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Evan Koenig - who is a long-time defender of NGDP targeting - is out with a new paper: "All in the Family: The Close Connection Between Nominal-GDP Targeting and the Taylor Rule". Evan of course is a Senior Economist and Vice President at the Dallas Fed.
In today's edition of Financial Times Deutschland Polish central bank governor and former Director of IMF's Europe department Marek Belka calls for Greece to introduce a dual currency system (See here). Belka clearly acknowledges in the monetary aspects of the European crisis including the Greek crisis.
Over the last couple of decades independent central banks have become the norm and it is seen as dangerous if politicians threaten the independence of the central banks. Judging from the short-termism of politicians this in many ways makes perfectly good sense and any modern economist would acknowledge that central bank independence is a good way to ensure a rules based monetary policy - contrary to they discretionary monetary policies normally dominating politicized central banks.
Scott Sumner has written dozens of blog posts trying to explain to why the fiscal multiplier is zero if the central bank targets the NGDP level, the price level or inflation. Said in another way Scott – as do I – strongly believe that the impact of fiscal policy strongly dependent the monetary policy reaction to fiscal tightening or fiscal easing (Even today Scott has a discussion of the fiscal multiplier). In fact I don’t even think it is meaningful to talk about fiscal policy as something that can “stimulate” demand. Hence, in a pure barter economy we cannot imagine fiscal policy having any impact on demand as demand always will equal supply in a barter economy. The famous Say’s Law holds in a barter economy and as such there would be full crowding out of fiscal policy. Hence, fiscal policy will only have an impact on demand if monetary policy “plays along”.
Guest post: Central Banks Should Quit “Kicking Them While They Are Down!"
Following the US media's reporting on the Republican primaries it seems like the candidate who will be nominated for the GOP candidacy for US presidency and who will eventually might win the presidential elections will be decided by their views about a retro-toy called Etch A Sket. Might I suggest that US political pundits instead start following the actions of an Italian called Mario - Mario Draghi!
Since the ECB introduced it's 3-year LTRO on December 8 the signs that we are emerging from the crisis have grown stronger. This has been visible with stock prices rebounding strongly, long US bond yields have started to inch up and commodity prices have increased. This is all signs of easier monetary conditions globally.
Recently (since December) we have seen US bond yields start to inch up and at the same time oil prices (and other commodity prices) have also inched up. This seem to be a great worry to some commentators - "Higher oil prices and higher bond yields will kill the fragile recovery" seem to be the credo of the day. This, however, reveals that many commentators - including some economists - have a hard time with basic demand-and-supply analysis. Said, in another way they seem to have a problem distinguishing between moving the supply curve and moving the demand curve along the supply curve.
Recently I have been thinking whether it would be possible to understand all financial market price action through the lens of the equation of exchange - MV=PY. In post I take a look at the bond market.
Traditional monetarists used to consider money-velocity as rather stable and predictable. In the simple textbook version of monetarism V in MV=PY is often assumed to be constant. This of course is a caricature. Traditional monetarists like Milton Friedman, Karl Brunner or Allan Meltzer never claimed that velocity was constant, but rather that the money demand function is relatively stable and predictable.