tag:blogger.com,1999:blog-8897997766931633186.post1192123889387903524..comments2021-10-18T12:54:20.920-04:00Comments on Monetary Freedom: Who wants 10% inflation and a 0% nominal interest rate?Bill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-8897997766931633186.post-21777045093304349082015-11-24T18:22:50.644-05:002015-11-24T18:22:50.644-05:00It’s tough to say much about these things, but all...It’s tough to say much about these things, but all I can say is that it’s very much important to know these stuff while for short term, it is not going to create much issue, but for long term, it’s really vital and makes huge effect on the market. I trade with OctaFX broker where I get plenty of benefits especially with their daily market news and analysis, it is easy and straight forward to follow, but is seriously profitable.Shahriarnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-73582867436068034492009-11-19T21:50:25.654-05:002009-11-19T21:50:25.654-05:00Bill, I saw that one too. I think I left a messa...Bill, I saw that one too. I think I left a message there saying that you can't target two variables with one policy tool. So I'd target NGDP, and let interests rates be determined endogenously.Scott Sumnerhttps://www.blogger.com/profile/15864819372390187247noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-50292600107340458232009-11-19T06:41:23.874-05:002009-11-19T06:41:23.874-05:00It’s unclear when you write that the problem of th...It’s unclear when you write that the problem of the zero nominal bound “… is corrected if the expected inflation rate is high enough to get the nominal interest rate high enough that the market clearing real interest rate can be reached.” The point is not to get nominal interest rates high enough but to get real interest low enough. <br /><br />Assume a recession creates a situation where the proper short term real is minus 2 per cent while the short term nominal interest rate has hit zero per cent. If the market expects zero inflation, the expected short term real interest rate is zero per cent. Now, if the central bank is able to credibly target 2 per cent annual inflation, and if the short term nominal rate stays at zero per cent, the expected short term real rate falls to minus 2 per cent, i.e. the credit market clears at the proper short term real rate. <br /><br />What if the central bank credibly targets 4 per cent inflation? If the nominal interest rate rises to 2 per cent, then the expected real rate remains at minus 2 per cent. However, if the nominal interest rate increases by more than 2 percentage cent, the expected real interest rate is lifted above 2 per cent, <br /><br />So, yes, a spike in the nominal interest rate might be a problem, but it’s only a problem if it increases before inflation expectations have lowered the real rate to its proper rate. And should inflation expectations increase beyond 2 per cent, it’s only a problem if rate if the nominal interest rate spikes more than added expected inflation.Torgeir Høiennoreply@blogger.com