tag:blogger.com,1999:blog-8702840202604739302.post4582374480297239281..comments2024-03-12T22:00:25.991-07:00Comments on MacroMania: Interest rates and slumps: competing viewsDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-8702840202604739302.post-88961764454749313802011-09-27T11:13:11.474-07:002011-09-27T11:13:11.474-07:00"One of my econ professors in the 70's to..."One of my econ professors in the 70's told the class everytime you heard an economist talking about unemployment that person has a good job as an expert and usually doesn't understand what a trageity it is to not have a good paying job.<br />He was right."<br /><br />But he can probably spell "tragedy". And while he may be right about not knowning what it is like to be unemployed, he was wrong about the economist not understanding unemployment.<br /><br />Again, GK is a crackpot.Bosephus Jonesnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-72774073537793178682011-09-24T10:32:12.928-07:002011-09-24T10:32:12.928-07:00CL,
Well, I'm not sure. I certainly do believ...CL,<br /><br />Well, I'm not sure. I certainly do believe that it might be a very good time for the federal government to issue more debt to finance infrastructure investment. I don't base this view on any "Keynesian" principles of "deficient demand," however. Simple NPV cost-benefit analysis will do.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-3095693962254341642011-09-24T10:14:02.900-07:002011-09-24T10:14:02.900-07:00David:
As you said, the interest rates on bonds ...David: <br /><br />As you said, the interest rates on bonds are already low, hence the limited effect of QE. A fiscal stimulus coordinated with a monetary expansion would most likely have the desirable effect. Fiscal stimulus has the advantage of increasing the money supply without actually pushing the interest rates.CLnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-11563260345744844452011-09-24T07:02:28.700-07:002011-09-24T07:02:28.700-07:00GK
http://www.nytimes.com/2011/09/24/opinion/how-...GK<br /><br />http://www.nytimes.com/2011/09/24/opinion/how-do-you-say-economic-security.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-66753141192495455982011-09-23T11:24:40.455-07:002011-09-23T11:24:40.455-07:00To Bosephus Jones:
Sorry to disappoint but I'm...To Bosephus Jones:<br />Sorry to disappoint but I'm an old bond trader, in fact I was one of the first people to hedge bank liquitidy prtfolios in the 80's. We did a lot of yeild curve inhancement trade that made my banking customers a lot of money and did alright myself.<br />Told everyone last summer to get out of equities and build a ladder of T bills and short to longterm bonds.<br />Your right I'm not an ecoonmist, I guess you would say I'm a "Fat Tony".<br />One of my econ professors in the 70's told the class everytime you heard an economist talking about unemployment that person has a good job as an expert and usually doesn't understand what a trageity it is to not have a good paying job.<br />He was right.<br />GKAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-92048954717046186712011-09-23T11:22:26.810-07:002011-09-23T11:22:26.810-07:00CL, neither would a stimulus package that released...CL, neither would a stimulus package that released the entrepreneurial spirit from it's shackles.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-86372708361346412222011-09-23T10:47:19.260-07:002011-09-23T10:47:19.260-07:00Well one thing for fiscal stimulus is that it'...Well one thing for fiscal stimulus is that it's not dependent on inflationary expectations.CLnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-50955675642218871012011-09-23T09:36:36.665-07:002011-09-23T09:36:36.665-07:00Hi Greg:
Yes, you are right--don't "nee...Hi Greg: <br /><br />Yes, you are right--don't "need" increasing returns for the result (that's why I said "for example"). <br /><br />The point remains, however, that there appears to be an observational equivalence across these competing theories. They generate very similar behavior, but have very different policy implications.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-33933504584970025362011-09-23T09:31:47.597-07:002011-09-23T09:31:47.597-07:00Hi David,
I don't think you need increasing r...Hi David,<br /><br />I don't think you need increasing returns to get multiple equilibria. If each firm's output and hiring decisions are based on forecasts of sales revenue at alternative levels of production; and if this revenue forecast is driven in part by expectations about the hiring decisions of other firms (or, more simply, whether economic conditions will improve or not), then you've got "pessimistic" and "optimistic" equilibria without regard to increasing returns.<br /><br />It's important to differentiate between perfect competition (with diminishing returns) where firms can sell as much as the wish at prevailing prices and, for lack of a better term, "pure competition," where firms are price takers, but nevertheless must forecast prices and sales revenue. <br /><br />A reluctance to part with cash in this circumstance is not irrational if you think others will do likewise. The trick is to create some assurance that, if I part with my cash, others will do likewise.Greg Hillhttp://humanpredicament.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-51474372297004567462011-09-23T08:15:02.924-07:002011-09-23T08:15:02.924-07:00@George K: Everyone has a model in their mind of t...@George K: <i>Everyone</i> has a model in their mind of the way the macroeconomy functions (whether they realize this or not). We don't expect our models to feed us directly. Our hope is that they will help us interpret the world around us in the best way possible; and that this knowledge will help us avoid any unintended consequences of well-meaning policies. (You may recall the saying that the road to hell is paved with good intentions.)David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-23050298689065400812011-09-23T08:07:27.669-07:002011-09-23T08:07:27.669-07:00Nick:
Oh, and sure thinner markets would likely i...Nick:<br /><br /><i>Oh, and sure thinner markets would likely increase search costs, but why would a reduction in quantities traded mean bigger marginal search costs for sellers and *lower* marginal search costs for buyers?</i><br /><br />I am not even sure this is a fact, but let us assume that it is. Moreover, let us assume that the model I just described cannot replicate this fact. My claim is this: then your model cannot replicate this fact either.<br /><br />Reason? Because the shock that generates a recession in your model is an increase in the demand for money. But that's basically the shock that creates a recession in my model too! (The only difference is that the increase in money demand from my perspective is reacting endogenously to something.)David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-74058696085626577312011-09-23T07:28:54.498-07:002011-09-23T07:28:54.498-07:00George K is a crackpot.George K is a crackpot.Bosephus Jonesnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-89971291388269978992011-09-23T04:49:24.237-07:002011-09-23T04:49:24.237-07:00You have a job, it's easy to quibble over mode...You have a job, it's easy to quibble over models when the wolf isn't at the door.<br />U6 is hovering around 16%, that's millions of citizens that desperately need a good paying job.<br />Corporate American is/has/will not be creating millions of jobs any time soon. Only the federal government can create good paying jobs. Deficit spending so people can have money to spend and pay taxes makes sense if you care about people.<br />When your life implodes and your living off food stamps and unemployment tell me how your models will save you.<br /><br />George KAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-26927631648147926302011-09-22T20:29:37.607-07:002011-09-22T20:29:37.607-07:00Oh, and sure thinner markets would likely increase...Oh, and sure thinner markets would likely increase search costs, but why would a reduction in quantities traded mean bigger marginal search costs for sellers and *lower* marginal search costs for buyers?<br /><br />We can't even make sense of the distinction between "buyers" and "sellers" in a non-monetary economy.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-42158399370273435442011-09-22T20:26:09.233-07:002011-09-22T20:26:09.233-07:00David: yep, but don't those business executive...David: yep, but don't those business executives also say it's hard to sell stuff, and easy to hire labour, right now? And the observation that recessions are a "general glut" goes back an awfully long way.<br /><br />I still can't quite get my head around Roger's model. I get the idea that there's ex post bilateral monopoly/monopsony in the labour market, and so a zone of indeterminacy for wages, between the demand price and the supply price of labour. But from that point, I would want to say that wages are determined by a Schelling focal point, and that history provides a strong focal point. Sticky wages, in other words. If I understand him correctly, Roger is saying that with one equation knocked out, he is free to impose another equation, and take expectations as exogenous?? Because it can't violate RE?? I would instead say there's a thick vertical AS curve, but the AD curve is still well-defined.<br /><br />Dunno. My head is still not clear on it.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-5480160900719366162011-09-22T19:37:19.245-07:002011-09-22T19:37:19.245-07:00Nick,
By the way, if one was to endogenize the s...Nick, <br /><br />By the way, if one was to endogenize the search and matching in product markets, the shock I describe may very well lead to thinner markets, more difficult trading, etc. <br /><br />The observational equivalence is not so easy to overcome.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-29098887995056494472011-09-22T19:34:57.894-07:002011-09-22T19:34:57.894-07:00Nick,
Thanks for catching that (important!) typo....Nick,<br /><br />Thanks for catching that (important!) typo. <br /><br />Yes, I think I understand (and appreciate) your position quite well. In fact, I just suggested today to a graduate student that he might do well to try to formalize and quantify your view (which, if I understand correctly, is subtly, but importantly, different from DeLong's). <br /><br />You have anecdotal data. Wonderful. So do I. Try tuning in to CNBC and listen to the business executives who consistently and repeatedly point to "policy uncertainty," "leadership faiures," "vague rules of the game, subject to capricious change," etc. etc. <br /><br />Are these executives blowing smoke to cover their asses. Maybe. But maybe...maybe not! <br /><br />Btw, what do you think of Roger Farmer's model and how it relates to your own view? (He does not rely on sticky prices because he is an Old Keynesian.)David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-82502872611089329412011-09-22T19:24:45.341-07:002011-09-22T19:24:45.341-07:00Hi David:
1. Typo here: "Unfortunately for K...Hi David:<br /><br />1. Typo here: "Unfortunately for Krugman, there are theories out there that generate predictions broadly consistent with the data but which do [NOT?] lead to the same policy conclusion."<br /><br />2. Yep, count me in, roughly speaking, with those other two guys!<br /><br />3. Neat model. But I don't believe it for a moment!<br /><br />To my mind, the most important stylised fact about recessions is this: in a recession, it is harder than normal to sell stuff, and easier than normal to buy stuff. It takes a seller an extra long time searching to find an extra buyer; and it takes a buyer less time than normal to find a seller.<br /><br />By "stuff" I include newly-produced goods, and labour, and a lot of other stuff as well. Especially stuff the price of which *looks* sticky. Especially stuff that is normally illiquid (hard to buy and sell). It's just that that illiquidity behaves asymmetrically for buyers and sellers over the business cycle.<br /><br />The only good I exclude from "stuff" is the medium of exchange. Money becomes easier to sell, and harder to buy, in a recession. It goes the other way from all the other stuff.<br /><br />Do I have hard StatsCan data for that assertion? Nope. But massive anecdotal data.<br /><br />And I can't even begin to talk about that stylised fact except in a monetary exchange economy, where we buy and sell all other stuff for money.<br /><br />Ideally, that stylised fact should be incorporated in a search model. But a crude limiting case of a search model is Q=min{Qs,Qd}. It's impossible to find an extra buyer when there's excess supply, and impossible to find an extra seller when there's excess demand.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com