Sunday, December 16, 2012

Just when I thought it was safe to get back in the money box

Matt Yglesias has a post with an irresistible title and subtitle

"Can Shinzo Abe Save Japan?

The candidate with a plan to cure what ails rich economies."



But then the post turns out to be about monetary policy.


I have a rule that I don't read Yglesias's posts on monetary policy as they cause me to become rude.  But he tricked me this time and here is my comment.



Ben Bernanke too has declared a policy of unlimited quantitative easing and increased inflation (new target only 2.5% but that's higher than current inflation).  The declaration (which was a surprise) had essentially no effect on prices for medium term treasuries, TIPS or the breakeven.

I was wondering when you would comment, since you have confidently asserted again and again that if only the FOMC did what it just did, expected inflation would jump and then GDP growth would increase.

However, instead of noting the utter total failure of your past predictions (and the perfect confirmation of mine) you just boldly make new predictions.

Face fact,  like conventional monetary policy (in the US the Federal Funds rate) forward guidance is pedal to the metal.   It's long past time for you to start climbing down.

3 comments:

Hellestal said...

"I have a rule that I don't read Yglesias's posts on monetary policy as they cause me to become rude." Oh? But in your comment to Yglesias you say: "However, instead of noting the utter total failure of your past predictions...." These two statements are utterly contradictory.

You can't possibly know that Yglesias is so wrong, utterly and totally, if you don't read him consistently, as you have already admitted. Reading one monetary post every now and then doesn't justify such a comment.

This is true even if you are so perfectly right about everything you've said. I say this as no great fan of Yglesias (though I do support more aggressive monetary policy than what the Fed and other central banks are currently doing).

Robert said...

I read Yglesias on monetary policy only occasionally. I have not been surprised by what I read (once I realize the post is on monetary policy) in years.

I think he has made confident assertions that are contradicted by the data (30 year old data by the way).

In this post, I commented on the post to which I linked. I didn't say that he is wrong in every way about everything. I didn't say all of his past predictions are wrong. I only note that many of his predictions were wrong and he didn't admit it in the post.

The latest failure was, first of all, huge and second of all less than a week old. The reference to last Thursday (in a tweet to Yglesias) was a reference to the then most recently past Thursday December 12 2012. Do you know what happened that day which is relevant ?

I disagree with you about "More stimulatory monetary policy" I think it is currently essentially impossible. Not undesireable but impossible. The weasel word "essentially" is there because I think that US monetary policy can not stimulate much more or significantly more. I guess it could cause GDP increased by at least 0.0001% (which is a good chunk of change).

I generally think monetary policy is very effective. Do you at least understand why I think things are different now ?

I think that the events of Thursday 13 2012 amount pretty much to proof of my claim.

Hellestal said...

>>In this post, I commented on the post to which I linked. I didn't say that he is wrong in every way about everything. I didn't say all of his past predictions are wrong. I only note that many of his predictions were wrong and he didn't admit it in the post.<<

Okay. Apologies for misreading you.

The thing is though that the Fed did not, in fact, institute a higher inflation target. They said they wouldn't move from ZIRP until they crossed 2.5%, but their current target hasn't really changed.

Pretty sure Yglesias wants higher expected inflation in the forecasts, with the specific target being a forecast target. Since they haven't done that, then they haven't yet done what he wants. I guess I could be misreading him.

>>I disagree with you about "More stimulatory monetary policy" I think it is currently essentially impossible. Not undesireable but impossible. <<

Some people advocate targeting a higher inflation forecast. They think it would work.

The Fed hasn't targeted a higher forecast.

I'm an everything-and-the-kitchen-sink sort of guy. I want them to target a higher forecast. (I also want more action from Congress, but...) If they were to announce at their next meeting that they were targeting an inflation forecast of 3 or 4%, price level targeting to correct for past misses, and that they'd do everything necessary to hit that target, I'd expect to see immediate reaction from the markets. I don't even think we'd have to wait a day later.

I could be wrong about this. But I wouldn't personally claim that more aggressive monetary policy is essentially impossible when they haven't taken one significant action that many people are suggesting would make a difference.