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Wednesday, October 18, 2017

Quick Update, Slope Comment

Chart: 5-/10-year Treasury Slope

The Treasury yield curve has continued its relentless flattening. The 5-/10-year slope has hit a new post-crisis low. We should not be too surprised by a flattening yield curve during a hiking cycle, but at the same time, the pace of rate hikes has been laughable.

Note: I have been tied up with other projects (my SFC models book is ready to be shipped for the final editing pass), so this article will be extremely brief. I just wanted to let readers know that there will be publishing hiatus until the weekend. (Although this is a free website, I want to keep to a regular writing schedule, particularly on Wednesday.)

Sunday, October 15, 2017

Should We Care About Seigneurage?

I believe I have a better understanding of Eric Lonergan's arguments regarding whether fiat money is a liability of a state with currency sovereignty. (This discussion does not apply to commodity money, or a state using a money issued by an entity not under its direct control.) If I am correct, I would phrase his argument as: the existing accounting treatment of money is incorrect, since it does not account for seigneurage revenue. (Seigneurage has multiple English spellings; I was using the French spelling on Twitter -- seigneuriage.)

Thursday, October 12, 2017

Understanding Why Fiat Money Is A Liability Of The State

One of the topics I discussed in Abolish Money (From Economics)!  returned to Twitter today, and I just want to give a long form version of my arguments. The debate was with Eric Lonergan (web site) regarding where money should show up on the government's balance sheet. I discussed this topic in Chapter (Section?) 14 of Abolish Money -- "Money as Debt."

Wednesday, October 11, 2017

MMT And Automatic Stabilizers

The recent internet debates about Modern Monetary Theory (MMT) have been interesting, but the various critics of MMT have largely missed the elephant in the room: automatic fiscal stabilisers. In my view (which may not reflect the official "MMT Party Line"), one of the keys strengths of MMT is that it is largely built around the importance of automatic stabilisers, and institutional details. The conventional view is to acknowledge the existence of automatic stabilisers, but otherwise pretend that they have no effect on the economy.

Sunday, October 8, 2017

What Does Inflation Targeting Even Mean?

My earlier article on price indices -- The Price Level Does Not Exist -- was tentative, and needed a more detailed explanation of my thinking. This article is an attempt to give a more detailed background, and I am tying it to inflation targeting. It should be noted that this is not just a jab at mainstream economics, it also applies to some post-Keynesian thinking. For example, one might summarise the policy goals of Modern Monetary Theory (MMT) as "full employment with price stability" -- which is somewhat awkward if we cannot define a price level that is supposed to be stable. (This observation about MMT came to me during the recent MMT conference, and the article reflected my on-the-spot thinking.)

Wednesday, October 4, 2017

Why MMT Is So Popular (For People Like Me)

In a previous article, I explained why I am complacent about the state of economic theory in Modern Monetary Theory (MMT). This matters for someone like myself, who is attempting to write primers explaining various economic concepts. However, for many followers of MMT, the more important question is how its theoretical concepts get translated into a new policy framework. This raises the question of political economy, which I largely shy away from. However, I will offer my eccentric political views on the future of MMT.

Sunday, October 1, 2017

The Price Level Does Not Exist

It appears to be a mistake to refer to the price level when discussing the theoretical properties of an economy; at best, there are a few price levels in play at a given time. If we are referring to the measured level of a price index, such as the Consumer Price Index (CPI) there is no difficulty, however this aggregate price index should not be expected to correspond to any useful theoretical construct. This article explains my logic, and then looks at the practical implications of what appears to be yet another hand-wringing post-Keynesian article about the difficulties with mathematical economics.

Update: Based on some reader feedback, I realise that I need to fill out parts of my logic in more detail. To repeat what I wrote below, I am unsure how my thinking fits in with the existing academic literature in this area. I am looking at this from the point of view of building a model that fits observed data, and there's some purist theoretical issues about price indices that I am not concerned about. Merijn Knibbe left this reference, which overlaps some of my thinking. The more detailed version will probably have to follow this weekend, since Professor Wren-Lewis caused yet another internet discussion that I want to weigh in on...