Here are some some macro musings for the weekend. I hope to revisit them in more detail later.
(1) More safe asset discussion. Arpit Gupta replies to my reply on his critique of my post on the importance of safe assets. My view (summarized well by Matthew Yglesias) is that safe assets matter to the extent they act as transaction assets (or money) in the modern banking system and that they are currently in short supply. Rebecca Wilder weighs in on how to properly define a safe asset and Tyler Cowen says maybe the safe assets problem explains the large stock of excess reserves in the United States.
(2) Caroline Baum does a take down of the Fed's new policy of providing long-term forecasts of its target federal funds rates. Meanwhile, Stephen Williamson says sometimes more information is not always better and that this new policy may simply add more confusion.
(3) Marcus Nunes responds to Scott Sumner's claim that the there is no German bias to the ECB. I agree with Marcus for reasons laid out here, here, and here.
(4) Izabella Kaminska has lost all hope in central banking, claiming that the monetary policy transmission mechanism is frozen up in Europe and that central bankers are having an existential crisis. This article in The Economist lends support to her view. I think these worries are all wrong. Similar problems existed during the Great Depression and yet monetary policy was able to spark a robust recovery in 1933 that lasted until 1936 (it was unfortunately cut short by misguided policies). The monetary stimulus was not dependent on a bank lending channel, but instead relied on the FDR signalling and then doing a quantitative easing program guided by an explicit price level target. Today, both the Fed and the ECB could do the same by adopting a nominal GDP level target. Here is how it would work and here are responses to objections to nominal GDP level targeting.
(5) John Chapman notes that despite the Fed claiming it intends to keep the stock of mortgage back securities (MBS) stable by reinvesting earnings, its stock of MBS is actually declining and causing a steady decline in the monetary base. Is this the Fed doing a stealth tightening?
I have concluded there are two kinds of monetarists. There are Market Monetarists and Theo-Monetarists.
ReplyDeleteMarket Monetarists believe in transparency and clarity in central bank policies and actions. The central bank will public identify a NGDP target, and say what tools it will keep in place or employ until the NGDP targets are met. In brief, the central bank bluntly identifies goal and methods, and indicates iron resolve.
Theo-Monetarists believe in an oblique central bank, that identifies no targets, or perhaps only squishy inflation targets. Methods are not discussed, and resolve is lost amid murk and mysticism. There may be genuflecting to gold, and worship of paper currency as a store of value.
All monetarists who are not Market Monetarists are essentially Theo-Monetarists, whatever branch of Theo-Monetarism they belong to.