Nick was almost finished and so far so good-but suspected there was a catch:
"Typo: "So, in the next chart, the curve LRFR1 denotes the long-run Phillips relation, which is concave."
"Should be Fisher.
"Reading well so far, but I think I'm about to get to the bits I may disagree with."
http://newmonetarism.blogspot.com/2013/12/phillips-curves-and-fisher-relations.html?showComment=1387236579569#c3300358941378376616
My guess is that Nick really disagreed when he got here:
"If the Fed actually wants to increase the inflation rate over the medium term, the short-term nominal interest rate has to go up. We need to be at a point like D. There used to be a worry (maybe still is) of "turning into Japan." I think what people meant when they said that, is that low inflation, or deflation, was a causal factor in Japan's poor average economic performance over the last 20 years. In fact, I think that "turning into Japan" means getting into a state where the central bank sees poor real economic performance as something it can cure with low nominal interest rates. Low nominal interest rates ultimately produce low inflation, and as long as economic stagnation persists (for reasons that have nothing to do with monetary policy), the central bank persists in keeping nominal interest rates low, and inflation continues to be low. Thus, we associate stagnation with low inflation, or deflation."
"So, here's the policy advice for our friends on the FOMC. Continuing to engage in short-run monetary stimulus, through QE, will have little or no effect on real economic activity. The short run stimulative effects of monetary policy have pretty much played themselves out, and the real effects get smaller the more you do it. If there's any tendency for inflation to change over time, it's in a negative direction, as long as the Fed keeps the interest rate on reserves at 0.25%. Forget about forward guidance. You've pretty much blown that, by moving from "extended period" language, to calendar dates, to thresholds, and then effectively back to extended periods. That's cheap talk, and everyone sees it that way. So, as long as the interest rate on reserves stays at 0.25%, there are essentially no benefits in terms of more real economic activity. But you're losing by falling short of the 2% inflation target, which apparently you think is important. And you'll keep losing. So, what you should do is Volcker in reverse, except you don't have to move the inflation rate up much. For good measure, do one short, large QE intervention. Then, either simultaneously or shortly after, increase the policy rate. Under current conditions, the overnight nominal rate does not have to go up much to get 2% inflation over the medium term. Otherwise, you're just stuck in a rut, which would be too bad."
"There SW goes. He's really just taken the often quoted Friedman quote Sumner loves about low nominal rates being indicate of tight money and takes it one step further. In that case he means that tight money will lower rates. SW is arguing for raising rates as easier money and higher inflation and better growth. Hey at least he's saying something novel. Even if he's dead wrong, I haven't been overwhelmed by his many critics so far. If he's really as wrong as presumed they haven't done a great job showing where. So it may be that the person who does show us where will give us more or less an epiphany-which would still be thanks to SW."
"Typo: "So, in the next chart, the curve LRFR1 denotes the long-run Phillips relation, which is concave."
"Should be Fisher.
"Reading well so far, but I think I'm about to get to the bits I may disagree with."
http://newmonetarism.blogspot.com/2013/12/phillips-curves-and-fisher-relations.html?showComment=1387236579569#c3300358941378376616
My guess is that Nick really disagreed when he got here:
"If the Fed actually wants to increase the inflation rate over the medium term, the short-term nominal interest rate has to go up. We need to be at a point like D. There used to be a worry (maybe still is) of "turning into Japan." I think what people meant when they said that, is that low inflation, or deflation, was a causal factor in Japan's poor average economic performance over the last 20 years. In fact, I think that "turning into Japan" means getting into a state where the central bank sees poor real economic performance as something it can cure with low nominal interest rates. Low nominal interest rates ultimately produce low inflation, and as long as economic stagnation persists (for reasons that have nothing to do with monetary policy), the central bank persists in keeping nominal interest rates low, and inflation continues to be low. Thus, we associate stagnation with low inflation, or deflation."
"So, here's the policy advice for our friends on the FOMC. Continuing to engage in short-run monetary stimulus, through QE, will have little or no effect on real economic activity. The short run stimulative effects of monetary policy have pretty much played themselves out, and the real effects get smaller the more you do it. If there's any tendency for inflation to change over time, it's in a negative direction, as long as the Fed keeps the interest rate on reserves at 0.25%. Forget about forward guidance. You've pretty much blown that, by moving from "extended period" language, to calendar dates, to thresholds, and then effectively back to extended periods. That's cheap talk, and everyone sees it that way. So, as long as the interest rate on reserves stays at 0.25%, there are essentially no benefits in terms of more real economic activity. But you're losing by falling short of the 2% inflation target, which apparently you think is important. And you'll keep losing. So, what you should do is Volcker in reverse, except you don't have to move the inflation rate up much. For good measure, do one short, large QE intervention. Then, either simultaneously or shortly after, increase the policy rate. Under current conditions, the overnight nominal rate does not have to go up much to get 2% inflation over the medium term. Otherwise, you're just stuck in a rut, which would be too bad."
"There SW goes. He's really just taken the often quoted Friedman quote Sumner loves about low nominal rates being indicate of tight money and takes it one step further. In that case he means that tight money will lower rates. SW is arguing for raising rates as easier money and higher inflation and better growth. Hey at least he's saying something novel. Even if he's dead wrong, I haven't been overwhelmed by his many critics so far. If he's really as wrong as presumed they haven't done a great job showing where. So it may be that the person who does show us where will give us more or less an epiphany-which would still be thanks to SW."
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