tag:blogger.com,1999:blog-17232051.post4872848268101419545..comments2024-03-18T07:04:18.975-04:00Comments on Noahpinion: Woodford vs. the Neo-FisheriansNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger59125tag:blogger.com,1999:blog-17232051.post-48105897975504578772017-04-18T22:31:33.174-04:002017-04-18T22:31:33.174-04:00CBs can always inflate? Then why haven't they?...CBs can always inflate? Then why haven't they?<br /><br />(I understand why they may not want to now, but we sure could have used some 4-5% inflation since the late financial crisis. Wasn't quantitative easing supposed to produce inflation?)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-1096130201478098082015-07-22T04:10:04.293-04:002015-07-22T04:10:04.293-04:00Hey genius, guess what -- inflation rates and nomi...Hey genius, guess what -- inflation rates and nominal interest rates are both endogenous, so neither causes the other. Every time you post you sound dumber and dumber. Maybe you and Henry could get together and have a dumbfest.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51119659417140373632015-07-17T14:56:43.130-04:002015-07-17T14:56:43.130-04:00"Henry is kind of dumb"
I would actuall..."Henry is kind of dumb"<br /><br />I would actually appreciate seeing your reasons for saying so. <br /><br />HenryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-29975672272996483072015-07-17T07:54:52.453-04:002015-07-17T07:54:52.453-04:00At least I'm not completely dumb in your esti...At least I'm not completely dumb in your estimation. However, I have no doubt that with due deliberation you will conclude that I am completely dumb.<br /><br />Anyway, do you have anything sensible to contribute along the lines of:<br /><br />Equilibrium Price = Expected Price from prior period + error term.<br /><br />That sort of thing got someone a Nobel Prize.<br /><br />Given the penetrating intellect you display, I'm sure you can do even better.<br /><br />Henry<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12008002004009705662015-07-17T03:46:59.830-04:002015-07-17T03:46:59.830-04:00In this post, Frederic makes unsubstantiated and u...In this post, Frederic makes unsubstantiated and unsupported assertions. News at 11.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40796952584191396022015-07-17T03:43:35.440-04:002015-07-17T03:43:35.440-04:00Wow, Henry is kind of dumb and that retarded Infor...Wow, Henry is kind of dumb and that retarded Information Transfer guy just will not go away.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3936287323021468102015-07-16T22:17:46.640-04:002015-07-16T22:17:46.640-04:00Sorry, not interested in "Information Transfe...Sorry, not interested in "Information Transfer Economics."Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-44664821505910594262015-07-16T13:39:42.000-04:002015-07-16T13:39:42.000-04:00@Dave, regarding TIPS, take a look here.@Dave, regarding TIPS, take a <a href="http://informationtransfereconomics.blogspot.com/2014/07/better-than-tips.html" rel="nofollow">look here.</a>Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73607454255012022652015-07-16T06:58:00.632-04:002015-07-16T06:58:00.632-04:00Apart from weighing in on the ZLB and Neo-Fisheria...Apart from weighing in on the ZLB and Neo-Fisherian discourse, WGS make a subtle contribution to the pure behav econ camp: separation of bounded rationality analysis into "long enough" and "not long enough" is basically a horizon selection problem which is still an open question in the modern post-Prospect theory world. They don't quite solve the "optimal horizon" issue, and I don't think they intended to find the cut-off period after which bounded rationality equilibria diverge (if such fixed point exists), but on a conceptual basis their idea is basically an application of the horizon selection problem to monetary economics. In principle, it may have a very large impact on the way we view asset pricing and even as simple as market volatility. Assets are priced by markets under a set of beliefs and expectations on future path of policy. If policy horizon is long enough, beliefs across agents DO NOT converge and, as WGS claim, diverge explosively. So, the probability of severe asset mispricing when commitment time is long is presumably higher. This leads directly to the argument that stocks and indeed fixed income instruments in certain parts of the world are severely mispriced now. Periods of volatility hikes can be rationalized as moments when WGS' Bayesian solution "explodes", or when multiple beliefs collide in an event of unbounded uncertainty. Either way, lots and lots of things to play around with.<br />Rustam Jamilovhttps://www.blogger.com/profile/03566113367678508519noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33868402703786148402015-07-15T23:11:26.327-04:002015-07-15T23:11:26.327-04:00"How do you know if expectations were changed..."How do you know if expectations were changed sufficiently by the central bank? Because if the CB did so then they would hit their inflation / price level / NGDP level target... and BTW, that's the ONLY way to tell if the proper expectations were generated."<br /><br />Nonsense. There's a much simpler way: just ask what the expectations actually are. TIPS exist. So do investors.<br /><br />Suppose during a period of low interest rates, a CB credibly announces that starting in five years, they will pursue a 10% inflation target with all available means, but there is no change in policy until then. If your theory says this has no effect on 10-year interest rates then your theory is wrong. Expectations are not ineffable, they're obvious.Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59316184774458250992015-07-15T23:06:11.865-04:002015-07-15T23:06:11.865-04:00The same way wet streets cause rain.The same way wet streets cause rain.Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-29457331987981802792015-07-15T23:01:12.453-04:002015-07-15T23:01:12.453-04:00Rates are a function of inflation expectations. I...Rates are a function of inflation expectations. If inflation expectations are low, interest rates will be low. An American buying a 30-year bond in 1983 had very different expectations than in 2015. A Japanese investor has expected low inflation for a longer time.<br /><br />Unfortunately a lot of mysticism has crept into the profession, with ZLBs and liquidity traps and other means of obfuscating the simple fact that CBs can <i>always</i> inflate, but this seems mainly a function of the fact five of the six richest counties in America now adjoin DC.Davehttps://www.blogger.com/profile/11877699517690934530noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-75100186297762711802015-07-15T13:34:39.853-04:002015-07-15T13:34:39.853-04:00Woodford is rank 49 on repec, which is well above ...Woodford is rank 49 on repec, which is well above Farhi (729) and Werning (1434). He has 83 publications, most of which are in top field or general interest journals: https://ideas.repec.org/e/pwo3.html. I think Noah's description was accurate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-90239930411679427602015-07-14T18:56:58.378-04:002015-07-14T18:56:58.378-04:00If I could nominate you for the Nobel Prize for Ec...If I could nominate you for the Nobel Prize for Economics I would. (May be even the prize for Literature.)<br /><br />HenryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37098142685321837632015-07-14T17:54:06.596-04:002015-07-14T17:54:06.596-04:00first anon here. Let me answer your question with ...<i>first anon here. Let me answer your question with a question. Do you think every field of inquiry is amenable to mathematical analysis?</i><br /><br />Let me answer YOUR question with a question. Why do you think fat cats and fat rabbits are cute, while fat dogs and fat mice are generally not cute?<br /><br />I mean, as long as we're answering questions with questions...that is one that I have seriously wondered about.<br /><br /><i>I think it's only reasonable that we question whether fundamental mathematical analysis is the best tool for understanding the aggregate behaviour of large groups of people.</i><br /><br />Maybe so. But that's hardly settled enough to take one piece of said math and declare that "the emperor has no clothes", don't you think?<br /><br /><i>expectations is such a big part of the game in econ that if you don't have boundary conditions you've essentially given up, which seems to be what first anon is advocating here.</i><br /><br />Yeah. I mean, you can do OLG, or assume short horizons, but you still have boundary conditions.<br /><br /><i>Also, Witten is recognized by far fewer people than Woodford? This would surprise me. How many BBC or Nova specials have mentioned Woodford? Maybe you meant econ blog readers specifically in which case OK.</i><br /><br />I don't watch these newfangled television machines. Give me my good old-fashioned social media sites any day.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61534311746887718152015-07-14T17:43:08.430-04:002015-07-14T17:43:08.430-04:00Tom,
“...my point is that whether that model (rea...<br />Tom,<br /><br />“...my point is that whether that model (really a framework) turns out to be correct or not is not as important as the way it's presented: with falsifiability conditions clearly presented. If you want to ask the author how far outside the error bands constitutes falsification, I'm sure he'll respond. I've asked him several times for other predictions.”<br /><br />In what way does this validate a model? How long will the model be valid for (however valid is defined)? – no-one can say. As far as I am concerned it’s called moving the goal posts. Models contain statistically defined error terms which allow for random exogenous events. It might constitute sound modelling practice but it is not economics. Economics is dead.<br /><br /><br />“A common one is "expectations." It goes something like this: open market operations don't matter really, unless the central bank also changes expectations. How do you know if expectations were changed sufficiently by the central bank? Because if the CB did so then they would hit their inflation / price level / NGDP level target... and BTW, that's the ONLY way to tell if the proper expectations were generated.”<br /><br />I’m not sure I agree with the last sentence. Who knows what happens in a real world situation. The REH is based on the notion of the CB second guessing how the “independent agent” behaves. What if in reality the “independent agent” second guesses what the CB is doing. And on it goes. What is the end result? How can what happened be discerned? As soon as a model is defined by its assumptions, reality is out the window.<br /><br /><br />“ "Expectations" in this context is the mystery ingredient that explains away any problem, yet conveniently isn't independently observable so that we can put this mystery power of expectations to the test. At least not observable in any way that it's proponents would agree would let you falsify their "models." “<br /><br />When you say expectations are not observable I suspect you really mean they can’t be modelled. And it’s almost as if it can’t be modelled it doesn’t exist. This is where economics insight should enter the equation.<br /><br /><br />Henry<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-29024366482041125852015-07-14T17:42:39.021-04:002015-07-14T17:42:39.021-04:00Jesus, it's not so fucking complicated; The Fe...Jesus, it's not so fucking complicated; The Fed keeps rates low coz they rightly scared shitless that raising them will precipitate a recession. The low interest rates are certainly partly responsible for financial instability building up but only partly. And they certainly don't explain why we went into the shit in the first place.<br /><br />Basically, interest rates are not nearly as powerful a variable as we think it is. Except in the financial speculative world and when that world suddenly interacts with the real world, usually via crises.Anonymoushttps://www.blogger.com/profile/02635749385748660522noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30538563934661366822015-07-14T17:42:19.454-04:002015-07-14T17:42:19.454-04:00Oh come ON, Steve! How many of your blog posts are...Oh come ON, Steve! How many of your blog posts are complaining about Krugman? Surely Woodford has a bigger impact on the world of academic macro than Krugman. Plus Neo-Fisherism is your thing!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51576735765896716272015-07-14T17:33:28.614-04:002015-07-14T17:33:28.614-04:00I like this. It's a step closer to reality rel...I like this. It's a step closer to reality relative to previous academic models, and I'm on the side of reality over simplicity. I'm not sure it will be enough closer to reality to make big inroads.<br /><br />But I think some common sense observations are the best way to refute the idea that low interest rates cause low inflation, or what you call the "Neo-Fisherian" theory. I don't like the name because Fisher didn't believe any such thing.<br /><br />The only sensible argument for low interest rates causing lower inflation is that lower rates foster lower expectations of growth and inflation. So if that's true we should observe markets adjusting downward their expectations for growth and inflation after interest rates are lowered or QE is announced or rates are promised to be low. A review of the market data will agree with the traditional theory, that loosening of monetary policy increases expectations of growth and inflation, but not by much.<br /><br />And here's where common sense needs to come in. Central bankers are considered to have very well-informed, strong analytical teams, at least in most developed markets. So their optimism or pessimism can somewhat move the market consensus. But they're not gods, or even philosopher kings. They're not possessed of any deep secrets or super-human insight. They're never very much against consensus and wouldn't be taken seriously if they were.<br /><br />I think explanations for the seemingly small-to-zero response of growth and inflation to monetary loosening are to be found in other common-sense ways:<br /><br />- In most developed countries >40% of spending is public sector, and public spending does not much respond to low rates (due to fiscal conservatism in the US, the same and currency union in Europe, and fiscal laxity being already at its perceived limit in Japan).<br /><br />- Population graying and slowing/reversing of growth. Crossing the line of 66 years after V Day was a very big macroeconomic event.<br /><br />- If interest rates are lowered without any corresponding weakening of expectations, they will be capitalized into real estate and equity prices, partly negating the reduction of investment costs.<br /><br />- Market funding rates are mostly long-term and not all that closely related to the short- to mid-term course of policy rates. Bank lending and mortgage bond regulations have tightened.<br /><br />I could go on but those seem enough. Not easy to work all that into a model, but these are factors that have to be taken into consideration if you want to get closer to reality.Tom Warnerhttps://www.blogger.com/profile/11247836188106712069noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14989968945306172892015-07-14T17:31:36.157-04:002015-07-14T17:31:36.157-04:00This comment has been removed by the author.Tom Warnerhttps://www.blogger.com/profile/11247836188106712069noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-17240828876336387832015-07-14T14:06:34.547-04:002015-07-14T14:06:34.547-04:00I too am a mathematically literate outsider, and I...I too am a mathematically literate outsider, and I have two thoughts: expectations is such a big part of the game in econ that if you don't have boundary conditions you've essentially given up, which seems to be what first anon is advocating here. Also, Witten is recognized by far fewer people than Woodford? This would surprise me. How many BBC or Nova specials have mentioned Woodford? Maybe you meant econ blog readers specifically in which case OK.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-35771399595046182212015-07-14T13:05:47.866-04:002015-07-14T13:05:47.866-04:00Some of Noah's previous posts on the subject o...Some of Noah's <a href="https://www.google.com/search?safe=off&site=&source=hp&q=site%3Ahttp%3A%2F%2Fnoahpinionblog.blogspot.com%2F+falsifiability&oq=site%3Ahttp%3A%2F%2Fnoahpinionblog.blogspot.com%2F+falsifiability&gs_l=hp.3...122122.140599.0.140903.69.42.3.0.0.12.470.4288.28j10j1j0j1.40.0....0...1c.1.64.hp..66.3.514.0.d5QmIurjCyg" rel="nofollow">previous posts</a> on the subject of falsifiability.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37264874323011497052015-07-14T11:28:18.262-04:002015-07-14T11:28:18.262-04:00Henry, my point is that whether that model (really...Henry, my point is that whether that model (really a framework) turns out to be correct or not is not as important as the way it's presented: with falsifiability conditions clearly presented. If you want to ask the author how far outside the error bands constitutes falsification, I'm sure he'll respond. I've asked him several times for other predictions.<br /><br />Try getting other econ bloggers to tell you precisely what conceivable future events will demonstrate that their models and theories are wrong. It seems to me that most avoid falsifiability like the plague. They're much better at explaining things after the fact when low and behold it turns out some unobservable factor must have been at play (obviously, else their ideas might be wrong which is inconceivable). Noah has written before about this problem of falsifiability being avoided in the field of econ.<br /><br />A common one is "expectations." It goes something like this: open market operations don't matter really, unless the central bank also changes expectations. How do you know if expectations were changed sufficiently by the central bank? Because if the CB did so then they would hit their inflation / price level / NGDP level target... and BTW, that's the ONLY way to tell if the proper expectations were generated.<br /><br />"Expectations" in this context is the mystery ingredient that explains away any problem, yet conveniently isn't independently observable so that we can put this mystery power of expectations to the test. At least not observable in any way that it's proponents would agree would let you falsify their "models."Tom Brownhttp://www.google.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67445896250131149132015-07-14T09:21:01.490-04:002015-07-14T09:21:01.490-04:00"Write a blog post about it! Blog POST. Blog ..."Write a blog post about it! Blog POST. Blog POST."<br /><br />Sometimes there are better things to do. This isn't as earth-shaking as you seem to think.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-2286602790094015522015-07-14T07:45:24.342-04:002015-07-14T07:45:24.342-04:00Not raising rates will not guarantee continuation ...Not raising rates will not guarantee continuation of recovery. Brewing bubbles will burst (are bursting) and take the economy down again. Fed has trapped itself listening to people like Woodford.ReturnFreeRisknoreply@blogger.com