So what is his explanation? Well, that's the easy part. As he's a hedgehog we know he's always going to have the same answer to any question: the solution is, of course, that we set up an NGDP futures market.
If he said anything other than that, you'd have news.
He negotiates misunderstandings between the NFers-Stephen Williamson, et. al-and --also the Austrians who he for some reason lumps in with Keynesians.
So the easy part is the answer: we know the answer will always be NGDP futures; the question is how he takes us there.
In this case, he explains that both the NFers and the Keynesians, el. al are half right and half wrong-sort of like whether an atom is a quantum or a wave.
"Notice that monetary policy has two components, a level shift and a growth rate shift. This idea will underpin my grand theory of monetary policy. In this case the level shift was depreciating the yen from 120 yen/dollar to 154.5 yen/dollar. The growth rate shift was going to a regime where the yen is expected to gradually appreciate against the dollar, to one where it is credibly expected to depreciate at 1/2%/month."
http://www.themoneyillusion.com/?p=29429#comments
See what I mean? You could say that Keynesians see the waves and NFers see the particles, but in this case it's one sees the level shift and one sees teh growth rate shift.
"When NeoFisherians are talking about higher interest rates leading to higher inflation, they are (implicitly) changing the “rate” component of my monetary policy stance function. Keynesian and Austrians tend to (implicitly) think in terms of changes in levels, once and for all increases in the money supply that depress short-term interest rates and have relatively little effect on long-term interest rates or long run inflation."
Basically, he says that Williamson and friends are often right that inflation and interest rates coalesce but what the NFers fail to get is what an interest rate cut signals:
"So far I’ve been supportive of the NeoFisherians, but of course I don’t really agree with them. Their fatal flaw is similar to the fatal flaw of Keynesian and Austrian macro, using the interest rate to identify the stance of monetary policy. But in some ways it’s even worse than the Keynesian/Austrian view. Those two groups correctly understand that a Fed rate cut is a signal for easier money ahead. The NeoFisherians implicitly assume the opposite."
If he said anything other than that, you'd have news.
He negotiates misunderstandings between the NFers-Stephen Williamson, et. al-and --also the Austrians who he for some reason lumps in with Keynesians.
So the easy part is the answer: we know the answer will always be NGDP futures; the question is how he takes us there.
In this case, he explains that both the NFers and the Keynesians, el. al are half right and half wrong-sort of like whether an atom is a quantum or a wave.
"Notice that monetary policy has two components, a level shift and a growth rate shift. This idea will underpin my grand theory of monetary policy. In this case the level shift was depreciating the yen from 120 yen/dollar to 154.5 yen/dollar. The growth rate shift was going to a regime where the yen is expected to gradually appreciate against the dollar, to one where it is credibly expected to depreciate at 1/2%/month."
http://www.themoneyillusion.com/?p=29429#comments
See what I mean? You could say that Keynesians see the waves and NFers see the particles, but in this case it's one sees the level shift and one sees teh growth rate shift.
"When NeoFisherians are talking about higher interest rates leading to higher inflation, they are (implicitly) changing the “rate” component of my monetary policy stance function. Keynesian and Austrians tend to (implicitly) think in terms of changes in levels, once and for all increases in the money supply that depress short-term interest rates and have relatively little effect on long-term interest rates or long run inflation."
Basically, he says that Williamson and friends are often right that inflation and interest rates coalesce but what the NFers fail to get is what an interest rate cut signals:
"So far I’ve been supportive of the NeoFisherians, but of course I don’t really agree with them. Their fatal flaw is similar to the fatal flaw of Keynesian and Austrian macro, using the interest rate to identify the stance of monetary policy. But in some ways it’s even worse than the Keynesian/Austrian view. Those two groups correctly understand that a Fed rate cut is a signal for easier money ahead. The NeoFisherians implicitly assume the opposite."
"People say that the longest journey begins with a single step. But what the NeoFisherians don’t seem to realize is that central banks generally signal an intention to go 1000 miles to the west by taking their very first step to the EAST. (Nick Rowe has much better analogies.) Thus when Paul Volcker decided that he wanted the 1980s to be a decade of much lower inflation and much lower nominal interest rates, the very first thing he did was to raise the short term interest rate by reducing the growth rate of the money supply.
As soon as you realize that central banks usually use changes in short term nominal interest rates achieved via the liquidity effect as a signaling device, then the NeoFisherian result no longer makes any sense."
So there you go-both are right in one way and wrong in one way-but Scott is right about everything, naturally. Interest rates aren't what matters for monetary policy and NGDP futures are the answer for all monetary ills.
Again, NGDP futures hedgehog that he is we knew this coming in, but the suspense is how he gets there in this case.
P.S. I was at the gym this afternoon X-Sport Fitness is a hell of a gym if you live in Long Island as I do; they're literally open all the time 24/7, 365 and very importantly they have a pool.
What is great about running the tread mill these days is they have tvs and headphones-I find it's much easy to stick to a run that way.
Watching CNBC, I saw that Neera Tanden who is in charge of Center of American Progress-a liberal think tank that works closely with Hillary. She said something about entitlement reform for Medicare.
So I tweeted her and told her I'm a big fan but was surprised to here this-does she believe in austerity? She answered 'no, public investment and deficit reduction over 20 years.'
When I asked her if she thinks the goal ought to be a zero deficit she didn't answer. I was jazzed that she answered at all-that was my first impulse. Then I wondered why she didn't respond to my follow up question.
Again, I'm not a Firebagger-I have an open mind. I trust people like Hillary and Ms. Tanden but give me some idea of your thought process.
This is what I find-people don't like to answer follow ups. If they're polite they answer your first question. However, if upon hearing their answer you have a follow up they don't get back to you. Is it because they've
1. Decided you're obtuse ans not worth the trouble
2. Maybe you've shown they're the obtuse one and they don't want to be questioned any further.
It was a big day for me getting answers to my tweets- I got an answer from Elliot Harrison when I asked him why he didn't have Eli Manning in the top 10 QBs for 2015 but he does have Alex Smith. He explains it's not based on career but who he thinks will be the best in 2015. He thinks not having Cruz is a question mark.
http://www.nfl.com/news/story/0ap3000000493127/article/aaron-rodgers-tom-brady-head-top10-list-of-nfl-quarterbacks
I agree they need Cruz but even last year without him-but with Beckam-Eli had arguably his best year ever at least statistically.
When I pointed this out to Harrison: he didn't answer.
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