In a WSJ interview, John Taylor, who is a professor at Stanford University, sees that the nominal interest rate from the Federal Reserve should be 1.25% now, according to his own Taylor rule. He says the financial markets are working fine. “The financial crisis is ages ago now. The financial markets seem to be working […]

There is a movement taking place to understand the Fisher Effect. What is the Fisher Effect? Basically the idea is that low and stable nominal interest rates from the central banks leads to low and stable inflation. I have been writing here on Angry Bear that the Fisher Effect is made stronger when the nominal […]

As the stock market moves sideways and house prices slow their march upward, 2014 is shaping up to be a less profitable year than 2013 for those with capital income. We saw consumption from capital income increase greatly over the last couple of years, but this year I expect it to stop rising and even […]

The Federal Reserve Bank of St. Louis published an article that low nominal interest rates lead to low inflation… In essence they describe the Fisher effect about which I have been writing here on Angry Bear. There are many economists who do not accept the Fisher effect that low nominal interests lead to stable low […]

Paul Krugman is pushing for a higher inflation target. Joseph Stiglitz pushed for it a couple of years ago and then put the issue on the shelf well, he is still talking about it. (source) Even as the ECB’s president, Mario Draghi, said at the ECB conference where Mr. Krugman is presenting his case for […]

What is Effective Demand? Keynes made it a central concept of his great General Theory book. But what is it? Well, the idea is that there is only so much demand in the population for products. And that low demand can keep the economy from reaching full employment. How does that work? Keynes pointed to […]

In a post yesterday, I presented a graph of how inflation moves with changes in the Fed rate. I want to explore the graph further, because at some point the Federal Reserve will start to steadily raise their nominal Fed rate. How might inflation respond when the Fed rate starts to increase? The orange line […]

Mark Thoma wrote that the Fed should not have already raised its nominal Fed rate. He wrote that justifications for already raising the Fed rate are misguided. Now I am one who is saying that the Fed should have already raised nominal interest rates for two reasons… Potential output is lower than people think which […]

Paul Krugman wrote today the obvious criticism against the Fisher Effect. He completely based his criticism on monetary shocks, which is a short-sighted view.  He is not thinking beyond the shocks. “And we know what happens after a positive shock to policy interest rates: output and inflation both fall.” Yes, that is obvious, but what […]

Back in the 90’s I sat down and chatted with a philosopher from India that was passing through my local town. He said one thing that I have thought about for years. He told me that according to Indian culture, there are 4 types of people related to the elements, Fire, Earth, Air and Water. […]