“Ex Post”, of course, everything is just a number: NGDP, RGDP, and inflation. But that doesn’t make any of them constants. They’re still (very complex) functions of moments in time. The fact that a function returns a number at a particular moment in time, doesn’t make that function a constant. (And please keep in mind that when you say “RGDP and NGDP have the same slope”, that “slope” is not something which can happen at only a single point in time. Slope is a transition between times. But inflation is not a constant between times.)

Words mean things, Ray. You don’t get to make up your own definitions of existing words. The way you put them together, the sentences mean false things.

]]>Dunning-Kruger effect? A fancy term for stupid people thinking they are smart. Your projection noted. And speaking of projection, ex post (which means after the fact Don), NGDP and RGDP are indeed connected by a simple linear projection: inflation. In fact, real GDP and nominal GDP have the same slope, ex post, and only a constant, inflation, is added or subtracted. Note the comma Don. Not constant inflation but the constant, inflation, which could even be zero. Eats, shoots, and leaves… vamos! Time for me to leave you, and not a moment too soon, bye.

]]>It’s charming the way you combine great arrogance with astonishing ignorance. Once again, you continue to demonstrate Dunning-Kruger, the “inability of the unskilled to recognize their ineptitude”.

But back to math for a second, since you seem confused about middle school algebra. At any given point in time t, the equality holds, so NGDP(t)=RGDP(t)+Inflation(t). But this tells you nothing at all about the correlation between NGDP and RGDP. It could be anything. Nor does it have anything to do with y=mx+b. Yes, I know both equations have one thing on the left, and two things added on the right. Sadly, math is more than just superficial pattern matching. You actually have to know what the symbols mean.

]]>As for Mark Sadowski’s long series at Nunes’s blog (which is aptly named “little stories”) it’s rubbish. Sadowski is straight out of school and used to playing with his Mathematica toolkit hence he says: “The first thing I want to do is to demonstrate that the monetary base Granger causes bank credit during the period from December 2008 through May 2015.” — keyword: GRANGER CAUSES, which is prone to data mining (e.g., world GDP was found once to be highly correlated to the price of butter in Bangladesh). Hence Sadowski (rhymes with sadistic) states in one post: ” In other words there is evidence that the monetary base Granger causes bank credit, but not the other way around.” (from a mere sample size of 73, from 2009 to 2014, hardly an authoritative sample).

Proof that Sadowski is engaged in data mining is this passage *MY COMMENTS IN CAPS*:(from his online post ‘Monetary Base …in age of ZIRP’): “The response of the Dow Jones Industrial Average to a positive shock to the monetary base is significantly positive from month one through month three. The instantaneous response of the S&P 500 Index is positive but statistically insignificant. FUNNY HOW THAT WORKS–SO DJIA SHOWS A RESPONSE TO THE MONETARY BASE BUT THE BROADER S&P500 DOES NOT??? HOW IS THIS NOT DATA MINING?

More fundamentally, the root question of WHY and HOW the Fed decides to increase the monetary base is not addressed by Sadowski; specifically, does the Fed increase in response to member banks, or does it ‘force’ an increase onto the member banks (the former being the money neutrality hypothesis, the latter being the monetarists hypothesis)? What Sadowski could be measuring is simply a business expansion. To wit, Sadowski could be measuring this: leading Fed member banks see a pickup in demand for credit from their Fortune 100 customers, borrow money from the Fed, and lend this money to the Fortune 100; Fortune 100 customers use the money to lend to their suppliers, which through the well-known ‘bank multiplier’ effect ends up in a ‘Main Street’ bank credit expansion several months later. It’s well known that Fortune 100 companies are in the vanguard in any business expansion. So Sadowski is doing nothing more than statistically measuring a routine business expansion. This is not proof that the Fed causes an expansion.

I will try and post this to the nonsensically named ‘Historinhas’ but the censor there may reject my musings, as has the Econlog censor, so I post here first. Thanks.

]]>“I think Fisher said Nominal GDP = Real GDP + inflation, so, ex post, the correlation is linear (y = mx + b, where b=inflation and is a constant, ex post).”

I have a PhD in economics, and have no idea what that means.

Have you been reading Mark Sadowski’s long series at Marcus Nunes’s blog? On economietric evidence for the effect of money?

Thanks Jim.

]]>Real Interest Rates and Inflation: An Ex”Ante Empirical Analysis

The Journal of Finance

ABSTRACT The authors develop a method of measuring ex ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, they directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. The authors find a negative correlation between ex ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Robert A. Mundell and James Tobin, Michael R. Darby and Martin Feldstein, and Rene Stulz. The authors also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.

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Not a new study, but why would the Fisher effect in the data be new?

]]>@sumner – “Ray, First it was the nominal economy, and now it’s the real economy. And exactly why are real and NGDP correlated?” – I don’t know what you are talking about professor. I think Fisher said Nominal GDP = Real GDP + inflation, so, ex post, the correlation is linear (y = mx + b, where b=inflation and is a constant, ex post). Please do however tell me why and how the Fed influences the economy. At this point, since I’ve given up hope you’ll ever cite an econometrics study, I’ll settle for one of your “cargo cult” thought experiments. Yes, I’m that desperate.

]]>Wrong answer !!! Higher interest rates are actually very DEFLATIONARY.

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