Comments on: “A serious mistake?” Yeah, I’d say so. http://www.themoneyillusion.com/?p=2872 A slightly off-center perspective on monetary problems. Thu, 09 Sep 2010 20:02:34 -0700 http://wordpress.org/?v=2.9 hourly 1 By: Scott Sumner http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9787 Scott Sumner Sun, 15 Nov 2009 16:12:22 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9787 van, Yyes. it's the same concept but a different target. Price level targeting still allows complete freedom of the relative price of each good to move up or down against other goods. van, Yyes. it’s the same concept but a different target. Price level targeting still allows complete freedom of the relative price of each good to move up or down against other goods.

]]> By: van http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9759 van Sat, 14 Nov 2009 21:14:40 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9759 scott, ok then i think i am getting confused on the semantics. i thikn what u r saying is that under NGDP targeting, all prices are allowed to function freely and properly. for whatever reason i was getting hung up on the fact taht if we are talking about "price level" targeting, somehow we would be institutionalizing price controls, and the only direction they could go is up. so the question: is woodford's price level targeting the same in concept as NGDP targeting? scott, ok then i think i am getting confused on the semantics. i thikn what u r saying is that under NGDP targeting, all prices are allowed to function freely and properly. for whatever reason i was getting hung up on the fact taht if we are talking about “price level” targeting, somehow we would be institutionalizing price controls, and the only direction they could go is up. so the question: is woodford’s price level targeting the same in concept as NGDP targeting?

]]> By: Scott Sumner http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9752 Scott Sumner Sat, 14 Nov 2009 19:15:09 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9752 Pushmedia1, We did do a regime change last year. We went from positive 5% NGDP growth to sharply negative nominal growth. And the results were very bad, as you indicated. Expectations became completely unanchored, as you indicated, and now nobody has a clue as to where we are going. A 5% NGDP rule would have anchored expectations last year. So I think we both agree, the Fed should have stuck to the "Great Moderation" policy, instead of switching to a deflationary policy in the midst of a crisis. Indeed the crisis was caused by regime change. Doc Merlin, We agree, I favor NGDP targeting through futures convertibility. JimP, Krugman should stop dancing around the issue and come out strongly for a more expansionary monetary policy. What is the worst that could happen from his perspective? Remember that he already favors much more stimulus. van, I don't think prices need just "a time" to readjust, I favor allowing them to always readjust to reflect changing market conditions. I completely oppose price controls that would inhibit this adjustment. Of course relative prices can adjust regardless of the price level, but the adjustment process is easiest when the macro economy avoids unexpected NGDP shocks. That's why Hayek favored NGDP targeting. malavel, Thanks for trying. I understand that pirates are cautious people, who don't just adopt any new idea that comes along. Perhaps once they've had time to mull it over. rob and JimP. Thanks, that may be worth a post. Pushmedia1, We did do a regime change last year. We went from positive 5% NGDP growth to sharply negative nominal growth. And the results were very bad, as you indicated. Expectations became completely unanchored, as you indicated, and now nobody has a clue as to where we are going. A 5% NGDP rule would have anchored expectations last year.

So I think we both agree, the Fed should have stuck to the “Great Moderation” policy, instead of switching to a deflationary policy in the midst of a crisis. Indeed the crisis was caused by regime change.

Doc Merlin, We agree, I favor NGDP targeting through futures convertibility.

JimP, Krugman should stop dancing around the issue and come out strongly for a more expansionary monetary policy. What is the worst that could happen from his perspective? Remember that he already favors much more stimulus.

van, I don’t think prices need just “a time” to readjust, I favor allowing them to always readjust to reflect changing market conditions. I completely oppose price controls that would inhibit this adjustment. Of course relative prices can adjust regardless of the price level, but the adjustment process is easiest when the macro economy avoids unexpected NGDP shocks. That’s why Hayek favored NGDP targeting.

malavel, Thanks for trying. I understand that pirates are cautious people, who don’t just adopt any new idea that comes along. Perhaps once they’ve had time to mull it over.

rob and JimP. Thanks, that may be worth a post.

]]> By: rob http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9751 rob Sat, 14 Nov 2009 19:07:07 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9751 Krugman's point number 3: "(iii) Convince investors, consumers, and firms that you have in fact achieved (i) and (ii)." really goes to show he doesn't believe in the wisdom of the market. But if you don't assume the market will get it right, then... Krugman’s point number 3:

“(iii) Convince investors, consumers, and firms that you have in fact achieved (i) and (ii).”

really goes to show he doesn’t believe in the wisdom of the market. But if you don’t assume the market will get it right, then…

]]> By: JimP http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9746 JimP Sat, 14 Nov 2009 16:58:30 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9746 Yes he does. And here is the column - written in his usual nice and non-insulting way. What a clown the man is. http://krugman.blogs.nytimes.com/2009/11/13/its-the-stupidity-economy/ Yes he does. And here is the column – written in his usual nice and non-insulting way. What a clown the man is.

http://krugman.blogs.nytimes.com/2009/11/13/its-the-stupidity-economy/

]]> By: rob http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9742 rob Sat, 14 Nov 2009 16:17:24 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9742 Krugman capitulates! (And admits he's unwilling to argue for a first best solution.)(As long as he believes he has no influence, why does he bother showing up for work?) Krugman capitulates! (And admits he’s unwilling to argue for a first best solution.)(As long as he believes he has no influence, why does he bother showing up for work?)

]]> By: malavel http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9738 malavel Sat, 14 Nov 2009 11:47:50 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9738 Scott, I'm sorry but I think you can throw your plan in the trash can now. Not even the Swedish Pirate Party dared to adopt it since it was deemed too radical. If they adopt a monetary policy suggestion it will probably be something mainstream like fractional reserve banking is fraud and the FED is teh evil. Again, I'm sorry if I got your hopes up earlier. :) Scott,

I’m sorry but I think you can throw your plan in the trash can now. Not even the Swedish Pirate Party dared to adopt it since it was deemed too radical. If they adopt a monetary policy suggestion it will probably be something mainstream like fractional reserve banking is fraud and the FED is teh evil. Again, I’m sorry if I got your hopes up earlier.

:)

]]> By: van http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9734 van Sat, 14 Nov 2009 02:30:27 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9734 may i ask one (ill-timed) question. I believe Austrians contend that economies need a period where prices are allowed to readjust in order to cleanse the system of malinvestment. scott and others, do u agree with such a contention? and if so, how does an economy adjust prices when Fed policy explicitly targets a general price level in the future? perhaps there is a nuance in ABC theory that i am missing - but it seems the argument is both relative prices and price levels need time to adjust. may i ask one (ill-timed) question. I believe Austrians contend that economies need a period where prices are allowed to readjust in order to cleanse the system of malinvestment. scott and others, do u agree with such a contention? and if so, how does an economy adjust prices when Fed policy explicitly targets a general price level in the future? perhaps there is a nuance in ABC theory that i am missing – but it seems the argument is both relative prices and price levels need time to adjust.

]]> By: JimP http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9733 JimP Sat, 14 Nov 2009 01:06:19 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9733 And one last thing - I think the paper makes it entirely impossible for Krugman et al to now claim that theory says that monetary policy has no power at the zero bound. And if he does continue to claim that, professional economists well clearly understand that he is what he is - a political hack. And one last thing – I think the paper makes it entirely impossible for Krugman et al to now claim that theory says that monetary policy has no power at the zero bound. And if he does continue to claim that, professional economists well clearly understand that he is what he is – a political hack.

]]> By: JimP http://www.themoneyillusion.com/?p=2872&cpage=1#comment-9731 JimP Sat, 14 Nov 2009 00:40:50 +0000 http://blogsandwikis.bentley.edu/themoneyillusion/?p=2872#comment-9731 Everyone should really read that paper. I see no big policy difference between the paper and the hopes of this blog. It is a big deal that Woodford endorses this, I think. Maybe this means Bernanke endorses this as well, and is trying to collect a little political support against the deflationists. A good "exit strategy" for the Fed would obviously be to do what the paper suggests. Everyone should really read that paper. I see no big policy difference between the paper and the hopes of this blog. It is a big deal that Woodford endorses this, I think. Maybe this means Bernanke endorses this as well, and is trying to collect a little political support against the deflationists. A good “exit strategy” for the Fed would obviously be to do what the paper suggests.

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