tag:blogger.com,1999:blog-5713178645208582139.post3529508326158668252..comments2024-03-17T03:26:42.785-05:00Comments on Macro Musings Blog: Safe Assets, Money, and the Output GapDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5713178645208582139.post-91417210971052713452012-07-26T14:10:59.196-05:002012-07-26T14:10:59.196-05:00Greg,yes, some of the safe asset creation during t...Greg,yes, some of the safe asset creation during the boom was not warranted by the fundamentals. But a large portion of safe asset collapse during the bust does not seem warranted to me either. For example, Gary Gorton shows in his work that subprime mortgages were only a small portion of all MBS and CDOs during the panic. Another example is France during the current Eurozone crisis: it was David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-70555878427233662992012-07-26T14:03:21.888-05:002012-07-26T14:03:21.888-05:00John, yes there is a notable change in trend after...John, yes there is a notable change in trend after 2009. Most of it does reflect the CBO's downward revision on potential output (which would by implication also lower its potential NGDP). I suspect that some of the decline in potential output can be traced to cyclical factors and thus can be reversed. So if anything, the 7% number I cited is a conservative one.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-72889185617047450322012-07-26T13:58:19.434-05:002012-07-26T13:58:19.434-05:00dwb, glad to be back at it.
Yes, you are right. ...dwb, glad to be back at it.<br /><br />Yes, you are right. But I think the key is getting expectations right. If the public expects the Fed to pull out and eliminate the increased monetary base at a later date, then they won't be seen as a permanent addition to the stock of safe assets. And without a permanent increase the public will not expect a permanently higher level of nominal David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-44094985332976786942012-07-26T12:11:42.857-05:002012-07-26T12:11:42.857-05:00David writes,
"this decline in the stock of ...David writes,<br /><br />"this decline in the stock of money assets implies an unsatisfied demand for money"<br /><br />You seem to be missing the other side of any supply and demand story -- the shifting COST of the supply side.<br /><br />The cost of the supply side of asset or shadow money during the boom was falsely priced, falsely perceived, and artificially lowered by all sorts ofGreg Ransomnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-75140273421938942162012-07-26T12:00:11.650-05:002012-07-26T12:00:11.650-05:00David writes,
"Our expanded understanding w...David writes, <br /><br />"Our expanded understanding what constitutes money."<br /><br />Actually, this is NOT a new understanding of what constitutes money. It's an old one, straight out of Hayek's _Prices and Production_, as noted by a team of Credit Suisse economists in 2009:<br /><br />http://hayekcenter.org/?p=2954Greg Ransomhttp://hayekcenter.orgnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-12762235313669218012012-07-26T11:44:48.727-05:002012-07-26T11:44:48.727-05:00David,
In your first graph what accounts for the ...David,<br /><br />In your first graph what accounts for the trend change in the "M4 Divisia Needed for..." line that starts at the beginning of 2009? It seems like this would be the equivalent of the CBO marking down potential output but did anyone do such a thing at that point in the recession? Is it an effect of using the HP filter?<br /><br />-JFLJohn Lozowskihttps://www.blogger.com/profile/13529120545837881963noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-27182909709436475322012-07-26T07:18:52.143-05:002012-07-26T07:18:52.143-05:00Glad you are back.
Doesn't QE basically add t...Glad you are back.<br /><br />Doesn't QE basically add to safe assets by adding interest bearing bank reserves which are generally less risky than MBS or long duration treasuries?dwbhttps://www.blogger.com/profile/02799793864068767226noreply@blogger.com