tag:blogger.com,1999:blog-5713178645208582139.post7304515838908802488..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Solving the ZLB Problem without Eliminating CashDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-5713178645208582139.post-1156098562630993202015-01-09T10:18:15.457-06:002015-01-09T10:18:15.457-06:00This analysis requires a reconciliation of the fac...This analysis requires a reconciliation of the factors that contributed to money stock growth. You have to separate Reserve bank credit from commercial bank credit, etc. E.g., you have to back out the cash drain factor, increase in bank capital accounts, change in the composition of the CBs assets, etc.Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-14118651663312780552015-01-09T08:45:12.567-06:002015-01-09T08:45:12.567-06:00The problem is remunerating excess reserve balance...The problem is remunerating excess reserve balances - IBDDs, during OMOs. Always, between 1942 and 2008 (i.e., before the payment of interest on reserves), the commercial banks, lacking bankable opportunities, bought short-term gov'ts from the non-bank public (thereby expanding the money stock), pending a more profitable disposition of their legal lending capacity (i.e., the CBs invested Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-21114981949282489092015-01-07T08:46:47.804-06:002015-01-07T08:46:47.804-06:00I agree with Ken Duda. I actually wonder if not on...I agree with Ken Duda. I actually wonder if not only should QE be permanent, but continually--the Fed commits to $40 billion of monthly QE for the duration of subpar growth....Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-51813643127608697652015-01-06T00:55:40.984-06:002015-01-06T00:55:40.984-06:00Bill and David, thanks for taking the time to repl...Bill and David, thanks for taking the time to reply.<br /><br />I hope we can push the Fed towards NGDPLT even if we begin to escape the ZLB. It's just better, even when not at the ZLB. For example, suppose there is a negative supply shock and a commodity price spike, eventually causing prices generally to rise. One way or another, real wages must fall because there's less supply. Kenneth Dudahttps://www.blogger.com/profile/10593455504357461005noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-9538495652636846852015-01-06T00:25:36.898-06:002015-01-06T00:25:36.898-06:00The zero bound is a intellectual creation, not nec...The zero bound is a intellectual creation, not necessarily one that is rational. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-77584287911338156802015-01-05T18:51:20.497-06:002015-01-05T18:51:20.497-06:00Bill Woolsey
The issue of capital losses by the m...Bill Woolsey<br /><br />The issue of capital losses by the money issuer shouldn't exist in a fiat money system. The issuer can simply recognize money as a form of equity instead of a liability. <br /><br />If the central bank conducts heli drops of central bank issued emoney then no government ownership of assets problem will exist either. It will also have capacity to independently conduct CMAhttp://cmamonetary.orgnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-53914987953700856842015-01-05T10:22:07.740-06:002015-01-05T10:22:07.740-06:00This “problem” and the types of solutions availabl...This “problem” and the types of solutions available is actually a transformation of something that already exists for banks at the zero bound without negative interest rates.<br /><br />The monetarist prescription (simplified) as I understand it is that the Fed should have done more QE or better yet should have committed to permanent QE. This presumably is hinged to belief in the hot potato.<br /JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-4048617427217241562015-01-05T08:19:41.652-06:002015-01-05T08:19:41.652-06:00JKH, if I understand you correctly I think we agre...JKH, if I understand you correctly I think we agree. I was just working with the scenarios Cochrane gave as if they actually happened. But I suspect they wouldn't as you argue. If so, that means the issuer of liabilities are just passing the negative interest rate problem (and thus the hot potato) back to their customers. For example, retails stores might start charging their customers a feeDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-60390938407628279562015-01-05T08:11:19.329-06:002015-01-05T08:11:19.329-06:00Ken, yes, a NGDPLT should generally prevent the ZL...Ken, yes, a NGDPLT should generally prevent the ZLB from occurring and that is my preferred approach. And I agree it would be a much easier to sell the idea to the public. Bill Woosley makes some good comments on this above.<br /><br />Also, given the signs of recovery in the U.S. economy, I believe the ZLB is a fading issue for us. So this is an academic debate here, but in Europe this is still David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-65494819500244830192015-01-05T06:39:52.473-06:002015-01-05T06:39:52.473-06:00There are two issues.
A nominal GDP level targ...There are two issues. <br /><br />A nominal GDP level target would be less likely to have problems with the zero nominal bound. It shares that characteristic with a price level target.<br /><br />However, that the probability is not reduced to zero.<br /><br />Suppose we had a nominal GDP level target, nominal GDP was on target, and a large decrease in credit demand resulted in market Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-48361525723695022462015-01-05T06:19:55.994-06:002015-01-05T06:19:55.994-06:00M can be kept constant (or increased) by ordinary ...M can be kept constant (or increased) by ordinary open market purchases.<br /><br />Consider a situation where interest rates on money are positive. A lower interest rate on money reduces the demand to hold money and raise V. But does that mean that M rises less than it otherwise would because less money is being credit to checking accounts as interest? Only if you assume that the only way Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-26392409408634024152015-01-05T04:24:30.346-06:002015-01-05T04:24:30.346-06:00MV=PY
Negative interest rates reduce M, increase...MV=PY <br /><br />Negative interest rates reduce M, increase V, leaving PY unchanged.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-63424530808933004902015-01-05T00:58:20.490-06:002015-01-05T00:58:20.490-06:00I think its questionable to assume that these vari...I think its questionable to assume that these various issuers of zero interest liabilities will not respond with some form of proactive liability management - instead of passively allowing themselves to be stuffed with funds they can only invest at a negative spread. Banks for example factor mortgage prepayment risk into their pricing (and charge prepayment penalties for it at least in Canada), JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-70718540764882646272015-01-05T00:30:32.778-06:002015-01-05T00:30:32.778-06:00David, I agree with everything you wrote from a te...David, I agree with everything you wrote from a technical viewpoint. However I have trouble with the implication of this argument. Is it actually desirable to do all of the things needed to enable negative nominal rates (eliminate currency or introduce the crawling peg)? When there's a better alternative, namely NGDPLT? <br /><br />After all, the other way to gain traction at the ZLB is Kenneth Dudahttps://www.blogger.com/profile/10593455504357461005noreply@blogger.com