tag:blogger.com,1999:blog-5713178645208582139.post632570796859403866..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Saving Glut SmackdownDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-5713178645208582139.post-51468925773313624882009-07-09T18:58:37.707-05:002009-07-09T18:58:37.707-05:00Oops, that number above should read 60%+ of the wo...Oops, that number above should read 60%+ of the world economy informally or formally links to the dollar according to Rogoff.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-4302463474092418372009-07-09T18:51:27.963-05:002009-07-09T18:51:27.963-05:00Nick:
The article I reference above shows that sh...Nick:<br /><br />The article I reference above shows that short-termU.S. rates only respond to changes in the fed funds rate, not to ECB rates changes. Rates in the Euro area an in Great Britain do, however, respond to fed fund rates. There are other papers I could point to that similarly show the Fed being the leader. When 60+ of the world's economy is informally or formally linked to theDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-82805471675501689782009-07-08T08:19:40.219-05:002009-07-08T08:19:40.219-05:00Thanks JKH, It's weird that Lars Swensson was...Thanks JKH, It's weird that Lars Swensson was a name that appeared very frequently on my blog during the first few months. But I had no idea he was on the Riksbank board until this story broke. I think he also knows Bernanke quite well, which is another interesting angle. (They were colleagues at Princeton.)Scott Sumnerhttps://www.blogger.com/profile/15864819372390187247noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-11081782394529957072009-07-08T07:26:15.619-05:002009-07-08T07:26:15.619-05:00Scott,
That’s a very fair point – i.e. charging i...Scott,<br /><br />That’s a very fair point – i.e. charging interest on reserves now doesn’t preclude paying interest later, so that rate increases can begin before the balance sheet is returned to normal size.<br /><br />BTW, congratulations on the Riksbank move. (It’s as if you were on their policy committee.)JKHnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-21303515059764019192009-07-07T21:39:36.521-05:002009-07-07T21:39:36.521-05:00David, Good post. I have a couple reservations, ...David, Good post. I have a couple reservations, although I have a fairly open mind on the whole savings glut issue.<br /><br />I tend to think the so-called "liquidity effect" is overestimated. I.e we tend to misidentify monetary shocks. I guess this relates to Andy's point about the Fed being fairly successful in stabilizing the price level. To the extent that is true, then Scott Sumnerhttps://www.blogger.com/profile/15864819372390187247noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-28393587591798113462009-07-07T15:43:59.010-05:002009-07-07T15:43:59.010-05:00David: I don't find it any more surprising tha...David: I don't find it any more surprising that US interest rates should cause interest rates in large open economies as well as small open economies. (Though I would be a bit surprised if ECB interest rates did not also Granger cause US interest rates, unless it's just that the ECB is so darned slow to Granger cause anything!) <br /><br />I assumed Canada was very small and the US very Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-36165604301095558622009-07-06T23:34:37.282-05:002009-07-06T23:34:37.282-05:00Nick:
There are a number of studies--I have been ...Nick:<br /><br />There are a number of studies--I have been compilling them--that show short-term interest rates in the U.S. granger cause short-term interest rates elsewhere. This is not surprising for dollar block countries or small open economies (as you mention), but what is surprising is that these findings hold for the Euro area as well. My interpretation of these studies is the story I David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-38126108256177118492009-07-06T23:05:54.208-05:002009-07-06T23:05:54.208-05:00David: On thinking about it some more.
It depends...David: On thinking about it some more.<br /><br />It depends on parameter values. Under PPP, or close to PPP, a US monetary policy that set US interest rates below the natural rate would reduce the Canadian natural rate also. (Since real exchange rate changes needed to keep Canadian inflation on target would be tiny, so we can ignore the effect of expected real depreciation on the Canadian BP Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-20610030417733233202009-07-06T22:30:27.703-05:002009-07-06T22:30:27.703-05:00David: Nope, at least, not yet. I haven't thou...David: Nope, at least, not yet. I haven't thought through how one large country (the US) setting interest rates below the natural rate would affect the natural rate in other countries. You might be right, or might not.<br /><br />OK, let me do it here and now. The world consists of 2 countries: US (very large) and Canada (very small). Assume perfect capital mobility. US shifts LM right, Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-32405217825804638032009-07-06T19:01:50.937-05:002009-07-06T19:01:50.937-05:00Nick:
Can I take your silence on my monetary supe...Nick:<br /><br />Can I take your silence on my monetary superpower claim as an endorsement from you on this point?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29726678851901011112009-07-06T16:15:00.275-05:002009-07-06T16:15:00.275-05:00David: But capital markets are not regional; they ...David: But capital markets are not regional; they are global! Borrowing and lending do not stop at national boundaries, or regional boundaries, any more than they stop at state boundaries.<br /><br />Under perfect capital mobility, there is one world capital market, and one world natural rate of interest. Even under imperfect capital mobility, there is nothing magic about an increase in savings Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-43501029210578442252009-06-29T06:50:28.453-05:002009-06-29T06:50:28.453-05:00David,
No, my assessment of interest on reserves ...David,<br /><br />No, my assessment of interest on reserves remains distant from that of Scott Sumner.<br /><br />But it’s actually not the polar opposite of Scott’s view.<br /><br />I discovered the polar opposite articulated best by Art Laffer on CNBC the other day.<br /><br />The Sumner view has been that the Fed should charge interest on reserves in order to stimulate commercial bank balance JKHnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29903449039451131852009-06-28T20:37:25.370-05:002009-06-28T20:37:25.370-05:00ECB: Thanks for the link. I will bring it along to...ECB: Thanks for the link. I will bring it along to read on my trip to the WEA meetings.<br /><br />JKH: The regional vs. global nature of the saving glut is a tricky issue that I have seen few proponents of the saving glut view carefully address. I agree with you, it is a big problem with the story.<br /><br />BTW, has Scott Sumner changed your mind on the importance of the Fed's interest David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-91959043835123959172009-06-27T23:42:06.256-05:002009-06-27T23:42:06.256-05:00David, your argument seems to ignore the Fed's...David, your argument seems to ignore the Fed's statutory obligation to pursue high employment and price stability (for the US alone). The savings glut theory assumes that the Fed does pursue those objectives, where "price stability" has the conventional interpretation as "low and stable inflation rates." Given that assumption, it is difficult to escape the conclusion Andy Harlesshttps://www.blogger.com/profile/17582263872850949568noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-73493792179757828052009-06-26T05:18:11.317-05:002009-06-26T05:18:11.317-05:00Great, great stuff. My problem with the savings gl...Great, great stuff. My problem with the savings glut argument has been not only the various points you make, but the essential optionality of the subject matter itself. Those who’ve advocated it typically have been ambiguous about whether it’s a regional or global issue. How can they argue a position if they literally don’t know what they’re talking about? Moreover, a number of people (e.g. RoachJKHnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-17651307553833801522009-06-25T19:15:41.187-05:002009-06-25T19:15:41.187-05:00You will like the latest from the Adam Smith insti...You will like the latest from the Adam Smith institute...<br />http://adamsmithslostlegacy.com/2009/06/at-last-great-sense-on-current-crisis.htmlECBnoreply@blogger.com