John Williams who is the president and chief executive officer of the Federal Reserve Bank of San Francisco published a letter yesterday explaining unconventional monetary policies. First I want to appreciate the clarity and simplicity with which John Williams is able to communicate complex ideas. His voice is honest, transparent and credible. What did he […]
The IS-LM model is built upon two markets, the goods market (IS) and the money market (LM). The alternative view in this post will incorporate the effective demand limit into the IS-LM model. Money Market First The money market is described by a plot of the interest rate (y-axis) and the quantity of money (x-axis). The […]
James Rickards wrote the book Currency Wars a few years back. (source video) He is supported by the Charles Koch Institute. He says the US wanted China to appreciate their currency, so that the dollar would depreciate, because the fed wanted to import inflation in order to meet their nominal GDP targets. His view is […]
One thing that is seen sometimes is a strange teaching in economics and business. The teaching says that lower costs of production will increase the natural level of real GDP output. Now the natural level of real GDP output is considered the limit at which the economy can produce. It is seen as the total […]
Even if inflation (CPI less food and energy) stays steady between 1% and 2%, there really is no problem. Prices are still rising. Paul Krugman would like to see inflation rise because that would lower real interest rates. But that is not going to happen, and he shouldn’t be expecting that it will. Is there […]
In a previous post, I wrote about a natural rate of inflation. Does it really exist? What would it look like? We could understand a natural rate of inflation as the inflation rate at which the economy can most efficiently progress in terms of social benefits and costs. Some benefits are more employment, greater growth […]
Does targeting low inflation lead to higher unemployment? In other words, is it possible that a higher natural rate of unemployment is necessary to maintain a lower rate of inflation? Output and prices move together to maintain economic momentum. Normally output increases in response to demands in the market, which keeps prices stable. Yet, at […]
Whereas David Romer will say that the low inflation rate is a result of the zero lower bound. I would say that BOTH the low inflation rate and the zero lower bound result from the weak consumer liqudity due to very low labor share. In the previous post, I wrote about how inflation is a […]
I have been reading David Romer’s class notes called Short-run fluctuations. Part of his paper deals with a model to explain inflation in a liquidity trap. The model is based on real interest rates, output, expected inflation, Keynesian cross and IS-MP model stuff. He writes… “An economy where the nominal interest rate is zero poses […]
An issue arose in the comments at a previous post, Labor share is chopped liver to Mr. Krugman. The issue is whether increasing employment in order to increase wages and labor share is a good strategy for fiscal and monetary policy. Dean Baker, Paul Krugman and others put forth this strategy. It seems common understanding […]