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Tag Archives: Monetary Policy

ANG Traders — It Is Inevitable

Economies are human constructs, not inevitable natural phenomena. Humans make up the rules that participants must follow when playing the game, and as the economy grows and evolves, humans must change the rules of play in ways that optimize the well-being of the majority of participants. In this piece, we argue that the MMT fiscal policy proposition of government spending into the private sector, with inflation being the only limiting factor, is not only needed for a real recovery from the...

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Lessons from the Long Depression

A version of this post appeared on Pieria in December 2013.  In my post “The desert of plenty”, I described a world in which goods and services are so cheap to produce that less and less capital is required for investment , and so easy to produce that less and less labour is required to produce them. Prices therefore go into freefall and there is a glut of both capital and labour. This is deflation. There are two kinds of deflation. There is the “bad” kind, where asset prices go...

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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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David Andolfatto — Is Neo-Fisherism Nuts?

Backing into MMT. The point of all this is, IF higher inflation is desired (and I am by no means advocating any such policy), THEN why not keep the policy rate low and use "free lunch" fiscal policies as long as inflation remains below target? Why bother experimenting with the Neo-Fisherian prescription of raising the policy rate that's somehow supposed to make people magically expect higher inflation? The post is a just a bit wonkish (equations) but worth reading since this is coming up...

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Bill Dudley — Budget Deficits Still Matter

Amazing. A major player at the Fed and key voice in setting monetary policy didn't know how the monetary system works based on correct operational understanding — which MMT provides and which he also proves ignorant about. And this when he was also serving on the FOMC and deeply involved in setting monetary policy for the US, which also affects the entire world, during the crisis and aftermath. Bloomberg OpinionBudget Deficits Still Matter Bill Dudley William C. Dudley is an American...

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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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Mish Shedlock — Yet Another Fed Study Concludes Phillip’s Curve is Nonsense

The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship.  This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.… Without the Phillips Curve, the current approach to monetary policy is groundless other than "discretionary." There is no rule.And it's not just the Phillips...

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