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Josh Barro do indeed favour NGDP level targeting

Josh Barro do indeed favour NGDP level targeting

A couple of days ago I noted that Josh Barro had a good understanding of US monetary policy and the causes of the Great Recession. In my post I wondered whether Josh also would favour NGDP level targeting.

Chuck Norris just pushed S&P500 above 1400

Chuck Norris just pushed S&P500 above 1400

Today S&P500 closed above 1400 for the first time since June 2008. Hence, the US stock market is now well above the levels when Lehman Brothers collapsed in October 2008. So in terms of the US stock market at least the crisis is over. Obviously that can hardly be said for the labour market situation in the US and most European stock markets are still well below the levels of 2008.

Josh Barro sounds like a Market Monetarist - will he also advocate NGDP targeting?

Josh Barro sounds like a Market Monetarist - will he also advocate NGDP targeting?

Josh Barro has an interesting comment on the economic policies of US presidential candidate. However, more interesting really is his comments on past and present US monetary policy:

Just as with fiscal policy, an improving economy will change our monetary policy needs. Contrary to popular opinion, the Federal Reserve has not been irresponsibly “printing money” in recent years. The weak economy has led people to hoard cash instead of spending it — which has more than overcompensated for the Fed’s supposedly aggressive policies.

Today, given the recovering economy, the Fed is now just about loose enough. This hopefully means that the economic recovery will accelerate, no longer held back by bad monetary policy.

But the Fed must resist the urge to tighten prematurely, which could set us back into another slump. A moderate period of moderate inflation is nothing to be afraid of; in fact, it will help underwater homeowners to get out of hock and improve the housing markets.

Josh is of course right. US monetary policy has not been loose, but rather too tight. The recession is a result of a sharp increase in dollar demand. Josh is also right that monetary policy now seem to have become more accommodative. This is visible from the improvement in US macroeconomic data, but obviously also something we can observe directly from the financial markets - rising stock prices, higher bond yields and higher commodity prices. So yes, there certainly seem to be both a recovery and some stabilisation in expectations. Said, in another way it seems like the Fed is regaining some credibility.

That said, the discussion about monetary policy should really not be about whether it is a bit too tight or a bit too loose at the moment. Rather we need to continue to discuss what the Fed should target. There need to be a continued discussion about the Fed's operational framework and about it's target. Market Monetarists obviously would prefer that the Fed introduced a NGDP level target. I wonder if Josh Barro would support that?

HT Blake Johnson

Expectations and the transmission mechanism - why didn't anybody think of that before?

Expectations and the transmission mechanism - why didn't anybody think of that before?

As I was writing my recent post on the discussion of the importance of expectations in the lead-lag structure in the monetary transmission mechanism I came think that is really somewhat odd how little role the discussion of expectations have had in the history of the theory of transmission mechanism .

Jason finds (one of) Friedman's gems

Jason finds (one of) Friedman's gems

Here is Jason Rave over at Macro Matters on "History's Lessons":

Long and variable leads and lags

Long and variable leads and lags

Scott Sumner yesterday posted a excellent overview of some key Market Monetarist positions. I initially thought I would also write a comment on what I think is the main positions of Market Monetarism but then realised that I already done that in my Working Paper on Market Monetarism from last year - "Market  Monetarism - The  Second  Monetarist  Counter-­revolution"

Bring on the "Currency war"

Bring on the "Currency war"

I have been giving the issue of devaluation a bit of attention recently. In my view most people fail to understand the monetary aspects of currency moves - both within a floating exchange rate regime and with managed or pegged exchange regimes.

Mises was clueless about the effects of devaluation

Mises was clueless about the effects of devaluation

Over at the Ludwig von Mises Institute's website they have reproduced a comment from good old Ludwig von Mises on "The Objectives of Currency Devaluation" from Human Action. I love Human Action and there is no doubt Ludwig von Mises was a great economist, but to be frank when it comes to the issue of devaluation he was basically clueless. Sorry guys - his views on this issue are not too impressive.

Christina Romer is also in love with Milton Friedman

Christina Romer is also in love with Milton Friedman

Our friend  has an interesting quote from Christina Romer on The Daily Beast:

Mario, Tim and me...

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