Does the new interest rate conundrum have you perplexed? Then try this article by Edward Hugh that delves into the debate between Niall Ferguson and Paul Krugman or take a look at this post by Josh Hendrickson where he argues we should be pleased to see the rising bond yields.
Macro Musings Blog
As I turn to my favorite macro text (Hall & Taylor) I read this:
ReplyDelete"Not many reporters are well-versed in IS-LM. That is why we keep reading articles such as this:
A new recession is feared because higher government spending for bailouts is raising interest rates."
Government spending shifts the IS curve out. Higher interest rates are a symptom of higher GDP, not something that causes a decline of GDP." (Hall & Taylor, 1998)
Journalists (and historians) appear to be as ill-educated as ever!!
I found this comment by John Carney interesting:
ReplyDelete"We’ve broken the credit markets. Where once we could learn a lot about investor sentiment and expectations from the credit markets—including the markets for treasuries—the signaling function now is by and large useless. That’s because there are now way too many debt instruments that are the functional equivalent of treasuries"
I'm not sure I agree that Goliath defeated David in this instance, though Edward makes some good points. My instinct tells me to trust "the power of small," the Davids over the Goliaths, and looking at the details rather than the overall picture. As a macro economist, Krugman gets the big picture, but sometimes I think he overlooks the details.
ReplyDelete