Wednesday, February 19, 2020
The correct answer is that nominal yields largely reflect the expected path of the short-term nominal policy rate, and is thus a reflection of the central bank's "reaction function." (At this point, some people will jump in and start going on about the term premium. However, unless we using an obviously dysfunctional term premium model, the term premium is only a small deviation from the fair value determined by rate expectations.)
Note: I have an article half-written on inflation and bond pricing that will either appear later today or tomorrow. I will return to Scott Fullwiler's article on debt sustainability this weekend (I hope). This will be a focus of the chapter on Fiscal Policy.
Sunday, February 16, 2020
Wednesday, February 12, 2020
Various distractions means that I will wait until the weekend until my next piece. Unless something interrupts, it will be about Scott Fullwiler's piece on "sustainable" fiscal policy. If the reader wishes, they can read ahead and be ready to pepper me with comments...
The pandemic news (and American politics...) appears to be the big story right now. One of the advantages of not pretending to be a forecaster is that I do not have to waste my readers' time with my takes on the economic effects of viruses. (Pandemics are bad, and I do not see what else I can say.)
Fullwiler, Scott T. "The debt ratio and sustainable macroeconomic policy." World Economic Review 7 (2016): 12-42.
Sunday, February 9, 2020
Wednesday, February 5, 2020
If we look at economic theory, there are no credible challenges to the MMT story at present; at most, one can debate terminology. Since many economists are keen to present economics as a highly mathematical, scientific discipline, getting into long-winded, arcane debates about linguistic issues does not fit the narrative. However, there are plenty of reasons for there to be a strong debate in popular discourse: not everyone agrees on the proper role of government in the economy. However, we cannot appeal to any formal theory to adjudicate the popular debates.
Sunday, February 2, 2020
The inflation story in Canada and the United States has not been particularly exciting for some time, and I am not in a position to argue that this will change any time soon. I just want to update a chart that I think is extremely useful when discussing the alleged external constraint on floating currency sovereigns. As seen above, even Canada -- a small floating currency sovereign with a economy highly open to external trade -- has extremely limited passthrough from exchange rate movements to (consumer price) inflation.