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 […]
Last week there was an 1.5 hr discussion with the following participants: Joseph Stiglitz (Columbia University), Paul Krugman (Princeton University), and Steven Durlauf (University of Wisconsin–Madison) participated in a panel moderated by LIS Senior Scholar Branko Milanovic. The Center just posted it yesterday on their youtube channel.
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 […]
by J Tzimeskes Are Markets Better Described as Robust than Efficient? Something that I think all of us with private sector jobs experience in our day to day lives is just how incompetent a large number of private businesses are. These may be our customers, suppliers, or another division. Yet, somehow, these businesses thrive despite […]
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 […]