Jak dyrektor Fed deflację z hiperinflacją pomieszał

Jedno zdanie Narayana Kocherlakoty wywołało wielką debatę na blogach ekonomistów. Wypowiadają się znani profesorowie Brad DeLong i Paul Krugman. Znawca polityki monetarnej z Kanady Nick Rowe. A także Robert Waldman, Ryan Event i Karl Smith. Ale Kocherlakoty broni Stephen Williamson i Jesus Fernandez-Villaverde. Prof. DeLong na koniec z ciekawym wykładem nt. ekonomii kryzysu.

Rozgorzała debata na temat polityki niskich stóp procentowych i jej konsekwencji. Sprowokował ją dyrektor Minneapolis Fed, Narayana Kocherlakota. Ekonomiści bez litości wytykają błędy dyrektorowi Fed. Zwłaszcza ostatnie zdanie wywołało wiele kontrowersji.

Long-run monetary neutrality is an uncontroversial, simple, but nonetheless profound proposition. In particular, it implies that if the FOMC maintains the fed funds rate at its current level of 0-25 basis points for too long, both anticipated and actual inflation have to become negative. Why? It’s simple arithmetic. Let’s say that the real rate of return on safe investments is 1 percent and we need to add an amount of anticipated inflation that will result in a fed funds rate of 0.25 percent. The only way to get that is to add a negative number—in this case, –0.75 percent.

To sum up, over the long run, a low fed funds rate must lead to consistent—but low—levels of deflation.

Bardzo obcesowo skrytykował ten punkt widzenia w swoim komentarzu pt. „Czy parasol powoduje deszcz?”

OK, that is (almost) pure nonsense. It’s true that a low fed funds rate can exist, in long run equilibrium, only if people expect deflation (or if money is worthless). But the causation goes in the opposite direction. People lend at a low interest rate because they expect deflation. People carry umbrellas because they expect rain. An equilibrium with umbrellas must include a significant possibility of rain, but we don’t say that carrying umbrellas must „lead to” rain. If we take away people’s umbrellas, it will not prevent rain, and if we require people to carry umbrellas, it will not causerain.

Worthwile Canadian Initiative wytyka dyrektorowi Fed szkolne błędy

Nope. He definitely meant it the wrong way. If the economy returns to normal, and the natural rate of interest rises, the Fed must raise its target rate of interest. (So far so good). If it doesn’t, the result would be….deflation. („Inflation” would be the right answer).

Angry Bear był niemniej zdziwiony. I wątpi czy w ogóle można byłoby zbudować model, w którym tego typu polityka utrzymuje stopy na poziomie ¼ punktu procentowego w dłuższym okresie. I doprowadzi do równowagi z efektem deflacji.

Minneapolis Fed President and famous economist Narayan Kocherlakota made my jaw drop with this argument

Kocherlakota asserts that expansionary monetary policy will eventually cause deflation. This is very odd. (…) However, I can’t resist trying to make sense of the argument (after the jump I try and fail).

I not sure that it’s even possible to write down a model in which such a policy succeeds in keeping the Fed funds rate 0.25% for the long run and leads to an equilibrium with deflation. Certainly no such model currently exists.

The Fed could achieve 0.25% starting in around 2020 and lasting forever by reducing and reducing the money supply, however that would imply very high nominal interest rates in the near future (this isn’t theory it is an empirical observation) and it is not the proposal which Kocherlakota opposes.

W komentarzu „Włóż dziecko do lodówki jak ma gorączkę” Money Illusion dziwi się, że Kocherlakota sądzi, iż rozwiązaniem jest zacieśnienie polityki monetarnej.

Let me emphasize that I do understand that there is a problem with promising low rates as far as the eye can see.  My problem with Kocherlakota is that he seems to think that the solution is tight money. (…) Kocherlakota is obviously far brighter than I am.  I probably agree with them both on most issues.  But money is a specialized field and I just don’t have much confidence that our decision-makers or the media people who shape the discussion are on top of this issue.  We need people who are „fussy” about definitions.  Who understand why monetary policy does seem like „magic” to the uninitiated.  Every single FOMC voter should have not only a PhD in economics but 20 years of research on monetary policy, monetary theory, and monetary history.  Not one, not two, all three areas.  It’s that important.

Kanadyjskiemu ekonomiście, specjalizującemu się w polityce monetarnej, puściły nerwy.

That speech by Narayana Kocherlakota is really disturbing. This guy is a top macroeconomist, and he totally f***s it up. I mean totally. It wasn’t just misspeaking, because he is quite clear the second time he makes the mistake. If the natural rate of interest rises exogenously, and the Fed doesn’t raise the nominal rate in response, the result will be….DEflation! And he’s a Fed President (so presumably this guy has some sort of power over monetary policy?).

You guys in the US are so scr***d. (And maybe we up here are too, since you are so big, even though we’ve got flexible exchange rates).

Do krytyków dołączył prof. Paul Krugman.

Prof. Brad DeLong podchodzi spokojniej do wypowiedzi Kocherlakoty, ale nie jest przekonany do jego opinii. Niemniej publikuje ciekawy email Jesus Fernandez-Villaverde, przyjaciela w obronie dyrektora Fed.

Imagine that the Fed is targeting the FFR and decides to lower the long run target from, let’s say 4% to 2%. What happens? Well, in the very short run, nominal rigidities imply that we will have a transition where inflation might (but not necessarily, it depends on details of the model) be temporarily higher but, after the necessary adjustments in the economy had occurred (adjustments that can be quite painful, generate large unemployment, and might reduce welfare by a considerable amount), we settle down in the lower inflation path. Again, the reason is that in most New Keynesian models, the ratio of marginal utilities is independent of the FFR (this will happen even in many models with long-run non-neutralities) and the Euler equation will reassert itself: the only way we can have a real interest rate of 3% when the target FFR is 2% is with a 1% deflation.

Hence, in the long run, as Kocherlakota’s speech explicitly says:

„To sum up, over the long run, a low fed funds rate must lead to consistent—but low—levels of deflation”.

Stephen Williamson także nie podziela racji krytyków.

Here’s the simplest example I know. Suppose a cash-in-advance model with a representative consumer, period utility u(c), discount factor b, constant aggregate endowment y. c is consumption. The consumer needs cash to buy c each period. Suppose y is a fixed quantity of output received by a firm, which is sold for cash within the period, and then the cash is paid as a dividend to the consumer at the end of the period. Have the money stock grow at a constant rate m. The real interest rate is constant at 1/b -1. The nominal interest rate is (1+m)/b – 1, and the inflation rate is m. Constant m implies a constant nominal interest rate and a constant inflation rate. If m < 0, there is deflation, and the nominal interest rate is sufficiently low to support the deflation.

Karl Smith z Model Behavior blog wyjaśnia, co jego zdaniem byłoby konsekwencją długoterminowych niskich stóp procentowych: hiperinflacja.

A permanently low funds rate combined with a constant real rate of return would imply deflation. It is also the case that the Fed choosing a permanently low funds rate would cause the deflation to come about. The question is: how do we get to deflation from here.

You actually wind up with what’s known as a bang-bang solution. That’s where the economy instantly jumps to a new equilibrium path. That is, everything we think we know suddenly changes and then works itself out from there. There is evidence of quasi-bang-bangs in real life. When the stock market suddenly crashes on a piece of bad news but the slowly creeps up from there, that’s essentially bang-bang.

With money and deflation what you’d have to be suggesting is that as soon as people realized that the Fed was committed to this path, prices on everything, not just stocks and bonds but everything, instantly jumped sky high.  So, high in fact that from there on out we would be set up for permanent deflation.

In the real world such an instant transition is not possible because there are frictions and uncertainty. What is possible is hyperinflation.

Kocherlakota zastosował analizę równowagi (equilibrium analysis), w którą zupełnie nie wierzy Economistsdoitwithmodels.

I na koniec interesujący wykład na temat ekonomii kryzysu Brada DeLonga: poglądy Jean Baptista Saya i Johna Stuarta Milla w pigułce.