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Wednesday, June 13, 2018

Optimal Monetary Policy For cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Masses: cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 James Bullard and Larry Summers View

James Bullard and Ricardo DiCecio have a new paper where cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y model wealth, income, and consumption inequality.  They also incorporate fixed-price nominal debt contracts.  They cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n derive cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 optimal monetary policy for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 masses in such a model. Here is what cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y find:



This paper builds upon cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 risk-sharing view of NGDP targeting. The basic idea is that in a world of fixed-price nominal debt contracts (i.e. cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 real world), a NGDP level target provides better risk sharing among creditors and debtors against economic shocks than does a price stability target.  

This is because a NGDP level target makes inflation countercyclical. During recessions, inflation rises and causes creditors to bear some of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 unexpected pain by lowering cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 real debt payments cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y receive from debtors. During booms, inflation falls and allows creditors to share in some of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 unexpected gain by increasing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 real debt payments cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y receive from debtors. Debtors, in ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r words, bear less risk during recessions but also share unexpected gains during expansions. 

NGDP level targeting, in ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r words, causes a fixed-price nominal debt world to look and feel a lot like an equity-world. In a similar spirit, some observers have called for a risk-sharing mortgages as a way to avoid anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r Great Recession. The point of this paper is that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same benefit that such risk-sharing mortgages would bring can be had by having a central bank target cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 growth path of NGDP.

Larry Summers is also worried about cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 masses and is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365refore rethinking cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed's 2 percent inflation target
My conclusion, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365refore, is that in our current framework cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy is singularly brittle. We do not have a basis for assuming that monetary policy will be able, as rapidly as necessary, to lift us out of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 next recession. This has a substantial cost likely in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 range of at least $1 trillion over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 next decade. This suggests cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 suboptimality of our current monetary policy framework... 
If I had to choose one framework today, I would choose a nominal GDP target of 5 to 6 percent. And I would make that choice for two reasons. First, it would attenuate cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 issues around explicitly announcing a higher inflation target, which I think are a little bit problematic on political economy grounds. Second, a nominal GDP target has an additional advantage in its implicit response to changing conditions. Arithmetically a nominal GDP target has cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 property that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 expected rate of inflation rises as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 expected real growth in GDP declines. This is desirable. If growth in underlying real GDP declines, neutral real interest rates are likely to decline as well. In this case allowing higher inflation to make possible even more negative real rates reduces cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 risk of policy impotence.
Sounds good to me, but are cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365re any real world examples of NGDP level targeting? Probably cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 best example of a country following something like a NGDP level target has been Israel over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 past decade. The Bank of Israel officially targets an inflation range of 1-3 percent, but in practice has made inflation so countercyclical that effectively it has been doing a NGDP level target. The figure below shows this countercyclical nature using cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 GDP deflator:


Note that both inflation overshooting and undershooting have been tolerated. The GDP deflator has been as hight as 6 percent and almost as low as 1 percent. Overall, its inflation rate has averaged about 2 percent, right in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 center of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 1-3 percent target range. So this approach provides both a nominal anchor and short-run inflation flexibility for Israel.  

As consequence of making Israeli inflation countercyclical, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 growth path of NGDP has been kept stable: 


This is what monetary policy for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 masses looks like!

12 comments:

  1. Dear Prefessor David Beckworth,

    Amazing!

    Let me learn more about how Israel has been performing very well under cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 NGDP targetting.
    Many thanks,

    Tomo
    An ex-World Bank Economist

    ReplyDelete
    Replies
    1. Tomo, as I mentioned in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 post, Israel is not explicitly doing NGDP targeting. Racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r, its actions are consistent with NGDP targeting.

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  2. Larry Summers says target NGDPLT at 6% annual growth.

    I have been saying that since 2008!

    Kudos to me!

    ReplyDelete
  3. David,

    Many thanks for your quick response.

    Understood.

    Incidentally, how do you assess cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 recent FOMC action, particularly in light of NGDP targeting policy?

    It seems to me FRB is far behind cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 curve, since US real GDP appears to be growing at close to 5% during Q2 2018 according to GDP Nowcast. The US nominal GDP is presumably ruuning at around 6-7% in 2018, while cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 US policy interest rate has been just raised to no more than 2%.

    US NGDP level targeting policy appears to me to suggest cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 similar story above.

    In fact, just now, I am disapponted to have observed that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 BOJ did not change its monetary policy at all in its statement issued this morning.

    In my view, all central banks including FRB are failing to recognize cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 need to monitar developments of nominal gdp of each economy, or significance of NGDP (level) targeting policy.


    Sincerly yours,

    Tomo


    ReplyDelete
  4. Beckworth has interviewed both Scott Sumner and Roger Farmer about combining NGDP targeting with an NGDP futures market and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 commitment of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Fed to buy or sell debt instruments (Sumner) and/or equities (Farmer) if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 futures market is below or above cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 target. Larry Summers' view of NGDP targeting slowly evolved over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 past few years, going from mild statements of approval to his written endorsement. To his credit, Beckworth has given Sumner and Farmer a platform to both educate ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rs and promote cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 concepts.

    ReplyDelete
  5. Very good but cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 model is too simple to accommodate cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 need for an optimal amount of inflation (cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 amount needed to mitigate price stickiness). And if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 amount of stickiness changes over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 business cycle, one still needs a "dual mandate."

    And unless cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 monetary regime actually eliminates changes in real interest rates and fluctuations in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 difference between aggregated resource demand and resource supply (unemployment of some resources) a government following an invariant NPV rule for expenditures will still carry out what looks like countercyclical fiscal policy.

    Conclusion: we still need active monetary and fiscal policy, even if we agree that a monetary of targeting NGDP at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 pre-recession rate would have been vastly better than cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ineffective fiscal policy and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 inactive mal-active monetary policy that we in fact got.

    ReplyDelete
  6. Frank IannarilliJune 15, 2018 at 5:21 PM

    How to reach NGDP of 6% in face of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "savings glut"? More QE just means more asset inflation. Real helicopter $ (not just a channel through cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 banks) appears unavoidable.

    ReplyDelete
    Replies
    1. A helicopter drop-linked NGDP target!

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    ReplyDelete
  8. David, what is missing here is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 counterfactual: What would RGDP have looked like absent NGDP targeting? We can't just presume that because NGDP evolves in a stable manner that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 path (or volatility) of RGDP is optimal (or better, in some sense, relative to what it ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365rwise may have been).

    ReplyDelete
  9. I am not a conspiracy cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365orist, but I can't look at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 stability of Israel's NGDP in that chart and believe it is real unless 1) luck, 2) omniscient and omnipotent central bank, or 3) some quirk in how cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y measure things. Does one really think that a central bank can manage a 4+% decline in RGDP (~2012) to be almost perfectly offset by a ~5% increase in inflation? Shouldn't we be expecting some lags here? I say call an Israeli economist before betting cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 farm on it.

    ReplyDelete
    Replies
    1. This data seems to match cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 RGDP and GDP Deflator data, but cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 NGDP growth reported in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same site looks much more volatile. It is hard to guess growth rates in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 NGDP level graph.

      https://www.ceicdata.com/en/indicator/israel/gdp-deflator-growth
      https://www.ceicdata.com/en/indicator/israel/real-gdp-growth
      https://www.ceicdata.com/en/indicator/israel/nominal-gdp-growth

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