the big E..my virtually adopted nation state

Simon Wren-Lewis.....mocking his block off ...fair ?

prolly not



read enough posts and u realize
the guy likes diving
 under the surface
      over at the  NK olympic pool

in particular
just a couple days ago
   the june bug macronomist
           came up with this  bag of tainted  pearls  :

"If I had to characterise New Keynesian theory by one thing, it would be the analysis of economies where the real rate of interest ( RIR )

differed from the ‘natural’ real rate. "

definition of natural RIR :

"The natural rate is the real interest rate that would obtain if output was determined by an RBC model "

.

narrative

start with a " ‘wrong’ real interest rate"

 then

" use an  imperfect competition formalism 

voila  "New Keynesian analysis "

which

"determines output and perhaps employment only from the demand side"

ie "the determination of effective demand becomes critical to the model"

 which implies this sound  gadget  NK  rigorously demonstrates in its "world"

"if real interest rates are at their natural level, we do not need to think about demand when calculating output."

" it's  the job of monetary policy to try and get the economy back to this natural real interest rate. "

comes the pull  quote ...the one that puts all  the money

our  NK-niks have

right on the line:

"getting to the natural real rate is " why, ZLB problems apart,

  NK ers say " it is monetary rather than fiscal policy that is the primary stabilising policy. "

" In the New Keynesian model, business cycles are generally an intertemporal mismatch between demand and supply (unless, for some reason, we get stuck with demand deficiency)."

and we often do get so "stuck "

" What is the relevant price that influences this intertemporal allocation of demand?"

 "the real interest rate, not the price or wage level. "

"if we think about New Keynesian economics as being about some price being wrong, that price is the real interest rate."

 .

this all

" suggests why monetary rather than fiscal policy is the policy of choice for stabilisation. "

whereas  in IS-LM 

"...both fiscal and monetary policies look as good as each other ..."

bingo a better yet pull quote

savour that last bit call it hicks  instrument neutrality

now ask why might corporate earth prefer a monetary based macronautics ?

yup.... see kalecki

--------------------------------------------------------

reification alert !

remember regardless which model  you are viewing

"its only a gadget ...its only a gadget "

"Obama obviously suffers from policy delusion (courtesy of Geithner/Summers) "

the macro policy of barry clearly had its origins
in other heads then his own

he's just a simple bi racial constitutional law prof

can't really don't blame him for his ignorance ...can I ?

but his instinct i can
his instinct  to moderate
conflict within the existing party system

in the context of the great recession
with the  opportunity  it presented
  to lift politics
back to the plain we had with the new deal or at least the great society

what he has accomplished
makes him just another corporate water carrier
ie
an ass hole

its banal but brief and sharp so...... i like it

"The only thing an econometrician can  estimate  is a  central bank's forecast errors"
nick rowe

uncle milty's thermostat:

"

The contrast between the periods before and after the middle of the 1980s is

remarkable. Before, it is like a chart of the temperature in a room without a

thermostat in a location with very variable climate; after, it is like the temperature

in the same room but with a reasonably good though not perfect thermostat, and

one that is set to a gradually declining temperature. Sometime around 1985, the Fed

appears to have acquired the thermostat that it had been seeking the whole of its

life."


he likes this choice piece of  product  price change  moderation
the famed great moderation  a tiresome banality
yes the run among north market economies
 1985 till now has featured milder fluxing  and slow changing product  prices
but is that  worth more
then the prior eras faster gains in real output units per unit of real input
and even more obvious wage stag versus wage rise ?
http://www.msjc.edu/DanPynn/Documents/TheFedsThermostat.pdf

grappling with a dedicated voodoo doll

greet
becky beckwetter  and his formula for a dud



"lowering the IOER and adopting a NGDP level target"
just why and how will these moves
---one a voodoo move to boot ! ---
".. incentivize the private production of safe assets"
that will either ".. spark "
"a robust recovery in aggregate demand"
or follow from "a robust recovery in aggregate demand"
lowering the IOER i suspect will lead to no signifigant increase in credit driven spending
and " adopting a NGDP level target "
couldn't "incentivize " anybody to spend anything
let alone
incentivize "the private production of safe assets "

becky's scenario is all hand waves that assume what needs to be demonstrated
"Such an announcement, if credible, would send a loud signal to markets of more monetary stimulus."

" And if done right, this signal would have a huge impact because lowering the IOER is tantamount to saying the Fed is going to permanently increase the monetary base. "
what ?
what can be lowered can also be lifted back up

"A permanent increase in the monetary base implies a permanently higher price level and permanently higher NGDP level down the road."
quantity theory in its most banal form
down the road indeed

"... lowering the IOER would permanently raise expectations of future nominal spending and income."
how ? and why ?
note the bad conscience peeping out thru the qualifying word
"permanently "
now
recall the fudge caveat "if credible"
which combined sez
if it's believed to be permanent

" demand for financial intermediation services would increase today"

" as firms, households, and governments planned for the higher level of NGDP."
talk about model bound nonsense
this reified wonder weapon
expected future nominal gdp
my response
even if its believed
show me
the serious first mover profit bonus here
if there's no big near certain opportunity loss
to wait and see ....
yup
in effect
careful corporate players
would " call "
the fed to show some cards
or at least watch to see if opther outfits jump
as most choose to watch ..no one much jumps
puff ....
busting the fed's play ...no ?
--------------
the rest hangs in the air after this :
" increased demand for credit would raise financial firms' net interest margins"
ya if .... if corporate demand for credit increases
what if the necessary motive isn't there
to borrow more ?
likewise wh issue debt why roduce
more private sourced safe assets
yet another sky hooked outcome

households up borrowings ?
this requires non credit strapped households
to decide based on fed signals
to buy now while bargains remain on the table
i submit
most households with credit don't think like that
study all these clowns crying hyper inflation
they buy gold not cars and washing machines
the rest?
prolly wouldn't react even if the media began crying
in unison
" inflation is coming inflation is coming
run to the mall NOW
while these low low
never to be seen again prices last !!!!"
nope
the households are looking at their job prospects
specifically their pay prospects
how are expectations about these immediately lifted
by the fed reducing IOER ?
and twith the other assumed linked in actions a no go too
indirectly pushed up household spending comes a cropper too..
--------------------------


"Now I do think that the signal from lowering the IOER would be even more effective if it were done in conjunction with the announcement of a NGDP level target."
this announcement reminds me of lyndon laroches announcement a ways back
if elected president he'd put women on mars
"..a destination point for nominal spending and nominal income that would better focus the public's expectations"
not if "the whens " are deemed to be blotto
in other words
not if the ngdp levels aren't widely expected
to be hit ....pretty much on announced schedule

where's the credible when ?
show me the when
cutting IOER to zero ...no actually moving it below zero
penalizing free reserves prolly won't improve the belief in an announced when

play on suckers

straight from the kwak box :


"from 1991 through 2010
 investors in stock mutual funds
earned an annual return of 3.8%
 while
the S&P 500 earned an annual return of 9.1 percent."

noise traders are table meat
the free thinking horde of ass hole innocent  investors ?

" .....tend to buy high and sell low
                              and  
generate transaction fees
                            through excessive trading."

nice double cross

 

 

the first cross is over there  thru the left stage exit

 

but as with anything like this its the second cross that smarts

and that happened in the second half of '10

right about when barry's congo-hill friends

   took the gas pipe attached to the national ballot box

 

------------------------------

 

i guess corporate spending is a kind of celebration

for shrinking state and local gubmint

 

but can they make it stick ?