tag:blogger.com,1999:blog-5713178645208582139.post3453628606644312768..comments2024-03-17T03:26:42.785-05:00Comments on Macro Musings Blog: The Train Has Already Left the Station: A Reply to Paul KrugmanDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-5713178645208582139.post-81529817284929044072013-02-08T23:21:04.110-06:002013-02-08T23:21:04.110-06:00David,
"Maybe these are not his exact words,...David,<br /><br />"Maybe these are not his exact words, but this is impression you get from his article and blog posts."<br /><br />Not my impression. Those are your impressions, and I think they are skewed by forcing his words through your MM framework rather than looking for what he really means. From my, generally NK, perspective most of what he says seems quite defensible (even if IKhttps://www.blogger.com/profile/09226058602565040485noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-5232201304195356212013-02-08T16:55:12.833-06:002013-02-08T16:55:12.833-06:00David,
"... impression that it would permanen...David,<br />"... impression that it would permanently go up..."<br /><br />If the Fed doesn't have to set the base at an initial optimal level, then it doesn't matter whether the base shrinks or expands to hit an NGDP target. Why mention the base at all? I think this is what K is saying below as well.Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-7669525545242720512013-02-08T15:38:42.817-06:002013-02-08T15:38:42.817-06:00Diego, I don't see why it would have to announ...Diego, I don't see why it would have to announce exactly how much of the base would need to be permanent. FDR didn't, but he did create the impression that it would permanently go up enough to restore some of the decline in the price level. That is how I see it working.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-47157529436921600282013-02-08T15:35:07.865-06:002013-02-08T15:35:07.865-06:00K,
"With the Fed going all out at the ZLB, N...K, <br />"With the Fed going all out at the ZLB, NGDP growth happens to come out coincidentally flat. There is nothing special about flat NGDP growth"<br /><br />I disagree. The Great Moderation was a period of relatively flat NGDP growth and many observers chalk it up to successful monetary policy. To the extent the Fed did play a role in this development (and I think it did), it David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-13715322234674942422013-02-08T15:33:57.596-06:002013-02-08T15:33:57.596-06:00David,
Even under NGDP targeting, the Fed would st...David,<br />Even under NGDP targeting, the Fed would still need to pre-announce how much of the base is permanent in order for "permanence of the base" to affect expectations. <br /><br />How can the Fed determine beforehand what the optimal level is for a "permanent" base? It seems to me that it either too low or too high would be quite risky. For instance, too low and Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-75284778787681183902013-02-08T14:38:59.663-06:002013-02-08T14:38:59.663-06:00"the Fed is keeping NGDP growth relatively st..."the Fed is keeping NGDP growth relatively stable. That is a remarkable accomplishment."<br /><br />With the Fed going all out at the ZLB, NGDP growth happens to come out coincidentally flat. There is nothing special about flat NGDP growth and it certainly doesn't mean NGDP growth wouldn't have been higher with more fiscal stimulus. Or lower. Flat NGDP growth isn't evidence Khttps://www.blogger.com/profile/09226058602565040485noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-50313107351081788322013-02-08T13:53:57.345-06:002013-02-08T13:53:57.345-06:00I do understand that you are not playing a denomin...I do understand that you are not playing a denominator game. But without it, the picture is not quite the same.<br /><br />And - ok - let's look at GDP FRED series GDPC1 - this is NGDP -right? Again, YoY % change.<br /><br />http://research.stlouisfed.org/fred2/graph/?g=fnR<br /><br />Not a precipitous decline, to be sure, but the downward slope is undeniable - actually all the way back to Jazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-7165368335374507842013-02-08T13:09:12.507-06:002013-02-08T13:09:12.507-06:00Jazzbumpa, the denominator is not meant to be tric...Jazzbumpa, the denominator is not meant to be tricky but to show the declining contribution to overall aggregate demand (i.e. NGDP) coming from government expenditures. Whether one shows it absolute dollars or scaled as I do, it has been declining since 2010. Yes, it hasn't be a large drop but by Krugman's own definition it should have led to a slowdown in NGDP growth. That has not David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-70642884014293934532013-02-08T13:05:06.913-06:002013-02-08T13:05:06.913-06:00Diego, good questions. Clearly, we don't want ...Diego, good questions. Clearly, we don't want all of the monetary base increase to be permanent since that would be disastrous. So what we want is just enough to satiate excess money demand and get nominal spending at on an appropriate path. How much that is is impossible to know. That is why a NGDP level target is important-you don't have to know, just aim the for the target and let the David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-26173235693912623442013-02-08T12:59:10.791-06:002013-02-08T12:59:10.791-06:00K, art is in the eye of the beholder, no? :) Serio...K, art is in the eye of the beholder, no? :) Seriously, note the figure shows the growth rate of NGDP, not the level. In level form, it increasing at a steady pace as it did before the crisis. (http://research.stlouisfed.org/fred2/graph/?g=fnH) It is not at level it should be, but its rate of growth is similar to its pre-crisis rate. And this is despite the pullback in government expenditures. <David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-43880719766933395402013-02-08T12:31:26.867-06:002013-02-08T12:31:26.867-06:00Sorry, but there are several things wrong with you...Sorry, but there are several things wrong with your analysis. First off, "cataclysmic" is your word, not Krugman's. It would really be refreshing to see somebody do a KRUGMAN IS WRONG post without injecting some sort of a straw man.<br /><br />Second is your willful disdain for nuance. Growth and austerity are relative terms, not a full-on full-off absolute binary pair. You Jazzbumpahttps://www.blogger.com/profile/07337490817307473659noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-71327627189187612022013-02-08T12:13:32.376-06:002013-02-08T12:13:32.376-06:00David,
Permanence raises some interesting question...David,<br />Permanence raises some interesting questions in terms of the mechanics of policy:<br /><br />-If the Fed declared the current reserve level permanent, how would it raise the FFR in the future? <br /><br />-If it only declared part of reserves permanent, how large should that permanent portion be? Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-81647360159236286312013-02-08T11:58:50.693-06:002013-02-08T11:58:50.693-06:00David,
It's incredible how two people can loo...David,<br /><br />It's incredible how two people can look at the same graph and not at all see the same thing. What *I* see is rapidly recovering NGDP right up until your dotted line when it's suddenly cut short by fiscal retrenchment. Just goes to show you that you can't prove much with pretty pictures (also applies to Krugman). Robust conclusions demand robust econometrics. <br /><Khttps://www.blogger.com/profile/09226058602565040485noreply@blogger.com