Comment: The Bank of Japan ends the self-imposed timidity it inspired in others https://t.co/fKsYKlRJ06 pic.twitter.com/E722MpgbXB
— Financial Times (@FT) January 29, 2016
% global GDP with negative central bank interest rates
30 Jan 2016 Leave a comment
in economic history, global financial crisis (GFC), monetary economics
New Zealand inflation rate adjusted for CPI measurement bias since 1970
20 Jan 2016 Leave a comment
in applied price theory, business cycles, economic growth, economic history, macroeconomics, monetary economics, politics - New Zealand Tags: CBI bias, inflation rate, measurement error, price indexes
1% to 1.5% is the usual estimate of bias in the consumer price index because of the introduction of new groups and quality upgrades in existing goods. I have adjusted the consumer price index inflation rate back to 1970 in New Zealand by 1.5% to see how long ago prices became stable. I know this is a rough adjustment, but it is still informative. If anything, the bias in the consumer price index from new goods and product upgrades is increasing rather than decreasing.
Source: Reserve Bank of New Zealand.
Prices have been stable or falling in New Zealand’s for at least three years now once bias in the consumer price index is taken into account. Despite this deflation, the economy seems to be getting along pretty well. There is also a long period of more or less stable prices in the 1990s once bias is taken into account in the measurement of consumer prices by the Statistics New Zealand.
Generation liquidity trap
30 Dec 2015 Leave a comment
in economics, macroeconomics, monetary economics Tags: economics of central banking, liquidity trap
The Taylor rule and the Fed’s interest rate policies compared
17 Dec 2015 2 Comments
in economics of bureaucracy, macroeconomics, monetary economics, politics - USA
The modern macroeconomics of the Global Financial Crisis
02 Dec 2015 Leave a comment
in applied price theory, budget deficits, business cycles, economic growth, economic history, economics of regulation, Euro crisis, fiscal policy, global financial crisis (GFC), great depression, great recession, macroeconomics, monetary economics Tags: adverse selection, bank panics, bank runs, banking crises, deposit insurance, economics central banks, financial crises, moral hazard, sovereign defaults
Banking crises are more common than you think
16 Nov 2015 Leave a comment
in currency unions, economic history, economics of regulation, Euro crisis, macroeconomics, monetary economics Tags: bank run, banking crises, banking panics, economics of banking, financial crises
Milton Friedman and Paul Krugman as inflation forecasters
03 Nov 2015 Leave a comment
in economic history, macroeconomics, monetarism, monetary economics Tags: forecasting errors, Paul Krugman, public intellectuals
@jeremycorbyn @johnmcdonnellMP People’s QE & 1st home buyer affordability in London, Scotland and the UK since 1983
26 Oct 2015 Leave a comment
in economic history, macroeconomics, monetary economics
Many of the Twitter Left who voted in Jeremy Corbyn to lead the British Labour Party into what will be a self-inflicted electoral oblivion have no adult memory of paying high mortgage payments when there was high inflation.
Source: House Prices Data Download | Nationwide.
Those who have escaped the overweening conceit of youth still have raw memories of high inflation and high mortgage payments and that was when housing was much, much cheaper.
Source: House Prices Data Download | Nationwide.
An excellent wedge issue for the Tories on the 2020 general election will be even under rock bottom interest rates housing affordability is in crisis.
Imagine what will happen if even moderate inflation were to return. There is no buffer left in the budgets of middle class homebuyers to pay much more if there were to be a People’s quantitative easing.
US interest rates since 1871
09 Oct 2015 Leave a comment
in business cycles, economic history, macroeconomics, monetary economics Tags: interest rates, monetary policy
15% and more. The long-term view on U.S. Nominal Interest Rates
(from 1.usa.gov/1V2PhP1) http://t.co/52o992NFhJ—
Max Roser (@MaxCRoser) September 20, 2015
Compliance by the Fed with the Taylor rule
03 Oct 2015 Leave a comment
in business cycles, macroeconomics, monetarism, monetary economics, politics - USA Tags: central banks, economics of central banking, monetary policy, rules and discretion, Taylor rule, The Fed
Yellen vs. Congress: The Fed's independence is under attack despite economic rebound bloom.bg/1HM9c0A http://t.co/NQ6548yGJK—
Bloomberg VisualData (@BBGVisualData) August 10, 2015
Alan Blinder and Fed Speak
18 Sep 2015 Leave a comment
in business cycles, macroeconomics, monetary economics, organisational economics Tags: central banks, cheap talk, credible commitments, economics of central banking, Fed speak, inflation targeting, The Fed
When President Clinton appointed Alan Blinder to be deputy chair of the Fed, his big hope was to find out what Alan Greenspan really thought rather than the public facade of gobbledygook. The term Fedspeak (also known as Greenspeak) is what Alan Blinder called "a turgid dialect of English" used by Federal Reserve Board chairmen in making wordy, vague, and ambiguous statements. Greenspan described it this way:
To Blinder’s astonishment, Alan Greenspan spoke just the same as he did at monetary policy meetings of the Fed as he did in public! Blinder never disagreed fundamentally with Greenspan about monetary policy.
The Fed Rate since 1955
18 Sep 2015 Leave a comment
in business cycles, economic history, macroeconomics, monetary economics Tags: monetary policy, The Fed
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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