Does forward guidance work? Eugene Fama
03 Jan 2020 Leave a comment
in applied price theory, business cycles, econometerics, economic history, economics of information, financial economics, inflation targeting, macroeconomics, monetarism, monetary economics Tags: monetary policy
Thomas Sargent on the conquest of American inflation
03 Oct 2019 Leave a comment
in budget deficits, business cycles, economic growth, economic history, fiscal policy, history of economic thought, inflation targeting, macroeconomics, monetary economics, politics - USA, Public Choice, unemployment Tags: real business cycles, unemployment and inflation
Money For Nothing: Inside the Federal Reserve – Trailer
21 Oct 2018 Leave a comment
in business cycles, economic growth, economics of bureaucracy, global financial crisis (GFC), great recession, inflation targeting, macroeconomics, monetary economics, politics - USA, Public Choice Tags: economics of central banking
Thomas Humphrey on the cost push theory of inflation fallacy that will not die
15 May 2018 Leave a comment
in inflation targeting, macroeconomics, monetary economics Tags: cost-push inflation
Monetary Policy: The Best Case Scenario
11 Aug 2017 Leave a comment
in business cycles, economics, inflation targeting, macroeconomics, monetarism, monetary economics Tags: monetary policy
NZ inflation rate since 1991 with 1% CPI bias adjustment
13 Sep 2016 Leave a comment
in economic history, inflation targeting, macroeconomics, monetary economics, politics - New Zealand Tags: CPI bias, inflation rate
The inflation rate is overstated by about 1% each year because of difficulties in measuring new goods entering the consumer price index and improvements in the quality of existing goods in the consumer price index. With that adjustment of 1% in the chart below, a common measure of that bias, New Zealand has had zero to negative inflation for four years
Source: Reserve Bank of New Zealand Key Statistics.
One of the reasons for an inflation target band of 1 to 3% is an inflation rate of 1% is actually an inflation rate of 0%.
% industrialised countries at zero or near zero central bank interest rates
04 Feb 2016 Leave a comment
in business cycles, currency unions, Euro crisis, global financial crisis (GFC), great recession, inflation targeting, macroeconomics, monetarism, monetary economics Tags: central banks, liquidity trap, monetary policy
Greg Mankiw on the zero influence of modern macroeconomics on monetary policy making
17 Sep 2015 1 Comment
in business cycles, history of economic thought, inflation targeting, macroeconomics, managerial economics, monetarism, monetary economics, organisational economics Tags: Alan Blinder, Alan Greenspan, credible commitments, Greg Mankiw, modern macroeconomics, monetary policy, neo-Keynesian macroeconomics, new classical macroeconomics, The Fed, timing inconsistency
Two of my brothers studied economics in the early 1970s and then went on to different paths in law and computing respectively. If Greg Mankiw is right, my two older brothers could happily conduct a conversation with a modern central banker. Their 1970s macroeconomics, albeit batting for memory, would be enough for them to hold their own.
Source: AEAweb: JEP (20,4) p. 29 – The Macroeconomist as Scientist and Engineer – Greg Mankiw (2006).
I would spend my time arguing with a central banker that Milton Friedman may be right and central banks should be replaced with a computer. The success of inflation targeting is forcing me to think more deeply about that position. In particular the rise of pension fund socialism means that most voters are very adverse to inflation because of their retirement savings and that is before you consider housing costs are much largest proportions of household budgets these days.
Much higher house prices and the political sustainability of a return of inflation
13 Sep 2015 1 Comment
in business cycles, economic history, global financial crisis (GFC), inflation targeting, macroeconomics, monetary economics, politics - New Zealand, urban economics Tags: expressive voting, housing affordability, inflation rates, median voter theorem, mortgage belt, mortgage rates, rational ignorance, rational rationality
Mortgage interest rates were last in the double digits in the late 1980s and early 1990s. Since then, housing prices have exploded in New Zealand and barely paused for the recession in the wake of the Global Financial Crisis.
Source: International House Price Database – Dallas Fed; Housing prices deflated by personal consumption expenditure deflator.
With house prices and mortgages several times what they used to be, the ability for any household income to absorb the sudden return of high mortgage interest rates because of a return of even moderate CPI inflation and double-digit mortgage rates is well-nigh impossible, politically.
Source: Reserve Bank of New Zealand Mortgage rates and Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015) Table C.5.
The chart above shows that the number of 25 to 44-year-olds in New Zealand who have more than 30% of their income going to housing expenses has doubled since 1988 to nearly a third of all households. The number of 45 to 64-year-olds who pay more than 30% of their income in housing expenses has quadrupled to 20%. That is a lot of voters who would be offended by mismanagement of monetary policy.
None of these households would have much left over to absorb an increasing mortgage interest rates. That is very different political arithmetic too the last time both mortgage rates and CPI inflation were in double digits, which was more than 20 years ago. Not many New Zealanders under the age of 40 or 45 have an adult memory of high inflation and high mortgage rates.
Utopia, you are standing in it! 
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