tag:blogger.com,1999:blog-5713178645208582139.post1942962348982579386..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Abenomics as a Fulfillment of Milton Friedman's Policy PrescriptionsDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-5713178645208582139.post-49779786169656597972013-08-06T11:54:47.329-05:002013-08-06T11:54:47.329-05:00This is in response to the above and the comments ...This is in response to the above and the comments you left at Cullen Roche’s site: http://pragcap.com/qe-the-definition-of-insanity.<br /><br />I’m still not clear how the rate on T-bills could rise if IOR stays low in your scenario. I’m also not exactly sure what you mean by “banks will [not] invest all their excess reserves in treasuries as the economy is improving.” I actually think your Jarednoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-51607192906571256382013-08-05T19:41:50.924-05:002013-08-05T19:41:50.924-05:00Jared, I know you don't believe banks will inv...Jared, I know you don't believe banks will invest all their excess reserves in treasuries as the economy is improving, bank loan demand is increasing, and yields are rising. Banks are investors looking to maximize their risk-adjusted returns too. As the economy improves, that means investing in higher-yielding loans. There is a reason the FOMC (and even MMT-types) have said that Fed will needDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-81805577595589668562013-08-04T15:19:49.160-05:002013-08-04T15:19:49.160-05:00I really appreciate you taking the time to address...I really appreciate you taking the time to address my concerns. I'm still confused about one thing in particular though: your claim that $1.8 trillion of reserves won't go very far in a $12 trillion market. We've already agreed that reserves don't leave the system with bank asset purchases; they only get moved around. So even if the banks that currently hold the excess reservesJarednoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-53899360486749193922013-08-03T22:56:38.054-05:002013-08-03T22:56:38.054-05:00Jared,
I agree the IOR has become the defacto FFR...Jared,<br /><br />I agree the IOR has become the defacto FFR, but that need not be the case when the economy recovers. When a recovery happens, interest rates across all assets and the term structure go up in varying degrees. This is because the higher current and expected economic growth will one, increase demand for credit by firms and households and two, decrease saving. In short, the natural David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-68837370641872853462013-08-03T12:05:14.839-05:002013-08-03T12:05:14.839-05:00David, I don't think that's quite right (n...David, I don't think that's quite right (note: even though I talk in terms of the Fed, I think this applies to Japan and the BOJ as well). I thought the point of your original post was that a permanent increase in the monetary base will lead to inflationary expectations because of the recognition that treasuries and money will not always be near perfect substitutes, which will cause moreJarednoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-23253434797494394272013-08-02T10:33:14.811-05:002013-08-02T10:33:14.811-05:00Tomo, I acknowledged fiscal policy in footnote two...Tomo, I acknowledged fiscal policy in footnote two. However, as Mark notes in a comment below fiscal policy has been only a small part of the stimulus as measured by the cyclical-adjusted or structural government budget balance. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-82744249867453663852013-08-02T10:30:09.144-05:002013-08-02T10:30:09.144-05:00Mark, great stuff. Scott Sumner is right. You need...Mark, great stuff. Scott Sumner is right. You need to be blogging. I plan to do a post using your information above. Thanks!David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-37033806274716331812013-08-02T10:27:35.031-05:002013-08-02T10:27:35.031-05:00Jared, you raise an issue I ignored since I was ta...Jared, you raise an issue I ignored since I was talking about Japan. But still, the permanent expansion of the monetary base point holds with some qualifiers for the Fed.<br /><br />First, treasury rates and the federal funds rate can go up even if IOR does not. Here is how. Imagine a really robust recovery takes hold in the US economy. This will improve the economic outlook and increase the David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-34141717173751543772013-08-01T20:36:32.915-05:002013-08-01T20:36:32.915-05:00FDR era also jacked taxes up as well. FDR era also jacked taxes up as well. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-88537652956077336662013-08-01T19:11:57.733-05:002013-08-01T19:11:57.733-05:00"There is more to Abenomics including some mo..."There is more to Abenomics including some modest fiscal policy stimulus and structural reforms. For now, though, the main part is the new monetary regime."<br /><br />The fiscal stimulus under Abenomics is much smaller than popularly perceived. It is only 10.3 trillion yen or about 2% of GDP. To get a good idea of its actual impact I suggest consulting the IMF Fiscal Monitor. <br /><brMark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-16116534302504884192013-08-01T18:45:01.405-05:002013-08-01T18:45:01.405-05:00"Fiscal policy, though expansionary, was mode..."Fiscal policy, though expansionary, was modest at this time. Thus Romer attributes, correctly in my view, most of the 1933 recovery to the new monetary regime."<br /><br />I recently calculated the the cyclically adjusted general government budget deficits and their changes from E. Cary Brown’s “Fiscal Policy in the “Thirties: A Reappraisal” (American Economic Review, Vol. 46, No. 5, Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-22762484283607402192013-08-01T16:19:09.500-05:002013-08-01T16:19:09.500-05:00David,
You wrote, "even though the monetary ...David,<br /><br />You wrote, "even though the monetary base and treasuries may be near perfect substitutes in a zero lower bound environment, they would not be in the future." But if the monetary base is permanent, that means we will still have trillions of excess reserves in the banking system. And as long as there are excess reserves, the Fed Funds rate and short-term treasuries (Jarednoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-14600537088431878672013-08-01T04:29:41.906-05:002013-08-01T04:29:41.906-05:00Excellent blogging.
Side issue: We keep hearing t...Excellent blogging.<br /><br />Side issue: We keep hearing that the Fed is "very accommodative." Unfortunately, even Market monetarists refer to the fed as being accommodative. <br /><br />But the Fed is just loosening the monetary noose it has around the economy's neck. Remember, inflation is at 1 percent on the PCE. <br /><br />As we see from Japan, low interest rates alone mean Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-8206509017897195752013-08-01T00:47:36.943-05:002013-08-01T00:47:36.943-05:00Thanks for your insights in your blog.
But, it se...Thanks for your insights in your blog.<br /><br />But, it seems to me that Mr. Matt Young is right. As you know, there are three arrows in Abenomics. It is not wise to consider the first arrow (monetary stimulus) alone is causing the better economic performance so far. Clearly, the second arrow (fiscal expansion) is also affecting the economy positively. (The third arrow, the effect of tomo nakamaruhttps://www.blogger.com/profile/12000686910627032505noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-1285095952210931722013-07-31T19:51:42.912-05:002013-07-31T19:51:42.912-05:00A sufficient reason for the success of leaving the...A sufficient reason for the success of leaving the gold standard was the fax machine. Imagine the fed using typewriters today. We would call them luddites, but their policy would be horrible.Matt Younghttps://www.blogger.com/profile/08404998406161097199noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-69686404036335859542013-07-31T18:16:46.601-05:002013-07-31T18:16:46.601-05:00The first key is to verify causation. There is a p...The first key is to verify causation. There is a possibility that monetary and real economy are responding to a third force and gets causation wrong. And yes I read Milts monetary history.Matt Younghttps://www.blogger.com/profile/08404998406161097199noreply@blogger.com