Japan has had its discount rate in the zero lower bound range for many years. If the Fisher effect had any truth to it, we should have seen the real interest rate return back to its natural level of 1% or so. What do we see? (link to updated graph) The graph shows Japan’s central […]
The Fisher effect is defined by Paul Krugman & Robin Wells in their textbook… Economics, 3rd Editon 2013, page 721. “The expected real interest rate is unaffected by changes in expected future inflation. According to the Fisher effect, an increase in expected future inflation drives up the nominal interest rate, where each additional percentage point […]
Noah Smith brought up the issue of the long run Fisher effect. Yet, he wants to see micro-foundation models. “Specifically, what I’d be interested to see is for someone to find some micro-foundations for the Neo-Fisherite result that don’t depend on fiscal policy reaction functions.” He found a paper written by Stephanie Schmitt-Grohé and Martín […]
World Trade weakens in Early 2014, Wall Street Journal: Weakening world trade is something to watch according to Michael Pettis. “… redistributing income downwards is easier said than done in a globalized world, especially one in which countries are competing to drive down wages. The first major economy to attempt to redistribute income will certainly […]
How low can you go? No… this is not a post about Limbo. It is a post about low interest rates, low inflation, and economic growth. The question is… Can low inflation stay low as the economy heats up around full employment? Let’s look at Europe. Low interest rates and falling inflation are not stopping […]
I wrote some 4 days ago about the Thoma/Williamson debate. I thought Stephen Williamson w0n the debate with his views on the Fisher effect, which basically state that keeping the Fed rate low into the long run will create low inflation. The basic principle underlying this view is that the real rate of interest is […]
If you were a passenger in a car speeding toward a cliff, you would scream at the lunatic driver to steer away or slow down. The car is our economy. The cliff is inequality. Inequality is a disaster for society. Who is driving the car? A combination of government policies and business institutions are steering […]
Low inflation continues to be a concern in Europe and the US, especially in Europe. Central bankers project that inflation will rise as the economy gets closer and closer to full employment. Yet, what is behind low inflation? I refer to the work of Michael Pettis who is a professor of finance at Guanghua School […]
I posted a question to our readers… How should monetary policy change if reducing inequality was seen as the most important priority? An assessment of the comments… The real issue of monetary policy’s effect on inequality its purpose to generate a “wealth effect” which will increase spending. A few things were said about the wealth […]
I am watchng the video of Paul Krugman on Bill Moyers. Mr. Krugman is seeing things about inequality that he hadn’t seen before Piketty’s book. So he is now seeing that inequality is a huge problem now and into the future. Inequality is the one major problem in the economy. Question… How should monetary policy […]