It’s widely known that nominal interest rates are not a good indicator of the stance of monetary policy.  Actually it’s probably not widely known, which is a major puzzle in and of itself. Yes, there is a liquidity effect.  A sudden increase in the money supply will often reduce short term interest rates.  But other […]

Lots of Keynesians think recent events in Britain support the Keynesian model—particularly the Keynesian critique of “austerity.”  Put aside the fact that Britain clearly isn’t “stuck” in a liquidity trap, rather the BoE simply does not want to push inflation even higher.  Let’s say my monetary offset theory is wrong.  Does this rescue the anti-austerity […]

I used to argue that the whole idea of a jobless recovery was a myth.  We weren’t getting many jobs because the recovery wasn’t occurring.  Growth was close to trend, so you wouldn’t expect a fall in the unemployment rate. Now things are beginning to enter the Twilight Zone.  Last November the unemployment rate was […]

Steve Waldman, aka Interfluidity, has a sort of critique of market monetarism: Self-fulfilling expectations lie at the heart of the market monetarist theory. A depression occurs when people come to believe that income will be scarce relative to prior expectations and debts. They nervously scale back expenditures and hoard cash, fulfilling their expectations of income […]

Matt Yglesias presented a graph showing that since 2005 the Chinese yuan has appreciated about 30% against the dollar. He added this comment: That’s the nominal exchange rate. In real terms, the yuan is appreciating faster than that because Chinese have more inflation than the United States. This doesn’t mean there’s no problem here, but […]