NGDP Advisers

There’s a new post by James Alexander, Benjamin Cole, Justin Irving, Marcus Nunes describing their consulting firm, called NGDP-Advisers:

After a six-year run, during which Historinhas helped spread the Market Monetarist approach, this blog will undergo a metamorphosis, becoming NGDP-Advisers. The blog will continue but be augmented by new products that will be available via subscription.”

.  .  .

At NGDP Advisers, we hope not only to continue our examination of the global economy, but also to recognize realities and advise accordingly. We’ll yell from the cliff tops ‘what should be’, but we’ll also help you get ready for what ‘will be’.

Please join us at ngdp-advisers.com, the best is yet to come. The Historinhas blog will stay up but dormant, and recent and all future posts will be freely available here ngdp-advisers.com/blog/ 

This is good to see.  Ideas are taken more seriously when they move beyond academia and out into the marketplace.  I’ve added them to my blog roll and look forward to reading what they have to say.  If I’m not mistaken, the four participants reside in 4 different continents–so I expect an international perspective.

Speaking of NGDP, I found a new SSRN working paper (by Jonathan Benchimol and Fourçans André), with the following abstract:

Since the beginning of the financial crisis, a lively debate has emerged regarding which monetary policy rule the Fed (and other central banks) should follow, if any. To clarify this debate, several questions must be answered. Which monetary policy rule fits best the historical data? Which monetary policy rule best minimizes economic uncertainty and the Fed’s loss function? Which rule is best in terms of household welfare? Among the different rules, are NGDP growth or level targeting rules a good option, and when? Do they perform better than Taylor-type rules? To answer these questions, we use Bayesian estimations to test the Smets and Wouters (2007) model under nine different monetary policy rules with US data from 1955 to 2015 and over three different sub-periods. We find that when considering only the central bank’s loss function, the estimates generally indicate the superiority of NGDP level targeting rules, whatever the period. However, if other criteria are considered, the central bank’s objectives are not consistently met by a single rule for all periods.

I was pleasantly surprised by their findings, as traditional loss function criteria are biased against NGDP targeting, by assuming that inflation instability is what matters, whereas it’s actually NGDP growth instability that is the problem.

 

 


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22 Responses to “NGDP Advisers”

  1. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    17. September 2016 at 12:10

    Maybe I will join them as an economist of the rest of continent.

  2. Gravatar of Justin Justin
    17. September 2016 at 12:27

    I see the traffic flowing in now from this site. Your plug was most gracious Scott and I know we all appreciate it.

  3. Gravatar of TallDave TallDave
    17. September 2016 at 13:12

    Best of luck, guys. There ought to be some alpha lurking in market monetarism.

  4. Gravatar of Benjamin Cole Benjamin Cole
    17. September 2016 at 16:51

    Thanks Scott.

    I was first exposed to Market Monetarism at The Money Illusion.

    I remain convinced that MM can do much for global prosperity, which is no small thing considering the billions of people who live in India and China and elsewhere.

    Forward.

  5. Gravatar of Ray Lopez Ray Lopez
    17. September 2016 at 17:11

    Paying for Ben’s opinion…hmm. What can I say? If you don’t have anything positive to say, don’t say anything at all?

    @Ben Cole (off-topic) “Japan in 1931 had abandoned the gold standard and allowed the yen to fall. Government expenditure, funded by borrowing, was increased.
    The index of industrial production shows a fall from 100 in 1929 to 92 in 1931 and then a rapid and uninterrupted rise to 151 in 1936 and 171 in 1937. The leading figure in Japan’s 1930s economic boom was Takahashi Korekiyo, a fluent English-speaking government official in his late seventies. Takahashi, Japan’s Finance Minister from 1931 to 1936, has sometimes been described as the ‘Japanese Keynes’ for advocating deficit financing as a way out of the Depression. The military budget, already over 29 per cent of total expenditure in 1931, rose to 65 per cent of spending in 1940. – Kwarteng, Kwasi. War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt (p. 192). PublicAffairs. Kindle Edition. ”

    While it’s true JP’s money supply expanded, since money creation is endogenous to demand, and demand was stoked by the fiscal policy of the “Japanese Keynes”, it means, as I said before, that fiscal not monetary policy brought JP out of the Great Depression. You’re welcome. My advice is free, and you get what you don’t pay for.

  6. Gravatar of Gary Anderson Gary Anderson
    17. September 2016 at 21:00

    So Scott banned me? Really? What a dick.

  7. Gravatar of Gary Anderson Gary Anderson
    17. September 2016 at 21:05

    I guess it is random. I do not understand this website.

  8. Gravatar of Benjamin Cole Benjamin Cole
    18. September 2016 at 00:42

    Ray:
    The Japanese economic miracle of beating the Great Depression was achieved through helicopter drops, not through borrowing.

  9. Gravatar of ssumner ssumner
    18. September 2016 at 05:16

    Good luck Justin and Ben.

    Ray, You said:

    While it’s true JP’s money supply expanded, since money creation is endogenous to demand, and demand was stoked by the fiscal policy of the “Japanese Keynes”, it means, as I said before, that fiscal not monetary policy brought JP out of the Great Depression. You’re welcome. My advice is free, and you get what you don’t pay for.”

    More demand brought Japan out of the Great Depression? Thank God Ray no longer believes money is neutral. (Or maybe he doesn’t know that money neutrality implies demand has no effect on output, because the AS curve is vertical.)

  10. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    18. September 2016 at 05:40

    Off topic, but in reading Conti-Brown’s book on The Fed on p. 245, I see a reference to Laurence Meyer’s 2004 book about his term on the BoG. He says that in the mid 90s he got a call from Joe Stiglitz–then Clinton’s CEA Chairman–informing him he’d been nominated to the Board. Quickly followed by the ‘information’ that the CRA was considered as very important to the Clinton Admin.

    Meyer had never heard of the CRA! So he played dumb and said nothing in response. A few minutes after Stiglitz had called he hears his FAX machine start up. Incoming: 65 pages of information on the history of the Community Reinvestment Act. Meyer than says that within a year he was the GoToGuy for the Clintons on the BoG, touting the great things the CRA was doing for the country. For example;

    https://www.federalreserve.gov/boarddocs/speeches/1997/19971031.htm

    —————quote————–
    There may seem to be no economic rationale for a law like the CRA. Encouraging banks to enter any particular market — low- and moderate-income neighborhoods — does not, after all, seem to square with an economist’s fundamental notions about how free markets function most efficiently.

    We know, however, that some potential markets may go unnoticed or at least unexplored due to perceived risks, or insufficient information about market participants and potential. That, I believe, was part of the genesis of CRA.

    As an economist, I subscribe to the principle that free markets work best when information about the economic performance of participants, including their problems and opportunities, is readily available. The more and better the information about market opportunities, or unmet needs, the more likely it is that someone will find a way to fill them, at least if there are no external barriers preventing action.

    That general principle is certainly applicable to the banking industry and its relationships with low- and moderate-income and minority communities. The more the banking community has learned about low- and moderate-income areas — largely as a result of their response to CRA obligations — the more it has been able to find economically viable ways to meet the financial needs of consumers and businesses located there.

    For any individual business or investor, there is a general reluctance to jump alone into any market perceived as treacherous or unprofitable. Lending in new areas involves much uncertainty. A few may see opportunity and take the plunge, but most wait on the sidelines to see what happens.

    What CRA did, in this context, was to make all banks jump in together. That accelerated the information flow and the learning curve, and has made possible the development of successful lending and investment strategies that two decades ago might have seemed unthinkable. In that regard, CRA has made a contribution to the strengthening of the community development industry and its capacity to access critical financing from the private sector.
    ————-endquote————–

    Take that, Barry Ritholtz and Paul Krugman! Not to mention Hillary Clinton.

  11. Gravatar of LK Beland LK Beland
    18. September 2016 at 08:57

    Bayesian estimates of the Smets and Wouters (2007) model. Paul Romer probably would have something to say about this…

    https://www.law.yale.edu/system/files/area/workshop/leo/leo16_romer.pdf

  12. Gravatar of Ray Lopez Ray Lopez
    18. September 2016 at 09:59

    @Sumner (& Ben): “More demand brought Japan out of the Great Depression? Thank God Ray no longer believes money is neutral. (Or maybe he doesn’t know that money neutrality implies demand has no effect on output, because the AS curve is vertical.)”

    You missed the part where I said money creation is endogenous. You do know what that means, but for the benefit of the readers it means when demand increases, the central bank will create more money to be lent. Money follows increased demand, it does not conjure up demand out of thin air (i.e., money is neutral).

  13. Gravatar of ssumner ssumner
    18. September 2016 at 10:45

    Patrick, I beat you to it.

    http://econlog.econlib.org/archives/2016/07/peter_conti-bro.html

    LK, That’s great–worth a post.

    Ray, You don’t even seem to understand that demand doesn’t impact output when money is neutral. The depths of your ignorance are simply beyond belief. But thanks for bringing a smile to my face.

  14. Gravatar of James Alexander James Alexander
    18. September 2016 at 14:09

    Thanks Scott!
    That Romer paper is a real challenge. It’s all over Twitter, too. And no macro economist appears to have challenged it. Just one sour grapes comment from a fellow Brit I’m ashamed to say (a Prof at a top school too) that Romer slapped down with embarrassing ease:
    Yates: A shame that this is getting attention, since many who don’t read any macro or do it will think it makes fair points
    Romer: Let’s do some science. Say what it gets wrong. Or how it is“unfair.” (Did I forget to include a trigger warning?)

  15. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    18. September 2016 at 14:25

    ‘Patrick, I beat you to it.’

    So I see. You wouldn’t have Kelly Anne Conway’s e-mail would you?

  16. Gravatar of Ray Lopez Ray Lopez
    18. September 2016 at 22:32

    @ssumner: “Ray, You don’t even seem to understand that demand doesn’t impact output when money is neutral. The depths of your ignorance are simply beyond belief. But thanks for bringing a smile to my face.”

    You seem to lack reading comprehension, typical of blowhards and religious fanatics. I will simplify in small words: 1. government wants to build war machine bigger (which will increase GDP) 2. central bank obliges government and prints money for government to pay for war material and solders 3. GDP grows (but in a bad way, not increasing consumer welfare). Read the above slowly and see where it implies money non-neutrality–it doesn’t. Still smiling? 🙂

  17. Gravatar of Larry S Larry S
    19. September 2016 at 01:45

    The SSRN working paper is just awesome. I like the idea to use a well known model to show that during the last GFC NGDP level targeting done very well in the US, in several perspectives.
    So the bottom line becomes interesting: when maximizing households welfare, central bank objectives are not always met!

  18. Gravatar of ssumner ssumner
    19. September 2016 at 06:21

    Patrick, Sorry, I do not have it.

    Ray, More demand only boosts output if the AS curve slopes upwards. Is that your claim? Yes or no?

    Oh wait, I forgot that you don’t know what AS/AD curves look like, and confuse them with IS/LM. Nevermind. 🙂

  19. Gravatar of Ray Lopez Ray Lopez
    20. September 2016 at 00:13

    @ssumner – You wish to muddy the waters. AS curve indeed slopes upwards, but more demand can result from the AD curve shifting to the right. By contrast, but using analogous principles, IS/LM is a model of money demand and supply, but the key is to understand that there’s no link between IS/LM and AS/AD curves except that the latter leads the former. Money creation is ‘endogenous’ so that once the economy heats up (via animal spirits), then the money creation follows, as according to IS/LM. But by implying money is not neutral, short-term, you are putting the cart before the horse.

  20. Gravatar of Scott Sumner Scott Sumner
    20. September 2016 at 08:56

    Ray, That’s a barrel of laughs. AS slopes up and money is neutral? Who knew?

  21. Gravatar of Tom Brown Tom Brown
    22. September 2016 at 09:47

    Well I wish the principals of NGDP Advisors well on their new endeavor. And far be it for me to critique the “tenets” of MM, but I had to laugh when I saw this page:
    http://ngdp-advisers.com/the-tenets-of-our-view/
    Usually the phrase “tenets of our…” is completed with the word “faith.” Maybe I’m wrong, but wouldn’t most scientists be embarrassed to use a phrase like that? It seems to me that what’s missing there is a description of what falsifying evidence would look like. Why not add another bullet point there entitled “How we would know that we’re wrong?”

    Again, I think of the physicists who were disappointed that the Higgs boson was actually discovered… because it means fewer interesting puzzles to work on. If Higgs didn’t show when it should have, it meant the possibility of tossing the standard model out and starting on a fascinating quest to replace it with something better… a puzzle solver’s dream come true! I never get the impression from economists that they would be equally delighted to have their ideas falsified. I’m not sure why.

  22. Gravatar of Tom Brown Tom Brown
    22. September 2016 at 10:34

    … well I guess they’re selling advice based on those tenets… so like a particular diet advocate, I guess a good business practice is to encourage faith in the product within the company. So ignore my above comment.

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