that the freshwater/saltwater distinction wasn't really a useful one any more, because it was only a difference in degree, and not a big difference at that.
"After that episode, I realised there was a big difference in kind. It's not about microfoundations (which is mostly a difference in degree). It's something else. Those economists who can't see any problems with the idea that if the central bank wants to increase inflation it simply has to set a higher nominal interest rate are on a different planet, where Wicksell never existed."
"The freshwater/saltwater distinction (if that is what it is) is bigger than I thought it was."
Yet, the thing about Williamson is, he is very difficult to pigeonhole. He's basically Freshwater all the way-though not RBC-and his politics based on what he's said are quite liberal. Then there's his policy prescriptions.
What's the difference between a New Keynesian and a New Monetarist? This sounds like I'm leading off to tell a joke (a duck walks into a bar...), but I'm not. A New Keynesian thinks that the real interest rate is too high, while a New Monetarist thinks the real interest rate is too low.
"In New Keynesian theory, the basic idea is that the key inefficiency that monetary policy should be correcting arises from the sticky price friction. It is costly or impossible for firms to change prices frequently, and if there is general inflation or deflation there will be relative price distortions that cause welfare losses. In the New Keynesian framework, price stability will generally fix the problem, subject to some slippage due to what the central bank can and cannot observe at any given time. However, a particular problem, which I think is the key to how New Keynesians think about the current state of the world, is that the nominal interest rate cannot fall below zero (the "zero lower bound"). In a severe downturn, from standard intertemporal economics, efficient allocation of resources dictates that the real interest rate should be low, but this is not going to be consistent with price stability and a non-negative nominal interest rate. The best the central bank can do is to set its policy target nominal interest rate to zero, and the real interest rate is then too high relative to what it would be in an efficient flexible price world. This is essentially the story that Bob Hall told on Wednesday, and it's consistent with all or most of the New Keynesian work I have seen at the SED meetings here in Montreal."
'From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play their own unique roles as media of exchange in retail and large-scale financial transactions. A second important set of liquid assets are (in the US) Treasury securities, and various intermediated private assets that are implicitly traded through the exchange of various intermediary liabilities. When the Fed conducts an open market purchase of Treasuries, it swaps the first type of liquidity for the second. My view is that one reason this matters is that it increases the scarcity of the the second type of liquidity. The financial crisis also increased the scarcity of the second type of liquidity. For example, some mortgage backed securities, which had been widely traded in financial markets, and had served as collateral in various credit arrangements, dropped in value and were no longer traded. An increased scarcity of the second class of liquid assets is reflected in a lower real interest rate - these assets carry a larger liquidity premium. The correct central bank response to such a phenomenon, in additional to stepping in temporarily take up some of the intermediation functions that seemed to have shut down in the private sector, is to sell Treasuries, not to purchase them (which would increase the first type of liquidity, not the second).'
So it is, that the New Monetarist has some decidedly un-Monetarist sounding things to say about policy. Not enough public debt?! So you can't say he's not original if nothing else. For the New Monetarist 'Bible' as it were see Lagos and Wright (2005).
Now wonder Nick Rowe and Sumner think it's unfair that SW got the New Monetarist label-shouldn't it be theirs by definition?
This is why I'm still kind of intrigued by SW-no matter what you say about his models, he gets to the right answer -more public debt-via a very circuitous route.
P.S. No matter what you think of the New Monetarist model as described by SW, there are clearly some defects with the NK model though not the ones that Sumner always talks about: that's the Monetarist line where what counts is not interest rates but the money supply. However, the money supply has been from Friedman on been totally oversold in terms of what you are supposed to be able to achieve with adjustments to it.
http://diaryofarepublicanhater.blogspot.com/2013/12/sumners-old-wine-in-new-bottles-scourge.html
However, 'New Monetarism' is such a horse of a different color and so enigmatic with SW's policy advice-what kind of Monetarist claims that what is needed is an increase in public debt?!
P.S. No matter what you think of the New Monetarist model as described by SW, there are clearly some defects with the NK model though not the ones that Sumner always talks about: that's the Monetarist line where what counts is not interest rates but the money supply. However, the money supply has been from Friedman on been totally oversold in terms of what you are supposed to be able to achieve with adjustments to it.
http://diaryofarepublicanhater.blogspot.com/2013/12/sumners-old-wine-in-new-bottles-scourge.html
However, 'New Monetarism' is such a horse of a different color and so enigmatic with SW's policy advice-what kind of Monetarist claims that what is needed is an increase in public debt?!
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