Is the sun setting? On April 22nd, I wrote a comment to a reader of my Effective Demand blog. I said… “My view now is that the Dow Jones will make a publicity effort with hopes to get back up to 16800, then come down from there.” The Dow Jones made it to 16715. Today […]
As I look at different countries for evidence of the Fisher Effect, the thought occurred to look at China. Would the Fisher Effect be discernible since their central bank’s (PBoC) nominal rate is not at the ZLB? It is free to move anyway it chooses. But then one realizes that they hold their PBoC rate […]
When Japan’s call rate (the nominal rate from their central bank) went to the zero lower bound, Japan developed deflation. It was not a deflation where the bottom fell out and kept falling. It was a deflation somewhat stable below 0%. The stability of their low deflation would make sense according to the Fisher Effect […]
Paul Krugman wrote over the weekend… “Oh, and a word on Sweden, where the central bank is indeed on the edge of deflation but say never mind because output is currently growing. Um, does the bank have an inflation target or doesn’t it? Yes, the economy can expand some of the time even if inflation […]
Michael Hatcher and Patrick Minford have a post titled, Inflation targeting vs price-level targeting: A new survey of theory and empirics. They tell us that Price level targeting may be better than inflation targeting, because if inflation goes down, it would bounce back over the Fed inflation target. Inflation targeting just brings inflation back to […]
People are talking about low inflation and possible deflation. (Krugman today, and this article by St. Louis Fed, thanks Marko). Many think inflation will rise back up. Some think inflation can turn into deflation. The video above gives my view using a model of System Dynamics. (Link to first video describing model.) I show a […]
Been busy building a model to show the Fisher Effect. The model uses System Dynamics, which takes interrelated variables through a time simulation. The model is described in the video above. The main point is that the path of inflation described by the model matches the path of CPI (less food and energy) since […]
Quote from the most recent Federal Statement. “In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including […]
The Euro-zone inflation rate rose less then expected for April at a pace of 0.7%. It was expected, or hoped, to rise to 0.9%. Germany’s inflation rate stayed low at 1.1%, which makes cost adjustments more troubling for the periphery countries of Europe like Spain and Greece. Finding a cure for low inflation is imperative […]
Low inflation in an atmosphere of low nominal interest rates brings up the issue of the Fisher Effect. Here is the long run Fisher equation for a “steady-state” nominal interest rate… Inflation rate = steady-state nominal interest rate – natural real interest rate The steady-state means that the nominal interest rate is projected to […]