Today we see an article, Betting the house: Monetary policy, mortgage booms and housing prices by Oscar Jorda, Moritz Schularick, Alan Taylor. They warn of excessive easy monetary policies. Their research uses a large data set. “In our new paper (Jordà et al. 2014), we analyse the link between monetary conditions, mortgage credit growth, and […]
Below the previous post on Refining a NGDP target for a policy rate rule, there were comments by Reason regarding real growth of output and the effects of inflation. These are the two components of the Fed rate, which seeks to stabilize inflation and promote full-employment output growth. I thought it would be helpful to […]
This post will lay out a way to incorporate a NGDP target into a policy rate rule, so that the rule steers inflation back to a NGDP target, not to an inflation target. First, the equation for a NGDP target. NGDP target, Nt = real rate of output growth, Lr + desired long-run average core […]
A nominal GDP target makes sense. If inflation runs below target for a while, it makes sense for inflation to run over target in the future in order to achieve the desired long run growth to inflation. So how might a policy rule to determine the Fed rate be modified for a NGDP target? A […]
We are seeing a resurgence of effective demand from both long term yields (borrowing costs) and headline inflation falling. What if 10-year yields fall to 1.6% by 2nd quarter 2015? And what if headline inflation falls to -0.5% by 2nd Q too? (Barclays is predicting negative headline inflation through 2015, Matthew B tweet.) I graph […]
The business cycle is being incredibly extended with the Fed rate at the ZLB. Effective demand is increased. But in the end, the effects of a low Fed rate cannot keep the business cycle from closing in on the effective demand limit and ending. It can slow down the process, but it cannot reverse the […]
For those who have read this series of posts, you have seen the evolution of an Effective Demand model. At the end of this post, you decide if the model is useful. The last two variables added to the limit function are for government expenditures and investment. Here is the final equation. Effective Demand limit […]
The effective demand equation has made great progress in the last week in spite of me being really sick with fever and congestion. And so I continue the development of the effective demand equation for those nutty readers of Angry Bear blog (meant with respect and camaraderie). I wrote in part 2 that the model […]
For those nutty readers that follow the effective demand story that I present on Angry Bear, today, the first day of 2015, marks a breakthrough. I just posted yesterday a model to expand the variables for assessing the effective demand limit upon production. Today a new variable is added to the mix with interesting results… […]
Noah Smith states that there is no “cycle” to the business cycle. (link) My response on twitter was, “…there can be definable limits without a cycle.” Can we define the limit of a business cycle? I have a model that describes what a limit to the business cycle might look like in terms of a […]