tag:blogger.com,1999:blog-8897997766931633186.post3028659719695905344..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: Krugman Critiques Quasi-MonetarismBill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-8897997766931633186.post-9637139132987759662016-05-23T06:48:41.150-04:002016-05-23T06:48:41.150-04:00We need to be very careful with these things since...We need to be very careful with these things since it could make huge difference to our overall results. I am currently working with OctaFX broker and for me, it’s just perfect broker to connect with in order to gain positive results. They’re regulated plus a true ECN as well, so working with them is absolutely great for me especially to do with their amazing daily market news and analysis service, it’s easier to follow yet seriously affective and lands me in great shape.Munnaznoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-37548008984835288872011-09-16T08:11:15.441-04:002011-09-16T08:11:15.441-04:00The "quasi-monetarian" solution in a liq...The "quasi-monetarian" solution in a liquidity trap scenario would only have some chance to work if the Fed acquired private assets (mortgage backed securities, etc) in order to offer banks and other players a direct channel to monetize their loans and similar investments.<br /><br />The increase in the amount of such investments (promptly monetized by the FED) could really spur a rise in inflation and growth (thus an increase in nominal GDP).<br /><br />But this creates some governance problems...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-64752818625735003002011-09-15T14:09:27.487-04:002011-09-15T14:09:27.487-04:00Bill,
I can see why you were puzzled. I was wrong ...Bill,<br />I can see why you were puzzled. I was wrong in my first post in stating that buying assets with a yield below that paid on reserve balances won't increase the quantity of money. I thought I clarified that in my second post. What I was trying to convey is that when the multiplier of M1 is below 1, increasing the money supply is in effect fractional. The question is, how to get the ratio back to par? In my mind, it does no good for the broader economy to keep adding to the supply, if it doesn't compound. It sure gives the financials an opportunity to build up reserves and prepare for the inevitable write offs of questionable assets. It does nothing to repair the balance sheets of distressed borrowers and consumers. <br /><br /> I'm pretty sure that FRED does measure velocity using M1. It certainly shows the multiplier effect based on M1.nanutehttps://www.blogger.com/profile/04526158764171117978noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-82151502932970721062011-09-15T07:12:28.058-04:002011-09-15T07:12:28.058-04:00Nanute:
I was a bit puzzled by your first post. ...Nanute:<br /><br />I was a bit puzzled by your first post. I don't think M1 is used to measure velocity. And I was wondering how you were measuring money to say that buying assets with a yield below that paid on reserve balances won't increase the quantity of money. You are right that paying interest on reserves exacerbates a problem of an excess demand for money.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-42288052247156555252011-09-15T07:02:14.597-04:002011-09-15T07:02:14.597-04:00Rob:
You are correct. David Beckworth more or l...Rob:<br /><br />You are correct. David Beckworth more or less takes that approach, though he doesn't usually say "secondary deflation." He is very focused on how excess supplies of money create malinvestments. Nominal GDP targeting will tend to prevent that from happening. And it avoids any secondary deflation.<br /><br />Like Sumner, I am skeptical of excess supplies of money generating malinvestments, but I think malinvestment is common for a variety of reasons.<br /><br />Like Nick Rowe, I think the "secondary deflation" is the recession, and the adverse impact of the liquidation of malinvestment on production and employment--a type of adverse productivity shock--is not a recession. I identify recession with a general glut of goods, not shortages of some goods matched by surpluses of other goods such that a reallocation of resources is necessary.<br /><br />I have written many blog posts on that issue.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-50205842716844888662011-09-15T04:44:47.211-04:002011-09-15T04:44:47.211-04:00Bill,
Please pardon the stupidity of my last comme...Bill,<br />Please pardon the stupidity of my last comment. I just realized that of course the money supply can be increased. What I was trying to say is that under current monetary policy, paying interest on reserves would seem to compound the excess demand for money. If the multiplier is below zero, is the Fed actually adding whole dollars to supply, or a fraction thereof? (Or is this stupid question #2?)nanutehttps://www.blogger.com/profile/04526158764171117978noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-27664650212984726482011-09-15T01:20:01.674-04:002011-09-15T01:20:01.674-04:00Bill,
Thanks for your answer.
Most of the eco...Bill,<br /><br />Thanks for your answer. <br /><br />Most of the economics I have learned comes from the Austrian school where recession are generally identified as being caused by busts caused after a period of central-bank sponsored over-investment. Some Austrians also accept the possibility of "secondary deflations" caused by increased demand for money that is likely to follow the bust.<br /><br />I assume that addressing such deflations is a key element in quasi-monetarist theory ? If so, would it be a correct understanding that NGDP targeting is just a way of increasing the money supply back to its equilibrium? And that the equilibrium is itself identified as the level of the money supply consistent with the long-term NGDP trend?<br /><br />(As a side note: It sounds like the NGDP target may have some "inflation expectations" built in if these expectation were already there from the past trend) ?Rob R.noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-64763488848937719542011-09-14T22:34:14.690-04:002011-09-14T22:34:14.690-04:00Rob:
A nominal GDP target of 5% is aiming to have...Rob:<br /><br />A nominal GDP target of 5% is aiming to have nominal GDP stay on a 5% growth path. Creating inflation expectations to lower real interest rates might happen sometimes, but that isn't the purpose. Generally, expected inflation will generate higher nominal interest rates and leave real interest rates unchanged. I would prefer that a 5% nominal GDP target not cause any additional inflation. I don't see nominal GDP targeting as some kind of temporary measure to get out of liquidity trap.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-28312120866095281012011-09-14T07:16:31.933-04:002011-09-14T07:16:31.933-04:00Bill,
You wrote: (If the Fed insists on paying int...Bill,<br />You wrote: (If the Fed insists on paying interest on reserve balances, then there isn't much point in expanding the quantity of money by purchasing assets with a lower yield than the Fed is paying.) I would argue that under these conditions, the money supply can't be increased. This would seem to compound the problem of excess demand for money. No? Perhaps O/T, why does the FRED use M1 as a measure of both velocity and the multiplier? Doesn't this understate the value of both?nanutehttps://www.blogger.com/profile/04526158764171117978noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-64898494263691378522011-09-14T01:03:37.379-04:002011-09-14T01:03:37.379-04:00Krugman believes that as we are in a liquidity tra...Krugman believes that as we are in a liquidity trap that monetary policy won't work because "open-market operation just exchanges one store of value for another, with no economic effect" unless it pushes the real interest rate to below zero by setting inflation expectations.<br /><br />I'm struggling to see how quasi-monetarism is really in dis-agreement with this analysis since this seems to be exactly what a 5% NGDP target is aiming at achieving.<br /><br />Am I missing something ?Rob R.noreply@blogger.com