tag:blogger.com,1999:blog-8702840202604739302.post3180401127843814687..comments2024-03-27T11:12:49.188-07:00Comments on MacroMania: Some thoughts on yield curve controlDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8702840202604739302.post-66816948287067116072020-09-07T04:57:12.884-07:002020-09-07T04:57:12.884-07:00Interesting post. First question I had was why wou...Interesting post. First question I had was why would government securities with different maturities trade at same prices, given that time compensation is also important. Second question- even if YCC control could be an effective tool to control inflation, it does come at a cost of distorting market valuation of government securities of different maturities. I would imagine a theory supporting YCC as a tool should be able to analyze this tradeoff and specify conditions under which it would yield net positive benefits. Parag Waknishttps://www.blogger.com/profile/06711521855245152023noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-12101048656402367122020-09-07T04:48:21.765-07:002020-09-07T04:48:21.765-07:00Interesting post. First question I had was why wou...Interesting post. First question I had was why would government securities with different maturities trade at same prices, given that time compensation is also important. Second question- even if YCC control could be an effective tool to control inflation, it does come at a cost of distorting market valuation of government securities of different maturities. I would imagine a theory supporting YCC as a tool should be able to analyze this tradeoff and specify conditions under which it would yield net positive benefits. Parag Waknishttps://www.blogger.com/profile/01422544348301088974noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-89858385550329808982020-09-03T03:01:18.305-07:002020-09-03T03:01:18.305-07:00I suppose the answer is that investors need some e...I suppose the answer is that investors need some extra compensation for taking the risk of locking away their money for longer?<br /><br />But the counterargument to this could be something like: if government securities can be rapidly sold in secondary markets, then anyone who invests in them isn't really "locking up" funds. So maybe they don't need compensation. So as you say, the term structure would be flat.<br /><br />Dunno, what's your answer?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-88569888398556422092020-09-03T02:41:42.837-07:002020-09-03T02:41:42.837-07:00Are you playing Madden 21? 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If you are a new player or an old player who has been playing for a while, you can click the link below to learn more.<br />url:<a href="https://www.gamems.com/nba-2k21-mt" rel="nofollow">NBA 2K21 MT</a>jasmynhttps://www.blogger.com/profile/12457803441274752389noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-23229508796754063132020-09-02T10:13:49.265-07:002020-09-02T10:13:49.265-07:00One might argue (as a devil's advocate) that m...One might argue (as a devil's advocate) that market participants know something about the path of exogenous productivity growth, and policymakers can accommodate that information by passively accepting a market-determined curve. But treating such trends as exogenous is clearly outdated thinking, and what it has done in practice is mostly accommodate international (demand-driven) financial cycles - as they say: "housing is the business cycle". And we also hear about other types of excessive volatility in international allocations, like exchange-rate overshooting, which suggests that control by the central bank is better than passivity and market-determination.<br /><br />I'm sure that we can find ways to still have sanity checks on policy, via futures markets - as people like Scott Sumner try to do.Anwerhttps://www.blogger.com/profile/08277173974258559733noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-65947434418283218892020-09-02T09:41:00.132-07:002020-09-02T09:41:00.132-07:00Hi JP. Yes, true. The question I have is why the t...Hi JP. Yes, true. The question I have is why the term structure should be anything but flat? To not have it flat implies discounting some government securities relative to others. What is the rationale for this? <br /><br />David<br />David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-4104653713120798582020-09-01T09:45:24.333-07:002020-09-01T09:45:24.333-07:00"It eliminates the liquidity premia on govern..."It eliminates the liquidity premia on government debt (i.e., it satiates liquidity demand) and it permits the usual sort of Taylor rule to stabilize the economy."<br /><br />I get where you're coming from.<br /><br />If the Fed sets the entire term structure, isn't it taking on much more of a challenge compared to what it does now? If it chooses to set just the Fed funds rate, it can let the market figure out the term structure of rates. But if the Fed tries YYC, it has to choose not only whether to bump rates up or down but what that term structure is. That seems like a lot of extra work. One hopes that it gets it right.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com