I started this blog back in 2008. What a ride it's been! Thanks to all who took the time to interact with me -- I profited greatly from the experience. And while this is the end of my Macromania blog, I'll continue my scribblings at Substack. I hope to see you there. https://davidandolfatto.substack.com/ Thank you!
How will Trumponomics work out? This is a question that many people are asking, including Olivier Blanchard (see here ). Blanchard focusses on three broad policy characteristics of Trumponomics: tariffs, tax cuts, and mass deportations of illegal immigrants. His analysis is based on "textbook macroeconomic principles." His conclusion is that the president-elect will be disappointed with the…
I haven't had much time to blog lately, but I thought I'd weigh in on an interesting discussion I see brewing in Twitterland. The macroeconomic backdrop of the story is how the U.S. economy grew so rapidly in 2023 in the face of a dramatic increase in the Fed's policy rate. Over the period March 19, 2022 - July 27, 2023, the IORB rose from 0.40% to 5.40% and has remained there ever since. In 2023,…
I haven't had time to do much blogging lately. But I have been studying the recent burst of inflation and thinking of how to interpret what we're experiencing. As is my way, I decided to write down a little model (a dynamic general equilibrium model) to help organize my thinking on this question. Below, I summarize the interpretation stemming from the model (available on request). Because it's a…
Remember when the Fed's most pressing policy concern was missing their 2% inflation target from below for most of the decade following the financial crisis of 2008-09? The concern never failed to puzzle me in all my time at the St. Louis Fed. I once let out how I really felt: All those years I was expecting low inflation and low interest rates to make the political opposition to ever-higher…
John Cochrane's blog has always been a favorite of mine. It's provocative. It's entertaining. And it invariably leads me to reflect on a variety of notions I have floating around in my head. In his latest piece, he asks an interesting question: How does the Fed come up with its inflation forecast? What sort of model might be embedded in the minds of FOMC members? I like the question and the…
Inflation is back together with a new season of America's favorite sport: zero-contact, finger-pointing. I thought I'd sit back and share a few thoughts with you on the subject on this cold Saturday afternoon. Use the comments section below to let me know what you think. In one corner, I see some pundits somehow wanting to blame the 2021 inflation on workers. Workers are somehow forcing their…
Economists within the Federal Reserve System have been musing about central bank digital currency for a while now. For example, yours truly provided a few thoughts on the possibility way back in 2015 (see here ) and most recently here . But the views of individual Fed researchers are simply our own personal views. What people are really interested in is an official view--namely the view of the…
Remarks prepared for P2PFISY Panel Discussion, December 1, 2021 At a conceptual level, CBDC is a compelling idea. It envisions everyone having an account with the central bank consisting of a direct claim against digital fiat currency that can be used as a safe and efficient form of payment. Since all debiting and crediting of accounts occurs on the central bank’s balance sheet, all the costs and…
A stablecoin (SC) is a financial structure that attempts to peg the value of its liabilities (or a tranched subset of its liabilities) to an object outside its control, like the USD. To do this, the SC must effectively convince its liability holders that SC liabilities can be redeemed on demand (or on short notice) for USD at par (or some fixed exchange rate). The purpose of this structure is to…
I was recently asked whether I'd like to share my thoughts on monetary policy in a post-pandemic world. Sure, why not? Thanks to Jan Eckhout for thinking of me. The panel was hosted by the European Economic Association last month and moderated by Diane Coyle . I was honored to speak alongside Ricardo Reis and Beata Javorcik , both of whom provided riveting presentations. For what it's worth, I…
Am hearing some talk about whether the U.S. labor market can fully recover to its pre-Covid19 levels. Is it possible that a sizeable number of workers with marginal attachment to the workforce decide to remain out of the labor force? For example, this crisis, unlike the one that preceded it, has been associated with large increases in personal wealth. Workers on the cusp of retiring may now choose…
My former colleague Howard Wall asked me to join Lawrence White yesterday evening to discuss the role and future of cryptocurrencies at an event hosted by the Hammond Institute for Free Enterprise. It was a great honor to share the stage with Larry. I've been thinking about cryptocurrencies for a long time; many of my writings and talks on the subject can be found here . My thoughts on the subject…
This post was motivated by a conversation with Eric Lonergan. It began with a simple question: what should be the interest rate paid on reserves? I answered that according to theories I'm familiar with, reserves should earn the "natural" rate of interest, which I defined as the sum of population and productivity growth. So, assuming 2% "real" growth and 2% inflation, reserves (and government debt…
The title of this post alludes to a paper written by Tom Sargent and Neil Wallace 40 years ago " Some Unpleasant Monetarist Arithmetic ." The startling conclusion of this paper is that a central bank (limited to interest rate policy and/or open market operations) does not have unilateral control over the long-run rate of inflation. The result is made all the more powerful by the fact that it…
I've been thinking a bit lately about theories of the business cycle (a lot of time for reflection in these days of COVID-19). At least, the way some of these theories have evolved over my lifetime and from the perspective of my own training in the field. From my (admittedly narrow) perspective as a researcher and advisor at a central bank, the journey beginning c. 1960 seems like it's taken the…
Yesterday, I posted a reply to John Cochrane's Sept 4 post on the national debt. John alerted me to his Sept 6 update, which I somehow missed. Given this update (together with some personal correspondence), let me offer my own update. John begins with an equation describing the flow of government revenue and expenditure. With a debt/GDP ratio of one, the sustainable (primary) deficit/GDP ratio is…
The stock of national debt is now larger than our annual national income in the United States. Is this something to worry about? Does it matter how big the debt-to-GDP ratio gets? Is there any limit to how large it can grow and, if so, what is it this limit and what factors determine it? A lot of people have been asking these questions lately. John Cochrane is the latest to opine on these…
The Fed's much-anticipated new monetary policy framework is now public. Fed Chairman Jerome Powell outlined the policy framework last week in Jackson Hole; you can view his speech here . Overall, I thought Powell's delivery was very good. While there's room for improvement, I think the new framework is a step in the right direction (George Selgin provides a good critique here ). There were three…
There's been a lot of talk about "yield curve control" (YCC) as of late. I found the recent exchange between Joe Weisenthal and David Beckworth (with many others chiming in) very interesting: I normally enjoy Joe's hot takes, but this one... yikes. It is a good example, in my view, of why relying too heavily on the "money view" (i.e.liquidity preference view) of interest rates can cause one to…
I was invited recently to take part on a panel discussion on Modernizing Liquidity Provision as part of a conference hosted jointly by CATO and the Mercatus Center entitled A Fed for Next Time: Ideas for a Crisis-Ready Central Bank . My post today is basically a transcript of the presentation I gave in my session. I'd like to thank George Selgin and David Beckworth for inviting me to speak on why…
Michal Kalecki 1899 - 1970 Sam Levey reminded me of Kalecki's 1943 article on the political aspects of full employment . This a very interesting and thought-provoking paper. I enjoyed it enough to offer my critique of it. The paper starts by taking as given what Kalecki calls the doctrine of full employment . The basic idea is that the private sector, left to its own devices, is prone to Keynesian…
There are a lot of moving parts to the MMT program. I want to focus on one of these parts today: the relation between monetary and fiscal policy. One thing I find appealing about MMT scholars is their attention to monetary history and institutional details. I've learned a lot from them in this regard. But as is often the case with details, one has to worry about whether they help shed light on a…
In case you missed it, there's an interesting (and slightly wonkish) debate going on between Olivier Blanchard and Roger Farmer concerning the theoretical relevance of the Phillips curve. Roger fired the opening salvo by presenting a macroeconomic model he claims fits the data well and yet makes no use of the Phillips curve. Farmer, in Laplace-like fashion, declared "he had no use for that…
There's been much talk about the Phillips curve lately, especially in the wake of Jay Powell's recent testimony before Congress. Many people are proclaiming the death of the Phillips curve. I think that many people making these proclamations are probably wrong--or, more likely--they are correct, but for the wrong reasons. What exactly is being proclaimed dead here? Are people referring to the…