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Monetary offset maintains the ‘crowding out’ result.

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Regardless of loanable funds/private banking, you still have the central bank to deal with. Under a slack labour market and excess capacity more deficit spending doesn’t impact inflation, so there is no reason for the CB to raise rates. But, now that the labour market is tightening again, and that the fed has already raised rates, it’s clear the fed isn’t interested in providing extra stimulus (or they wouldn’t have raised rates in the first place). Since the fed targets inflation, additional deficit spending while at or near full employment puts upwards pressure on inflation – this means that sufficiently high level of deficit spending would force the fed to raise rates (assuming it remains on an inflation targeting regime, and it’s not clear why it wouldn’t do so). As a result of this ‘monetary offset’, Krugman is in fact correct to say deficit spending drives up interest rates – unless you can show a flaw in what I’ve just written?

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Posted by Brit
Posted on 01/13/2017 6:50 PM
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The flaw is Krugman is a flaming biased liberal and will use anything and everything he can in his arguments to uphold his ideology, even expropriating ideas of the right-wing for which “crowding out” is surely one (and I noticed this weirdness a few weeks ago and asked about it under ‘”Crowding Out” of the Private Sector’).

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Posted by MachineGhost
Answered on 01/13/2017 7:17 PM
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    Where’s the evidence that “monetary offset” drives up interest rates? Isn’t this what confused Greenspan – the old “conundrum”? He couldn’t get long rates to move up despite raising short rates during a deficit. The theoretical work backs up this idea of “offset”, but the real-world evidence does not.

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    Cullen Roche Posted by Cullen Roche
    Answered on 01/15/2017 2:44 PM
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      Well hold on, was Krugman necessarily talking about long rates? And if it even only causes short rates to rise, isn’t that still significant?

      By the way, here is a good article on the conundrum: https://ftalphaville.ft.com/2015/09/03/2139028/greenspans-bogus-conundrum/

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      Posted by Brit
      Answered on 01/15/2017 7:48 PM
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        What’s the rationale for rising short rates causing an “offset”?

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        Cullen Roche Posted by Cullen Roche
        Answered on 01/15/2017 8:39 PM
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          That’s a very broad question. It’s also semantics, it doesn’t really matter whether you call it an ‘offset’ or not, it’s still the central bank raising interest rates, and they will continue to raise rates until they are confident inflation won’t overshoot the target. If you think the fed can raise its rates to infinity without ever slowing growth/inflation, that’s a separate issue.

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          Posted by Brit
          Answered on 01/16/2017 1:25 PM
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            I’m not saying that the Fed can raise rates to infinity without any impact. But you’re telling me that a few 25 bps increases in rates are “offsetting” any fiscal stimulus. I think it’s important that you be able to explain the mechanism by which this occurs. If we’re theorizing about the flight of a plane and you tell me that putting the flaps down on a plane’s wings will cause it to slow then I’d like you to explain that before we just conclude that the theory sounds right. You aren’t explaining how this works so it’s not very believable. And yes, it is “semantics”. Semantics are what matter most here. The details are very important.

            Personally, I don’t see how raising rates by 25 bps does much of anything. With a large Fed balance sheet the Fed is paying out more of its income to the private sector so this increase private sector net income. How is that bad? If anything, there’s an argument to be made that, as long as banks are earning a decent profit and still lending, that higher short rates are stimulative because they increase non-bank income all else equal.

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            Cullen Roche Posted by Cullen Roche
            Answered on 01/16/2017 2:14 PM
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              Stimulative to the faux financial economy, sure, but not the real economy. The Federal Reserve System is a proprietary closed loop. Do we really care that it now costs .25% more for FRS member banks to borrow from another FRS member bank when they need legally mandated reserves for which they already have way too much anyway? Also, I’m not sure I’d call paying higher IOER as “increasing private sector income” in the same sense we mean the free market, though. Banks are just enablers, not founts of productivity. Financial stocks have been rallying on the FFR increase because their Net Interest Margin will improve (whether from arbitraging Treasuries or actual lending).

              That quantitative easing causes inflation is baloney I suspect also goes for the same thought processes that involves central planning via a central bank in fiddling with the FFR, DR or QE as “manipulating the gears of the economy”. You should write a white paper debunking that theory.

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              Posted by MachineGhost
              Answered on 01/16/2017 2:31 PM
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                That’s not quite right. The Fed system is not fully closed. If the Fed pays 75 bps on IOER then banks will raise their deposit rates by some amount smaller than this. Maybe 65 BPS? The banks will protect their margins, but that doesn’t mean they’ll necessarily earn more. What we definitely know is that the non-bank private sector will earn more than it previously did. So, what you’re really seeing is the Fed earns about 100B per year in income from its balance sheet and raising IOER is essentially a redistribution of some of this income to the Fed back to the private sector. Raising short rates shouldn’t cause an offset at all. It should actually increase private sector income which should induce MORE investment.

                The only kicker here is that the Fed can’t choke the banks unduly. If the Fed raised rates so much that banks were earning a small margin on their deposit margins vs IOER AND they couldn’t pass on higher rates via long loans then they’d be in trouble and we’d get a 2008 style repeat. That’s a real risk, but we’re not remotely close to that playing out yet.

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                Cullen Roche Posted by Cullen Roche
                Answered on 01/16/2017 2:37 PM
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                  I don’t think the banks have been passing on the last two FFR increases yet. I’m still earning only .95%-1.05% on savings. It seems like there’s non-convexity effects or something going on near the lower zero bound.

                  So essentially, you’re saying that “pushing on a string” is a case where there is more IOER being earned by banks than can be earned via Net Interest Margin because an economy lacks aggregate demand for loans? During a crisis, it seems pretty dumb to take bank’s higher-yielding Treasuries away only to give them lower-yielding bank reserves!

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                  Posted by MachineGhost
                  Answered on 01/16/2017 3:09 PM
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                    >But you’re telling me that a few 25 bps increases in rates are “offsetting” any fiscal stimulus.

                    I never said anything about 25 bps. I doubt 25 bps will have any affect at all. The Fed might start with 25 bps, and if that has no affect (and they still fear overshooting), they’ll raise it again, maybe by 50 bps, then 100, 2 percentage points, 3 points etc.. If they’re constantly fearing an overshoot they will keep raising rates *until* it finally has an effect. Of course, institutions might see where this is going in advance, and adjust their expectations accordingly, which has a contractionary effect requiring the fed not to raise rates as high.

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                    Posted by Brit
                    Answered on 01/16/2017 4:34 PM
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                      !…..Since the fed targets inflation, additional deficit spending while at or near full employment puts upwards pressure on inflation – this means that sufficiently high level of deficit spending would force the fed to raise rates…….”

                      So you are sayingntaht FED policy would reduce employment. Actually the Fed has a mandate to maximise employment.

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                      Posted by Dinero
                      Answered on 01/16/2017 5:58 PM
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                        Brit,

                        When the Fed raises rates this doesn’t appear to contract anything. In fact, based on the housing bubble the rate hikes seemed to induce a frenzy to “get in” while rates were low.

                        Now, if the Fed inverts the yield curve then banks and especially non-banks start to run into obvious problems. But since we’re talking about Krugman here and his ideas then let’s stay on topic. I suspect that there is very little monetary offset right now. Until we see signs that borrowing is declining then it’s safe to say there’s no offset at all. When could that occur? I don’t know, but I suspect the Fed would have to raise rates quite a bit here and flatten or invert before that becomes a serious risk.

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                        Cullen Roche Posted by Cullen Roche
                        Answered on 01/16/2017 6:02 PM
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                          And where is your reason for inflation , you could also say that as a consequence of more employnent there is more production and that results in lower prices.

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                          Posted by Dinero
                          Answered on 01/16/2017 6:05 PM
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                            >So you are sayingntaht FED policy would reduce employment. Actually the Fed has a mandate to maximise employment.

                            It depends on the situation. *If* we’re at or nearing full employment, then employment can’t go much higher, instead any more stimulus will just cause the price level to rise.

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                            Posted by Brit
                            Answered on 01/16/2017 11:08 PM
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                              >When the Fed raises rates this doesn’t appear to contract anything.

                              Can’t evaluate this without a counterfactual.

                              >I suspect that there is very little monetary offset right now.

                              Sure, there’s nothing to offset.

                              >When could that occur? I don’t know, but I suspect the Fed would have to raise rates quite a bit here and flatten or invert before that becomes a serious risk.

                              I guess Krugman thinks a Trumpian deficit binge could cause inflation to rise which would force the Fed to raise rates. I don’t see where this conversation is going, but while I agree it might be hard for the Fed (using conventional measures) to do expansionary policy while at the ZLB, I regard it as an entirely uncontroversial view that the fed is perfectly capable of contractionary policy if it needs to (unless you have some kind of runaway hyperinflation scenario, or perhaps some irrational exuberance over some large bubble as you mentioned – but I see no obvious signs of a housing/stock bubble at this stage). Now you might claim that the fed wouldn’t have the balls to do what’s necessary, fine, but if inflation is high enough then institutions will be forced to demand higher interest rates regardless, in order to maintain real rates – and if even this doesn’t happen, inflation is just another kind of crowding out anyway (“real” crowding out). In conclusion, high deficits during full employment is dangerous and will lead to crowding out, the technical minutia of exactly how this crowding out actually occurs is a largely irrelevant quibble.

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                              Posted by Brit
                              Answered on 01/16/2017 11:22 PM
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                                How do we know we’re at “full employment”?

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                                Cullen Roche Posted by Cullen Roche
                                Answered on 01/16/2017 11:26 PM
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                                  I have nothing against people not thinking the US is near full employment, and if you want to argue that go right ahead. For the record, I believe Krugman used the fact that the employment figure right now is low, wages are rising reasonably fast (apparently) which indicates that the labour market is tightening, and the ‘quit rate’ is back to pre crisis levels meaning they are confident of finding new jobs, as evidence of approaching full employment.

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                                  Posted by Brit
                                  Answered on 01/16/2017 11:36 PM
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                                    Well, how true is all of that though?

                                    Avg hourly earnings are flat.

                                    Employment Cost Index is flat.

                                    Unrate is down marginally from a year ago and 1-2% points above previous levels of “full employment”.

                                    U6 rate is well above any level in history.

                                    Meanwhile, inflation is 1.7%.

                                    None of this screams to me of a super tight labor market.

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                                    Cullen Roche Posted by Cullen Roche
                                    Answered on 01/17/2017 1:00 AM
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                                      I’m not trying to be difficult mind you. Just trying to play devil’s advocate here. I see lots of potential flaws in Krugman’s view. Going back to our airplane analogy – if an engineer came to me with this many potential flaws in his model I’d never put a man in the plane we were testing. That’s a zero confidence vote in his engineering work.

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                                      Cullen Roche Posted by Cullen Roche
                                      Answered on 01/17/2017 1:02 AM
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                                        Well as I said, I’m not so bothered where people stand regarding full employment. I think differences over that are really dependent on the data you look at, or how you interpret the data, rather than any particular model. To be fair, I don’t think Krugman thinks we’re already at full employment, just that we’re approaching it fast. Regarding U6, it looks to be return back to normal fairly soon: http://www.macrotrends.net/1377/u6-unemployment-rate

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                                        Posted by Brit
                                        Answered on 01/17/2017 2:46 PM
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                                          Still, the underlying operating assumption taken as truth that goes into theoretical models that Krugtron the Invincible loves so preciously is that the Fed can even affect employment. If they can’t affect the endogenous money supply, can’t buy corporate bonds, etc. then how in the hell are they going to affect employment?

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                                          Posted by MachineGhost
                                          Answered on 01/17/2017 3:38 PM
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                                            It’s kind of a silly debate to be honest. Economists like Sumner can’t be proved wrong because there’s literally no testable mechanism by which his theories work. So he can scream “monetary offset” all he wants and no one can do anything. I mean, I can show that the Fed is just a simple clearinghouse and common sense would tell us that a clearinghouse can’t impact the economy that much, but it doesn’t matter because Sumner or Krugman can argue that the Fed has a big impact because they talk a lot. How can anyone prove that wrong? It’s like saying that planes fly because people talk a lot. Well, yeah. People do happen to be talking while planes fly so there might look like a correlation, but since we can’t test what happens when people stop talking (because someone is always talking) then it kinda sorta looks like planes fly because people talk. Of course, an engineer would say this is bunk, but he can’t actually prove the theory wrong because he can’t test the counterfactual….

                                            This is what Sumner and Krugman do. They have a really poor understanding of the mechanics, but their theories are so grounded in nonsense that you can’t actually prove them wrong. It’s what makes all of these debates a big waste of time and why I generally avoid them now….

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                                            Cullen Roche Posted by Cullen Roche
                                            Answered on 01/17/2017 8:15 PM
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                                              I would posit that it is your claims that are extraordinary, contrary to common sense and entirely counter intuitive (that doesn’t mean it’s wrong though, you may in fact be right that interest rates don’t matter, because banking is extremely opaque, again apparently).

                                              It’s entirely logical that if the risk free rate of interest is sufficiently high, why would anyone choose to take on risk for a rate of return lower, identical or barely marginally higher than the rate of return you can get entirely risk free. There are so many independent models that show interest rates affecting the economy, for instance I’ve literally never seen any model, in my entire life, of portfolio construction that isn’t impacted by the risk free rate being raised *ceteris paribus*. And even if you ignore basically any portfolio theory, even the simplest, most rudimentary economics has several different mechanisms, it’s helpfully outlined here if you’re unaware: http://www.economicshelp.org/macroeconomics/monetary-policy/effect-raising-interest-rates/ I would posit all of those mechanisms are ‘common sense’ claims, and therefore statements in opposition to them are not common sense by any means – again, this doesn’t mean they’re wrong, but you have to recognize how counter to intuition your claims are.

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                                              Posted by Brit
                                              Answered on 01/17/2017 10:20 PM
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                                                Whoever said “interest rates don’t matter”? Certainly not me.

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                                                Cullen Roche Posted by Cullen Roche
                                                Answered on 01/17/2017 11:16 PM
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                                                  Let me elaborate because there seems to be some confusion here. I definitely don’t think moving interest rates has no impact on the economy, but I do question how powerful this mechanism really is. For instance, let’s run through your link’s “effects”:

                                                  1. Increases the cost of borrowing.

                                                  Does it? It increases the cost of short-term borrowing, but history tells us that long-term rates can actually fall when short-term rates are rising. Since the vast majority of private sector debt is long-term mortgage debt I have trouble seeing how this conclusion can be made with any real certainty.

                                                  2. Increase in mortgage interest payments.

                                                  This is clearly wrong as explained before. There are many many instances where long rates stayed low or even declined when short rates increased.

                                                  3. Increased incentive to save rather than spend.

                                                  Again, I don’t think evidence supports this. When the Fed rose from 2003-2006 the personal saving rate declined. Same thing happened in the late 90s. Same thing happened in the early 90s. There is very flimsy evidence that consumers save more when rates rise. In fact, recent evidence says the exact opposite.

                                                  4. Higher interest rates increase the value of currency

                                                  This appears to have some validity.

                                                  The other 3 are relatively broad statements that appear unsupported by much evidence.

                                                  My main point is that moving rates is a very broad and slow moving policy measure that I suspect has much less impact than most people presume. This doesn’t mean rates don’t matter. It just means that rate changes don’t necessarily “offset” other stimulative measures. And in fact, rates hikes in certain environments appear to be stimulative.

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                                                  Cullen Roche Posted by Cullen Roche
                                                  Answered on 01/18/2017 12:37 AM
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                                                    Yea, I don’t think the Fed has any control over long-end rates. I basically view long-end rates as NGDP plus a risk spread. Why? Cuz if rates long-end rates are less than NGDP, you borrow to buy real assets (which, on average, grow at the same rate as NGDP by definition) and that pushes long-end rates up. If you’ve got the other scenario, you short and long the opposite. Either way, it should get arbitraged away unless you’ve got some kind of a risk spread.

                                                    So there’s no reason why deficits should raise rates at all. If you get a depression that causes government outlays to rise while tax revenues collapse, long-end rates should fall while the deficit spikes. That’s what should happen.

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                                                    Posted by Suvy Boyina
                                                    Answered on 01/18/2017 9:02 PM
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                                                      “The funny thing is: they haven’t. In fact, among the more than 10,000 research articles produced by the major central banks in the two decades prior to the 2008 crisis, none explored the correlation or causation between nominal interest rates and nominal GDP growth. Fortunately, this task is not very demanding, and once we conduct such an examination, we conclude that, in actual fact, there is no evidence to back these assertions whatsoever. To the contrary, empirical evidence shows that the central banking narrative on interest rates is diametrically opposed to the observable facts in two dimensions: instead of the proclaimed negative correlation, interest rates and economic growth are positively correlated. Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it.”
                                                      https://professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy-do-we-need-central-banks/

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                                                      Posted by James Charles
                                                      Answered on 01/19/2017 10:47 AM
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                                                        Yikes, a lot to work through here, Okay…

                                                        “Since the vast majority of private sector debt is long-term mortgage debt I have trouble seeing how this conclusion can be made with any real certainty.”

                                                        “This is clearly wrong as explained before. There are many many instances where long rates stayed low or even declined when short rates increased.”

                                                        Firstly, obviously short term consumer borrowing is important for demand, so you’re conceding an affect there. Secondly, this is just a bizarre statement to me, maybe because I’m in the UK. Since in the UK, a very popular type of mortgage is the ‘tracker mortgage’, this literally tracks the central bank rate *by design*, so whenever the rate rises significantly it will have a drastic affect on all the people on tracker mortgages, causing further deleveraging etc.. (unless they can refinance, but the refinancing deal will almost be on a more expensive rate than they were enjoying previously).

                                                        But even in America, yes it’s true there is no simple relationship between fed policy and mortgage rates, but what we know is that there is a very close relationship between for instance 10y treasuries and mortgage rates:

                                                        http://www.frbsf.org/education/files/drecon_0206b.gif

                                                        Now, do you not think the fed could, if it wanted to, manipulate the yield on longer term treasury bills? Even if it can’t do anything to affect their yield, we definitely know that longer term interest rates depend on a number of factors, including *expectations of what short term rates will be in the future* (along with expectations of inflation, growth, risk if there is any). You surely can’t dispute that. For instance if the market thinks a short rate rise (or fall) is temporary or an anomaly, long rates are unlikely to be affected. But if the market instead interprets this as a *regime change*, where they start to expect that these rates will persist long into the future, then of course it will affect long term rates, otherwise clear arbitrage opportunities would present themselves, how can you dispute this? This is what central banking is now, it’s not just announcing a short term rate change, but announcing its intentions in future periods as well.

                                                        Thirdly, I don’t think the relationship is linear. For instance, I think there is a floor on mortgage rates, such that no matter how low treasury yields go, mortgage rates won’t fall any further. Conversely this means that there is a threshold where when rates are below, rising treasury yields to any level below this threshold won’t affect mortgage rates much, but there is no reason the fed can’t raise rates BEYOND this threshold, if it wants to. So in some cases, this might would result in mortgage rates moving inversely, as the treasury yields are still despite a rise too low to have an affect, but inflation/demand expects are decreased leading to a fall in mortgage rates.

                                                        There are other avenues short rates can affect long rates, but I’ll stop here.

                                                        “In fact, recent evidence says the exact opposite.”

                                                        No no no no, you CANNOT use simple two dimensional correlations for this because there is endogeneity. There is reverse causality, when the economy booms, savings are lowered and credit increases, this CAUSES the central bank to raise interest rates. Further, they often anticipate a boom or inflation a little in advance, so this could cause the rate to lead the boom a little. So OF COURSE there will be positive correlation (rather than inverse). That’s why simple 2 dimensional correlations don’t work when assessing an instrument the fed controls directly. You need to read up on the concept of ‘Friedman’s Thermostat’. But this doesn’t even need a central bank, basically any macro model correlates higher demand with higher rates, the causality just moves the other way.

                                                        It’s hard to get data on this issue, but it’s helpful when policy makers do something unanticipated (rather than predictable central bank movements) that results in a structural change to rates, this creates a ‘natural experiment’ that researchers can exploit. This happened in India in fact, where an empirical study was done: https://www.researchgate.net/publication/228139361_The_Effect_of_Interest_Rate_on_Household_Consumption_Evidence_from_a_Natural_Experiment_in_India

                                                        Lo and behold, what did they find:

                                                        ‘We find that an increase of 50 basis points in the interest rate on deposits leads to an immediate decline of consumption expenditure by 12 percent.’

                                                        “slow moving policy measure”

                                                        It’s only slow if the fed insists on raising by tiny insignificant increments, like they’re doing now. But what if Trump does some insane policy, eventually resulting in a sharp rise in inflation, and emergency measures are needed?

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                                                        Posted by Brit
                                                        Answered on 01/19/2017 2:34 PM
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                                                          ” Fortunately, this task is not very demanding”

                                                          OH GOD NO! The task is EXTREMELY hard because of endogeneity, otherwise you’re engaging in pig econometrics, not controlling for endogeneity, and your research should be thrown in the gutter.

                                                          ” instead of the proclaimed negative correlation, “

                                                          Arrrgh! There is no proclaimed negative correlation!

                                                          “interest rates and economic growth are positively correlated”

                                                          WOW! Statements like this make me want to blow my brains out, OF COURSE THEY’RE POSITIVELY CORRELATED! Basically any macro model will result in a positive correlation. This misses the point entirely!

                                                          “Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it.”

                                                          Banks change rates based on expectations of future demand/inflation rather than past data, shock horror!

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                                                          Posted by Brit
                                                          Answered on 01/19/2017 2:41 PM
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                                                            The Fed has no direct transmission effect to the real economy, so any alleged correlations is all tertiary. Theoretical macroeconomic models assume a direct effect. If the Fed did have that power, then it would also be illegal as it would be fiscal policy.

                                                            So maybe the U.S. situation isn’t homogenous with all central banking. Take Libya for example. The central bank there acts as a Treasury to fund both sides of the competing governments to protect civil servant salaries (from oil revenues deposited at same said bank).

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                                                            Posted by MachineGhost
                                                            Answered on 01/19/2017 3:21 PM
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                                                              Hi Brit,

                                                              I think you have a lot more faith in the predictive abilities of Central Bankers than I do. Yes, Fed policy looks correlated, but that’s mainly because the market anticipates what the Fed will do while also gauging what the economy is doing. So, when you say that the Fed “anticipates” what the economy is doing I would reword that by saying that they are making a highly unreliable guess about what the economy is going to do. This is why the long end of the curve doesn’t always cooperate with Fed policy. Bonds traders just don’t agree with the outlook of the Fed at all times.

                                                              Anyhow, I think we just fundamentally disagree on how powerful a Central Bank really is. This doesn’t mean I think they’re powerless or that they can’t exert extreme power over the economy. But I think most of what they do is vastly overstated in terms of its efficacy and I suspect we’ll never agree on that point.

                                                              Thanks for all your great comments and push-back.

                                                              – CR

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                                                              Cullen Roche Posted by Cullen Roche
                                                              Answered on 01/19/2017 3:46 PM
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                                                                I think the data strongly supports Cullen on this. If you give a scientist the data without knowing what it is with three data series: FFR, 10yrTsy Inflation they would not be able to create a model, with even an excessive number of linear parameters, including slope dependent variable time lags that could describe the data. Over short time periods you can do better, which indicates that the markets do not follow Rational Expectations (which would required that the model hold over all time periods). I mean once you get a yield inversion (which we have had) the any scientist would immediately reject models showing the Fed has more than a tiny bit of control.

                                                                I think the data for fiscal policy is in fact pretty solid. The WWII data is so overwhelming that any scientist would start from that period, and it’s supported by the Reagan data. This seems pretty easy to understand as fiscal policy has only very short time lags.

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                                                                Posted by John Daschbach
                                                                Answered on 01/19/2017 10:46 PM
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                                                                  Someone seems to think that ‘monetary policy’ is effective?

                                                                  “And yet today I see lots of people denying that monetary policy can control nominal variables. They often make arguments that are completely irrelevant, such as that the monetary base is only a tiny percentage of financial assets. That would be like saying the supply of kiwi fruit can’t have much impact on the price of kiwi fruit, because kiwi fruit are only a tiny percentage of all fruits.
                                                                  Beyond the powerful theoretical arguments against monetary policy denialism, there’s also a very inconvenient fact for denialists; both market and private forecasters seem to believe that monetary policy is effective. Let’s take a look at the consensus forecast of PCE inflation over the next 10 years (from 42 forecasters surveyed by the Philadelphia Fed):
                                                                  Notice that most of those numbers are pretty close to 2%. The Fed’s official long run target is headline PCE inflation, however in the short run they are believed to target core PCE inflation, which factors out wild swings in oil prices. Core PCE inflation is expected to come in at 1.8% this year. That may reflect the strong dollar, which holds down inflation. They forecast 2.0% inflation for the 2016-2025 period.
                                                                  Now think about how miraculous that 2.0% figure would be if monetary policy were not determining inflation.”

                                                                  http://econlog.econlib.org/archives/2017/01/the_peculiar_pe.html

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                                                                  Posted by James Charles
                                                                  Answered on 01/20/2017 4:47 AM
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                                                                    I will never understand Sumner’s views. I mean talk about correlation and causation. The fact that inflation has averaged about 2% does not mean the Fed is controlling the rate of inflation. There are hundreds of examples where a Central Bank cannot remotely control the rate of inflation.

                                                                    This sort of work is about as far from “scientific” as I can imagine. No serious statistician or scientist would trust such a view….It’s statistics as only an economist could achieve….

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                                                                    Cullen Roche Posted by Cullen Roche
                                                                    Answered on 01/20/2017 2:07 PM
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                                                                      We are so utterly far from true full employment – I can’t see the basis for this discussion. Wages are stagnant and underemployment is rampant.

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                                                                      Posted by Paul Lebow
                                                                      Answered on 01/22/2017 5:47 PM
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