Tag Archive | monetary policy

Correct. Almost

The ECB cannot undo what decades of European profligacy have done, but it certainly can stop do make things worse than they already are. Read Ambrose Evans-Pritchard to see why.

Should Interest Rates Be Lower or Higher?

Usually people in the financial industry and financial media rejoice when interest rates rise (Exhibit A), because it means that expected growth rises, which, simply put, means better business. Yet the Federal Reserve tried to lower long-term interest rates with Operation Twist, after they have successfully held down short-term rates at Zero for three years […]

NGDP Targeting >> Inflation Targeting

Marcus Nunes wrote this excellent analysis of why NGDP Targeting works better than the well-established Inflation Targeting. To put it in layman’s terms, inflation targeting over-stimulates booms and does not react strong enough to downturns. This is because it focuses only on price inflation, not on output growth. The Federal Reserve has a so-called “dual […]

Clarifying NGDP Targeting

I would like to clarify for all non-economists out there what NGDP Targeting is really about. This article from ZeroHedge claims that NGDP Targeting is synonymous with issuing new debt and inflating old debt away. In fact, issuing debt has nothing to do with it. NGDP Targeting would establish a reliable rate of nominal economic […]

NGDP targeting FTW!

So, support for NGDP targeting finally seems to grow. It wouldn’t solve the basic problem that we (the Western world) suffer from too much regulation, a stricken financial system, and too much debt. So I wouldn’t bet on NGDP targeting increasing long-term growth or lowering long-term unemployment rates much. But it could surely help us […]

Debunking Economic Baloney

In his recent post, Scott Sumner puts conservative populist economic theory through the mills, and hardly anything of all the populist arguments is left intact. I agree with everything he writes, and I am certainly not a leftist (nor is Scott). It just shows that there is a whole lot of theoretical nonsense going on […]

Unintended Consequences

A rather new view on the effects of Quantitative Easing seems to emerge recently. This post at ZeroHedge offers a neat explanation of what may be the long-term result of QE. The author assumes that the income effect of low interest rates is larger than the substitution effect.