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Tag Archives: inflation

Why Central Bankers Don’t Understand Inflation

My debut post at CapX develops a theme I have written about many times. Central bankers are tasked with controlling inflation, but they don't understand it. For the last decade, central banks in developed countries have been pursuing policies designed to raise inflation. Quantitative easing, cheap funding for banks, tinkering with yield curves, low and negative interest rates – all aim to raise inflation to the ubiquitous 2% target. Understandably, central banks’ inflation forecasts...

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Inflation Is Always And Everywhere A Political Phenomenon

We don't understand inflation. Those who lived through the high inflation of the 1970s are convinced that inflation is always and everywhere caused by wage-price spirals. Germans, economic Austrians and Bitcoiners are convinced that inflation is always and everywhere caused by central bank money printing. Small-state supporters are convinced that inflation is always and everywhere caused by profligate governments borrowing and spending excessively. Hard money enthusiasts are convinced that...

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Galbraith on MMT and the Hyperinflation Boogeyman

From his recent piece: "Does this mean that 'deficits don’t matter'? I know of no MMT adherent who has made such a claim. MMT acknowledges that policy can be too expansionary and push past resource constraints, causing inflation and exchange-rate depreciation – which may or may not be desirable. (Hyperinflation, on the other hand, is a bogeyman, which some MMT critics deploy as a scare tactic.)"Also, this: "And MMT is not about Congress ordering the Fed to use its “balance sheet as a cash...

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John T. Harvey — Inflation…Huh…What Is It Good For?

Unfortunately, there are a great many misconceptions out there about inflation. Since I can't possibly address them all in a short blog post, I figured I'd take on just one: the idea that it is a net loss for everyone. The reason people believe this is partly because of the manner in which most economists teach the concept and also because we naturally transfer how a phenomenon affects us individually to the macro level. If inflation reduces my standard of living, then it must be doing the...

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Bill Mitchell — Operationalising core MMT principles – Part 2

This is the second and final part of this cameo set, which aims to clear up a few major blind spots in peoples’ embrace with Modern Monetary Theory (MMT). This is all repetition. I don’t apologise for that and it does not reflect a slack or bad editorial approach from yours truly as some critics have claimed. Repetition is how we learn. Reinforcing things in different ways (aka repetition) helps people come to terms with concepts and ideas that give them dissonance. MMT is certainly about...

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ECB forecasting is a joke

Over at Bruegel, Zsolt Darvas takes the ECB to task for systematic forecasting errors in the last five years. He shows that the ECB has persistently overestimated inflation and unemployment, and on this basis he questions the ECB's decision to end QE in December 2018. I share his concern that the ECB has tightened too soon, though as the ECB's QE program is seriously flawed and very damaging, I am not sorry to see the back of it.But I think that in focusing on the last five years, he has...

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Tcherneva, Sawicky and Kaboub on MMT and policy

Pavlina Tcherneva: There is nothing more crippling to a bold policy agenda than the myth that the government can run out of money. This myth is behind every But how will you pay for it? objection to proposals such as a Green New Deal and Medicare for All. New House Majority Leader Nancy Pelosi (D-Calif.) has even proposed instituting self-defeating PAYGO (pay as you go) rules, which would require all new government spending to be matched with increased revenue, wrongly prioritizing the...

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Reuters — Fed plans major review of how it pursues inflation, employment goals

The Federal Reserve will conduct an extensive review next year of how it tries to guide the U.S. economy, the U.S. central bank said on Thursday. “Now is a good time to take stock of how we formulate, conduct, and communicate monetary policy,” said Federal Reserve Chairman Jerome Powell, noting that the Fed was close to meeting its goals of maximum employment and a 2 percent inflation rate.  In a statement, the Fed said it would reach out to a “broad range” of stakeholders and that it...

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Asad Zaman — Modern Monetary Theory

The starting point of MMT is that our thinking about money is conditioned by the view that money is based on gold, which leads us to ignore the radical differences between gold-backed money and “fiat” money, which comes into existence by government decree, and does not require any backing. With a gold-backed currency, the concept of a government deficit makes sense – the government must have gold, in order to spend it. However, with a fiat currency, a deficit must always be self-imposed;...

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Peter Cooper — Job Guarantee as Nominal Price Anchor

I’ve been thinking about the job guarantee as it is envisaged by proponents of Modern Monetary Theory (MMT). My focus has been on various quantity effects of the policy that can be considered using the standard income-expenditure model as a base (for preliminary posts along these lines, see here and here.) Since the income-expenditure model takes the general price level as given, it does not directly shed light on the aspects of a job guarantee that would pertain to price stability. To...

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