tag:blogger.com,1999:blog-17232051.post2223042326477524891..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: What can Abenomics teach us about macro (so far)?Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger55125tag:blogger.com,1999:blog-17232051.post-41976178077616035822014-02-07T01:11:06.717-05:002014-02-07T01:11:06.717-05:00I moved to Japan shortly before Abe's election...I moved to Japan shortly before Abe's election. By way of anecdote, only recently have I seen prices for imported goods start to increase relative to domestic goods. I'm not an economist, but I think there's a stickiness when it comes to warehouse stocks and preexisting orders/contracts that didn't anticipate the monetary shifts. This might make it difficult to infer much from trade balance statistics from only a year or so of Abenomics.<br /><br />The one area that showed almost immediate inflation is energy (all imported gasoline, natural gas and coal where I am, but I think there are some national price controls). Unless the trade deficit stats exclude energy imports, I imagine this plays a big part in any changes.Zachnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-688635236996832472014-02-05T13:11:22.775-05:002014-02-05T13:11:22.775-05:00David, I don't disagree. My point was that Abe...David, I don't disagree. My point was that Abenomics doesn't have a fiscal authority deliberately pulling in the opposite direction. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-41537364129414741212014-02-04T14:04:35.947-05:002014-02-04T14:04:35.947-05:00http://www.bbc.co.uk/news/business-25908413
"...http://www.bbc.co.uk/news/business-25908413<br /><br />"The latest trade data showed that while Japan's imports of Liquefied Natural Gas (LNG) rose 0.2% by volume in 2013 from the previous year - the value of those imports surged nearly 18%."<br /><br />I think the cause of increasing trade deficit is pretty clearmeo fiohttps://www.blogger.com/profile/11238486778178048077noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-26411041861941375952014-02-04T10:04:56.399-05:002014-02-04T10:04:56.399-05:00For all the commentary about Japan's worsening...For all the commentary about Japan's worsening trade deficit and what this means about the success/failure of Abenomics (plenty in the media seem inclined to judge it as the latter apparently), I think we are ignoring two big obvious issues:<br /><br />1. Japan has shut down all of its nuclear reactors. As a result, imports of alternative fuels (LNG/oil/coal) have absolutely skyrocketed. For example Japan paid a record 7.06 trillion yen for LNG alone in 2013. Since energy is one of the less elastic demands in the economy, usage has not declined in line with the price increase. So when we talk about the imports side of Japan's trade deficit, what we are really talking about is Japan's current energy policy choices. This is totally separate from Abenomics, yet tends to get lumped in because its easier to focus on one number "is the trade deficit up or down?" rather than think about the individual components.<br /><br />2. The other side of the trade deficit is exports, which are growing but not that much (an certainly not as much as energy costs). even though yen has depreciated some 25%. Is this because Abenomics is a failure? Try this simple experiment: Go to you local Toyota dealer in a country outside of Japan. Observe the price of cars there. Are the car prices 25% lower than they were around October 2012? I would hazard a guess that they are not in fact 25% lower. So what happened to the 25%? Well, you may have also noticed this bit of news:<br /><br />"Toyota raises FY 2013 operating profit outlook to record 2.4 tril. yen"<br /><br />So a single Japanese company now expects to earn 23.6 bil USD in profit (not revenues!) for the fiscal year 2013. That's where the 25% went. Companies like Toyota are recovering profitability before increasing production/taking market share. This is pretty reasonable because 1) they have excess capacity 2) they have not been profitable for a long time thanks to an overvalued JPY and 3) after 25 years of fiscal and monetary policy mismanagement (i.e. not enough of these things) they are cautious about assuming that the current situation will last. Eventually these Japanese exporters will increase production (and exports) to take advantage of their better profitability, or some other competitor will come along increase supply (and exports) to take advantage of the profits for themselves. Either way it won't happen overnight, but its either very short sighted or willfully deceptive to point out that exports aren't increasing yet when corporate profits are setting all time new records.Anonymoushttps://www.blogger.com/profile/12633245089951872919noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61242083771562150702014-02-04T09:37:06.058-05:002014-02-04T09:37:06.058-05:00Sure Core Inflation (or Core Core Inflation) looks...Sure Core Inflation (or Core Core Inflation) looks different - its a different indicator. But it doesn't change the fact that even Core inflation is rising at the fastest pace in 5 years (5 years ago coinciding with a commodities price spike). I'd say the performance of Core Inflation actually supports rather than detracts from the argument that Japanese inflation is meaningfully higher. Is that what you meant Jun?Anonymoushttps://www.blogger.com/profile/12633245089951872919noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34842750305467381042014-02-04T00:08:53.318-05:002014-02-04T00:08:53.318-05:00So... here would be a more Post-Keynesian viewpoin...So... here would be a more Post-Keynesian viewpoint from 1943 that would tend to agree with Stephen Williamsons' viewpoint that lower interest rates would tend to be less inflationary in the long-term:<br /><br />"The rate of interest or income tax [might be] reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously."<br /><br />http://www.interfluidity.com/v2/3451.html<br /><br />nice graph too of interest rates in the Great Moderation. Makes you think a little bit of the New Keynesian consensus about the full effects of monetary policy. Personally, i'm beginning to believe Stephen's conclusion (maybe for different reasons) as I'd tend to think the inflationary pressures of lower interest rates via increased investment is inherently not very inflationary, and it may mostly take a recession for the disinflationary pressures to take effect, but I guess that's for another format for further ponderance.Kainhttps://www.blogger.com/profile/09841689865415250256noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67341934616856831702014-02-03T23:34:46.557-05:002014-02-03T23:34:46.557-05:00David, I'm not talking about MMT. I'm just...David, I'm not talking about MMT. I'm just asking about what is actually behind the uptick in Japanese growth, and pointing out that if one is going to say that it is X, then one should be prepared to give some actual evidence as to why it is not Y, Z, or W when Y, Z and W were done at the same time.<br /><br />On fiscal policy, the issue isn't just the size of the anticipated deficit, but changes in the kinds of spending that are carried out. Also the structural reforms seem very important, possibly more than the monetary and fiscal and a strong enticement to renewed private sector investment in medicine and technology.<br /><br />Also, the great "success" people seem to be seeing in Japan seems so far to consist only in getting Japan closer to the American post-crisis trickle-down model: that is, modest partial inflation (rather than skirting deflation), a stock and asset price surge, stagnant or declining real wages, a growing gap between the top and the bottom, positive but sluggish growth concentrated at the top of the economy. Since I view US policy since 2008 to be an utter disaster and criminally corrupt plot to use the crisis to further disempower and subordinate US working people, and to concentrate capital, to disembowel functioning democracy, and to more deeply entrench the neoliberal dystopia of radical commercialization, the US is a very bad standard against which to measure Japan, or anywhere else.<br /><br />What I'm worried about in part is that the Japanese upturn is due mainly to the fact that Japan has basically decided to play ball with the prescription the developed world financial elites have been pushing since 2008: structural reforms to reduce the real wages of working people and make them more "competitive" with their Chinese fellows, while allowing capitalists to engorge themselves. Hollande seems to have been pushed recently to move in the same direction in France.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59831330260708727022014-02-03T19:35:50.320-05:002014-02-03T19:35:50.320-05:00Stephen, did you read the Auerback and Obsfedlt (2...Stephen, did you read the Auerback and Obsfedlt (2005) paper? It speaks directly to how a large scale asset purchases at the ZLB can be expansionary. The key, as I noted above, is that purchases are expected to be permanent. <br /><br />Even though the monetary base and treasuries may be near perfect substitutes today, they won't be in the future if the purchases are expected to be permanent. And investors make their decisions based largely on what they think will happen in the future. Thus, a monetary base injection today that is expected to be permanent and greater than the demand for the monetary base in the future is likely to affect spending today.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55891058957546948022014-02-03T19:19:23.518-05:002014-02-03T19:19:23.518-05:00Stephen, the Fed's QE asset purchases have bee...Stephen, the Fed's QE asset purchases have been widely understood to be temporary from the get go. The FOMC has said so, Bernanke said so, and the market says so in its long-term inflation forecasts. The Board's staff economist have even put out research papers showing how over time the Fed's balance sheet will return to normal. Michael Woodford's main critique all along has been that the Fed's QE programs have not committed to permanent expansions. Now QE3 marginally pushes the Fed's balance sheet closer to some permanence, but not much. Overall, the Fed has signaled its balance sheet expansion will be temporary. This is a big reason many of us have been calling for a NGDP <b><i>level</i></b> target. It would committ Fed to a permanent expansion of the monetary base. <br /><br />Regarding Japan, Abenomics is a clear departure from its previous QEs in this regard. Its first QE was temporary and the BoJ signalled as much (see this <a href="http://1.bp.blogspot.com/-rOBGjEm7v5c/UqHDaI4hluI/AAAAAAAAEEY/UxgGeBMK_lw/s1600/japan+monetary+base.png" rel="nofollow">figure </a>). The BoJ has said Abenomics will lead to a permanently higher inflation rate and a permanent expansion of the monetary base. There is a big difference here. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15723170672929646832014-02-03T18:45:32.395-05:002014-02-03T18:45:32.395-05:00all other evidence on QE in other countries and ot...<i>all other evidence on QE in other countries and other episodes</i><br /><br />What other episodes of QE do you know of, besides the U.S.?Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86845304275101482732014-02-03T18:43:08.065-05:002014-02-03T18:43:08.065-05:00David,
The experiment involves asset purchases at...David,<br /><br />The experiment involves asset purchases at the zero lower bound. It's looking like what the Fed did is permanent too. Where's the extra inflation that came from that?<br /><br />Noah,<br /><br />"if we accept certain assumptions, Abenomics proves that QE is not deflationary (on impact)."<br /><br />"Proves" is a pretty strong word. You're looking at two variables, ignoring everything else that's going on, ignoring all other evidence on QE in other countries and other episodes, and you have no theory.<br />Steve Williamsonhttps://www.blogger.com/profile/16629774961390533020noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15494316027025065362014-02-03T16:24:11.979-05:002014-02-03T16:24:11.979-05:00That's not correct. We know the Bank of Japan ...<i>That's not correct. We know the Bank of Japan has been doing QE. We know the inflation rate has gone up in Japan. That's pretty slim "evidence."</i><br /><br />Note that at the beginning of my post, I wrote this:<br /><br />"It's very hard to draw definitive conclusions about macroeconomics from eyeballing aggregate time series. But suppose we grant that Abenomics represents a real regime change in monetary policy (but not to fiscal or structural policy), and suppose for the moment that no other big "shocks" hit Japan's economy at the same time. What conclusions can we draw with these assumptions?"<br /><br />The conclusion is conditional on those assumptions!<br /><br /><i>To elaborate, my work is about exploring how QE might work in one particular way. The model is deliberately made as simple as possible, so that (hopefully) people can understand that particular mechanism. It's not intended to be taken directly to the data, and to capture all the dynamics of the effects of QE.</i><br /><br />Sure, fair enough. I didn't say that Abenomics proves your model is crap! I only said that <i>if</i> we accept certain assumptions, Abenomics proves that QE is not deflationary (on impact).Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34896522276048601772014-02-03T15:26:15.864-05:002014-02-03T15:26:15.864-05:00Stephen, there are good theories for why inflation...Stephen, there are good theories for why inflation and output are going up in Japan. The essence of them is that the Abenomics monetary injections are expected to be permanent whereas previous QE injections were expected to be temporary. <br /><br />See for example Auerbach and Obsfeldt (2005) or Woodford (2012). This ideas is even implicit in Krugman (1998). (Here is an ungated link to the first paper: http://elsa.berkeley.edu/~obstfeld/zerotrap_dec04.pdf). There are other papers and I make a similar point to these papers <a href="https://www.blogger.com/I%20make%20a%20similar%20point%20to%20these%20papers%20%3Ca%20href=%22http://here./%22%3Ehere.%3C/a%3E%3Ca%20href=%22http://macromarketmusings.blogspot.com/2013/12/the-wrong-debate-helicopter-drops-vs.html%22%3Ehttp://macromarketmusings.blogspot.com/2013/12/the-wrong-debate-helicopter-drops-vs.html%3C/a%3E" rel="nofollow">here</a>. I suspect you already know this literature. So I am surprised you would claim there is no good theory that can explain what Noah is taking note of in Japan under Abenomics.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66196551205442202812014-02-03T14:29:17.488-05:002014-02-03T14:29:17.488-05:00To elaborate, my work is about exploring how QE mi...To elaborate, my work is about exploring how QE might work in one particular way. The model is deliberately made as simple as possible, so that (hopefully) people can understand that particular mechanism. It's not intended to be taken directly to the data, and to capture all the dynamics of the effects of QE.Steve Williamsonhttps://www.blogger.com/profile/16629774961390533020noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-22526541944490403322014-02-03T14:28:22.584-05:002014-02-03T14:28:22.584-05:00Dan, you may not have moved the goal posts. But ma...Dan, you may not have moved the goal posts. But many MMTers were saying when the Abenomics QE program started that it would not amount to anything. It had been tried before, they said, to no avail. I won't mention any names but it is really easy to find prominent MMTers saying this. <br /><br />Implicit in these claims made by MMTers was a recognition that fiscal policy was not going to be a big part of the policy package in 2013. This, in fact, was borne out according to the IMF. They show that the cyclically-adjusted balance budget was practically unchanged in 2013. In other words, the stance of fiscal policy did change. What did significantly change is the monetary regime. Therefore, Abenomics so far <b>does</b>provide a good demonstration of monetary policy. (Actually, it provides a good demonstration of what a permanent change in monetary policy does versus temporary injections.)David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79254585317477870622014-02-03T14:13:41.761-05:002014-02-03T14:13:41.761-05:00No, no. It's not that there is no time frame. ...No, no. It's not that there is no time frame. It's a matter of what the mechanism is.<br /><br />"So now the Abenomics evidence is showing that QE is not deflationary in the short run;"<br /><br />That's not correct. We know the Bank of Japan has been doing QE. We know the inflation rate has gone up in Japan. That's pretty slim "evidence." I thought you claimed to be a scientist.Steve Williamsonhttps://www.blogger.com/profile/16629774961390533020noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-44791269677717853682014-02-03T14:10:58.874-05:002014-02-03T14:10:58.874-05:00Noah,
I would point out that whether or not Abeno...Noah,<br /><br />I would point out that whether or not Abenomics causes Japan to grow faster is almost irrelevant. Why do I say this? Remember that the whole reason we're interested in Abenomics in the first place is because we're trying to answer the question of whether monetary policy still "works" at the zero bound, meaning boosts inflation or NGDP or pick your favorite nominal variable. Now, whether that boost in demand goes on to boost real GDP growth and employment is a perfectly fine test of demand-side business cycle theory, but that's equally true of Japan as it is true of the rest of the developed world prior to '08. Japan in particular interests us because they have been operating at the zero bound for so long and appear to have had a genuine regime shift.Dan Snoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62270170635242542014-02-03T13:02:01.288-05:002014-02-03T13:02:01.288-05:00If you start with the conclusion that QE is bad, i...If you start with the conclusion that QE is bad, it's damn near certain you'll be able to find some kind of reason to support your conclusion!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59698959272682217812014-02-03T13:01:42.524-05:002014-02-03T13:01:42.524-05:00Noah Smith: "So now the Abenomics evidence is...Noah Smith: "So now the Abenomics evidence is showing that QE is not deflationary in the short run; the long run remains to be seen, though of course it will be much harder to tease out the effect."<br /><br />Scott Sumner: "In fact, in all of world history no fiat money central bank has ever tried to inflate and failed. Elite economists glance at the WSJ or NYT, see something about the BOJ doing QE and having trouble getting out of deflation, and murmur to themselves; “someone really needs to model that.”<br /><br />Are Smith and Williamson "mysterians" when it comes to inflation? Is it not obvious to people yet that when a Central Bank wants to inflate, and commits to it, it just do it? No big mystery here.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79927524263588336192014-02-03T12:38:39.861-05:002014-02-03T12:38:39.861-05:00Noah says: "Monetary policy skeptics will dou...Noah says: "Monetary policy skeptics will doubtless still find no end of reasons to denigrate Abenomics, but so far their warnings have not been borne out."<br /><br />Hmmm Are you following the turmoil in the emerging markets at all? <br />QE doesn't need critics to "denigrate" it. It does a fine job by itself. Mike Whitneyhttps://www.blogger.com/profile/08822460885055606579noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-63334781368040819632014-02-03T12:34:14.778-05:002014-02-03T12:34:14.778-05:00It's a model which doesn't have any of the...<i>It's a model which doesn't have any of the short run mechanisms in it</i><br /><br />To say that this makes it a model only of the long run seems a little off to me. More accurately, it seems like the model just doesn't give a time frame. So now the Abenomics evidence is showing that QE is not deflationary in the short run; the long run remains to be seen, though of course it will be much harder to tease out the effect.<br /><br />But unless you explicitly put a time frame in your model, I don't think you get to tack one on at the end with words!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34006122638610901602014-02-03T12:33:47.577-05:002014-02-03T12:33:47.577-05:00Williamson: "If we say that QE matters, we...Williamson: "If we say that QE matters, we're saying that the maturity structure of the outstanding consolidated government debt (central bank and federal government consolidated) matters."<br /><br />Or maybe -- just maybe -- we're saying that the intentions and signals emitted by the monetary authority matters... A lot. More than fiscal policy shenanigans... In Japan, at least... And America, maybe.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-36852854218228430192014-02-03T12:31:32.968-05:002014-02-03T12:31:32.968-05:00Thanks, Jun!Thanks, Jun!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73099961680613405262014-02-03T12:28:50.216-05:002014-02-03T12:28:50.216-05:00"In the Long Run we are all........" Ye..."In the Long Run we are all........" Yeah I know, I know, I know you know. Som Dasguptahttps://www.blogger.com/profile/11848089230329819807noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86419682708973282202014-02-03T12:10:14.016-05:002014-02-03T12:10:14.016-05:00"In fact, 10 trillion yen (2.1% of the GDP) f..."In fact, 10 trillion yen (2.1% of the GDP) fiscal expansion mainly through public works under the supplemental budget in FY2013 has been playing the major role in boosting the economic recovery under the Abenomics."<br /><br />In my opinion the most objective way of measuring fiscal policy stance is the change in the general government cyclically adjusted balance, particularly the cyclically adjusted primary balance (CAPB). The cyclically adjusted balance takes into account any changes in the general government budget balance due to the business cycle. Thus changes in the cyclically adjusted balance are mostly due to discretionary fiscal policy, and consequently may be taken as a proxy for the degree of fiscal stimulus. The CAPB goes a step further, factoring out changes in net interest on government debt and thus ensuring that practically all of the changes in fiscal balance are discretionary in nature. The best place to find CAPB data is the IMF Fiscal Monitor. You can find the CAPB on the bottom half of Table 2 on page 70:<br /><br /> http://www.imf.org/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf<br /><br />Japan's CAPB is estimated to be (-7.7%), (-8.4%), (-8.5%) and (-6.0%) of potential GDP in calendar years 2012-15 respectively. Thus the change in CAPB is (-0.7%), (-0.1%) and (+2.5%) of potential GDP in calendar years 2013-15 respectively. In other words fiscal policy is estimated to have been mildly expansionary in 2013, to be largely balanced in 2014, and to be significantly contractionary in 2015. <br /><br />How has the 10.3 trillion yen, or about 2.1% of GDP, FY 2013 fiscal stimulus affected this result? <br /><br />For the sake of tractability let's assume the additional spending under the fiscal stimulus is evenly distributed throughout FY 2013. Given Japanese fiscal years start on April 1, this implies that in the absence of the fiscal stimulus Japan's CAPB would have been roughly (-6.9%) and (-8.0%) in calendar years 2013 and 2014 respectively. Thus the CAPB would have changed by (+0.8%), (-1.1%) and (+2.0%) of potential GDP in calendar years 2013-15 respectively without the fiscal stimulus.<br /><br />In other words, in the absence of fiscal stimulus, fiscal policy would have been mildly contractionary in 2013, mildly expansionary in 2014, and significantly contractionary in 2015. The effect of the fiscal stimulus therefore seems to have been to shift fiscal policy stance from mildly contractionary to mildly expansionary in 2013, mostly at the expense of shifting fiscal policy stance from mildly expansionary to balanced in 2014.<br /><br />In short, as I hope this simple analysis makes clear, I'm not sure it's at all fair to describe fiscal policy as "playing the major role in boosting the economic recovery under the Abenomics".Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.com