tag:blogger.com,1999:blog-8702840202604739302.post5799118630849310323..comments2024-03-27T11:12:49.188-07:00Comments on MacroMania: The Neo-Fisherian PropositionDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-8702840202604739302.post-2240784423713576112016-09-26T12:04:58.812-07:002016-09-26T12:04:58.812-07:00This comment has been removed by the author.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-59801306776842175872015-12-27T15:58:56.952-08:002015-12-27T15:58:56.952-08:00"...one cannot simply track the path of infla..."...one cannot simply track the path of inflation over the next year or so to test the model's conditional forecast."<br /><br />But what about the path of the adjusted monetary base (as compared to it's counterfactual trend line)?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-13489082612499769362015-12-18T17:25:38.204-08:002015-12-18T17:25:38.204-08:00Ah yes, thanks for reminding me Nick! Ah yes, thanks for reminding me Nick! David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-9122263967674774522015-12-18T06:57:36.136-08:002015-12-18T06:57:36.136-08:00The second strain is reasonable, but the mechanism...The second strain is reasonable, but the mechanism for inflation in this example seems to result from pushing the fiscal authority to engage in fiscal stimulus, so why not just advocate fiscal stimulus directly? Is there something unique about increased spending on debt servicing costs that makes it desirable?Kylenoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-56296307426722029752015-12-18T03:46:27.147-08:002015-12-18T03:46:27.147-08:00I would disagree with the idea that term debt leng...I would disagree with the idea that term debt lengthens the adjustment period.<br /><br />I looked at the inclusion of term debt into John Cochrane's model here - http://monetaryreflections.blogspot.co.uk/2015/11/neo-fisherism-and-term-debt.html.<br /><br />The charts there were based on 25% of public debt by nominal value taking the form of annuities. If we make that 100%, it makes the initial negative impact on GDP and inflation much greater, but it doesn't alter the time taken for the adjustment to happen.<br /><br />The reason (in this model) is that the bigger the initial fall in the value of nominal debt, the bigger the initial deflation, the bigger the reduction in nominal tax revenues, the bigger the nominal deficit, so the faster the flow of new money to households. <br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-34767765534400364032015-12-17T18:40:33.758-08:002015-12-17T18:40:33.758-08:00We try to disentangle the effects by applying vari...We try to disentangle the effects by applying various estimation methods to the data (controlling for several effects). And we try to build models where we can examine the effects of different policies in controlled settings. It's a tough business. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-54071250058370383472015-12-17T18:35:25.532-08:002015-12-17T18:35:25.532-08:00The answer is 42. I thought everyone knew this. :)...The answer is 42. I thought everyone knew this. :)David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-90751317059694307852015-12-17T18:34:47.536-08:002015-12-17T18:34:47.536-08:00Unfortunately, one cannot simply track the path of...Unfortunately, one cannot simply track the path of inflation over the next year or so to test the model's conditional forecast. Even if inflation rises, one cannot conclude that the Neo-Fisherian proposition is correct. Others would, in this case, claim that inflation is rising because the output gap is closing (if growth continues) and that the Fed rate increase was just in anticipation of this event. And so on. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-32276053585006967072015-12-17T17:47:37.576-08:002015-12-17T17:47:37.576-08:00I've always wondered about the direction of ca...I've always wondered about the direction of causation issue. If policy makers are trying to hit an (implicit of explicit) inflation target, then (real and nominal) interest rates will rise as the policy makers come to expect more rapid inflation. With lags (and all that), then wouldn't we expect to see (real and nominal) rates positively correlated with the rate of inflation? How do we dis-entangle this, in a world in which policy is endogenous?Don Coffinhttps://www.blogger.com/profile/07198988872512792834noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-44964217814114458532015-12-17T14:14:03.705-08:002015-12-17T14:14:03.705-08:00David, here's the case I was referring to. The...David, <a href="http://informationtransfereconomics.blogspot.com/2015/12/zirp-is-over-let-experiment-begin.html#comment-form" rel="nofollow">here's the case</a> I was referring to. The theoretical and mathematical basis is explained in other posts (try the links), but the author will send you the source on request.<br /><br />OK, well I'll check back and see if you get any other responses. I'd love to see other models/forecasts as well. <br /><br />Do you agree it seems like a good natural experiment?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-53542366877073599692015-12-17T14:00:47.248-08:002015-12-17T14:00:47.248-08:00Well, that's a fine how do you do. I come here...Well, that's a fine how do you do. I come here for answers darn it!<br />Joseph Calhounhttp://www.alhambrapartners.com/commentaryanalysis/noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-20187739625700740112015-12-17T13:20:09.289-08:002015-12-17T13:20:09.289-08:00These are good questions, Joe and, to be honest, I...These are good questions, Joe and, to be honest, I don't have any good answers for them. Indeed, the open economy aspects seem like they should be important. The USD and the US treasury are held widely abroad, after all. But I am not aware of anyone who has worked on the Neo-Fisherian proposition in the context of an open economy. If such work exists, perhaps others can alert us.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-48061604813879044912015-12-17T13:10:27.834-08:002015-12-17T13:10:27.834-08:00I am not an economist so I approach this more from...I am not an economist so I approach this more from a trading standpoint. It seems important, at least to me, that Fisher lived in a gold standard period. Correct me if I'm wrong but on a gold standard rates were hiked to attract capital to a country that was suffering from its lack. Higher rates attracted capital inflows (gold) and to maintain the currency gold peg would have required printing more currency. Would that not be inflationary? Or at least raise NGDP? <br /><br />In today's world that would only be true if Fed and Treasury policy's goal was a stable value for the dollar. If the capital inflows create a rise in the value of the currency - as we have today - then there is no inflation at least immediately. If the increased demand for dollars due to higher - or expected higher - rates was met such that the dollar did not rise, then the result would be inflation. Further, you probably wouldn't get as much of a capital inflow because the dollar wouldn't be expected to rise. Certainly, the opposite is true today; there are speculators buying dollars for the expected profit in the currency not for the piddling rate increase.<br /><br />Finally, even in the situation we have today where an expectation of higher rates has pushed the dollar higher, it seems likely that inflation or NGDP would eventually adjust higher as the capital inflows are invested.<br /><br />Has anyone else worked through the Fishererian implications of gold standard versus floating currency regime? Seems fairly important to me. We don't live in a closed economy.<br />Joseph Calhounhttp://www.alhambrapartners.com/commentaryanalysis/noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-65976643227368283312015-12-17T12:53:33.372-08:002015-12-17T12:53:33.372-08:00Tom, no, I do not. But if anyone out there is, I&#...Tom, no, I do not. But if anyone out there is, I'd be happy to hear from them!<br /><br />David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-39540995078766395682015-12-17T12:06:23.775-08:002015-12-17T12:06:23.775-08:00David, I know of at least one person who's usi...David, I know of at least one person who's using this rate increase as an opportunity: as a natural experiment. Thus they've created a quantitative forecast of what will happen. They're forecasting a future trend line in the <a href="https://research.stlouisfed.org/fred2/graph/?g=2VX3" rel="nofollow">adjusted monetary base</a> as compared to a counterfactual trendline (i.e. no rate increase yesterday). Do you know of any other people making quantitative forecasts like this? It seems like a wonderful opportunity doesn't it?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-16208200828339537642015-12-17T11:54:59.376-08:002015-12-17T11:54:59.376-08:00It's true I do not distinguish between short a...It's true I do not distinguish between short and long debt. Write down your model and let's study its properties. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-7310688615118204682015-12-17T11:37:09.757-08:002015-12-17T11:37:09.757-08:00Seems to me the constant M/B ratio is doing more t...Seems to me the constant M/B ratio is doing more than you let on. If the goverment issues long term debt then increasing the growth rate of nominal liabilities then can initially either show up as higher inflation or show up in a lower value of the bonds (higher long term yields). This is from Cochrane I think.<br /><br />The increase in inflation can in principle be put off a long time (if the government issues 30 year bonds then for 30 years). I think your constant money/bond assumption is needed to avoid this (force the government to issue overnight liabilities), but that is not true in reality. <br /><br />The length of time it takes for inflation to increase is the issue here, not the long run validity of the Fisher equation. The initial dip you put in your graphs you said in another comment can be driven by pricing frictions, if that's what causes it then it also means the Fed, over that initial period controls the real interest rate and it also means the initial fall in inflation goes along with a fall in output. If that initial period lasts many years then you can see why someone can think this whole debate pointless, raising rates to raise long in the future inflation is not the goal, keeping near term (or current) inflation near a target is what you want to do.<br /><br />Adam Phttps://www.blogger.com/profile/16316584837610367439noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-42577927519982634052015-12-17T09:27:48.559-08:002015-12-17T09:27:48.559-08:00The second interpretation is the one that makes mo...The second interpretation is the one that makes more sense. Anyhow, there is still some problema with the intuition. In fact, it seems to me that the mechanism underlying the result Works also in models without non interest bearing money, in which all public liabilities pay interest and there is no transaction friction (so no transaction role of money). Why in the world should in this framework increasing the rate of growth of public debt increase inflation? After all, higher interest rates should reduce private demand. Does it have something to do with public demand (through expenditure of lower taxes/higher transfers)??LMhttps://www.blogger.com/profile/04209992315578358377noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-41419941014986553392015-12-17T08:38:31.735-08:002015-12-17T08:38:31.735-08:00.
Perhaps a deficiency in the entire process i....<br /> Perhaps a deficiency in the entire process is that only interest rates are adjusted - essentially meaning a single dimensional control lever on a multi-dimensional problem.Anonymoushttps://www.blogger.com/profile/01098498673510354088noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-71173695111863916872015-12-17T08:01:00.318-08:002015-12-17T08:01:00.318-08:00JP,
The problem I have is how, intuitively, trade...JP,<br /><br />The problem I have is how, intuitively, traders in financial markets determined the PCE price-level. It's more intuitive to think of firms setting product prices at the product retail level. Maybe one could rescue the intuition using arbitrage, but it's not so natural for me to think in this way. Perhaps you could give it a try?<br /><br />The initial drop in inflation could be caused by a sticky price friction or segmented markets friction. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-9664228082299729782015-12-17T07:58:13.786-08:002015-12-17T07:58:13.786-08:00It's true that the thought experiment I carrie...It's true that the thought experiment I carried out assumed fixed R. But the general conclusion does not hinge on this assumption. See, for example, my discussion here: http://andolfatto.blogspot.com/2013/01/is-it-time-for-fed-to-raise-its-policy_19.htmlDavid Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-90549468410688155132015-12-17T07:56:36.853-08:002015-12-17T07:56:36.853-08:00Remember that the proposition offers a *conditiona...Remember that the proposition offers a *conditional* forecast. As with most propositions in macro, it's difficult to test because so many things are changing at the same time.<br /><br />Yes, Riksbank raised but...how did fiscal policy react? And what other shocks hit the Swedish economy that induced the subsequent cut? <br /><br />This is what makes macro difficult (and interesting). David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-4338007174101840472015-12-17T03:51:15.606-08:002015-12-17T03:51:15.606-08:00Why do you use the word 'magic?' (Earlier ...Why do you use the word 'magic?' (Earlier you write you're not sold on the first strain.)It seems to me that in the first strain, it is the ability of traders to engage in arbitrage that causes P to rise. Arbitrage is a pretty mundane force, I see it all around me. The answer dictated by the logic of arbitrage will always be right, eventually.<br /><br />One other question. In the second strain, what would generate the short initial decline in the inflation rate as displayed in the top chart before inflation starts to rise?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-64057683239880325462015-12-17T02:55:39.614-08:002015-12-17T02:55:39.614-08:00This theory is nice and all but the "higher r...This theory is nice and all but the "higher rates, higher inflation" story rests on the assumption that monetary policy imposes a permanent peg from now until the end of time, or a policy in which the nominal interest rate does not react to inflation sufficiently. If the peg is not permanent but instead eventually responds to inflation at some point between now and the end of time, all these results of "higher rates, higher inflation" go away. Am I the only one who knows this? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-42017560892697279052015-12-17T02:47:14.469-08:002015-12-17T02:47:14.469-08:00David,
I happen to imply the second strain of the ...David,<br />I happen to imply the second strain of the NF theory.<br />But when we look at the recent data, what does the empirical evidence say?<br />The ECB raised the key policy rate in 2011 (April und July).<br />The Riksbank, Sweden raised the rates in 2010 and 2011.<br />How did the inflation respond?<br />Are there any research based on such current observations?<br />If this is not too much asked,<br />Best<br />Acemaxx-Analyticshttps://www.blogger.com/profile/00845172176846300139noreply@blogger.com