Recent Posts

Tuesday, February 13, 2024

TIPS And Drying Paint


One of the issues of an interest rate focussed blog is that bond markets can settle into rather uneventful extended range trading dynamics. This has been the case for U.S. inflation-linked bonds, at least from a strategic perspective. That is, given a target fixed income allocation (which depends upon preferences and situation of the investors involved), should we hold inflation-linked or conventional government bonds?

Thursday, February 8, 2024

What Is Neoclassical Economics?

I ran into an interesting question online: what is neoclassical macroeconomics? I use neoclassical economics as a synonym for “modern mainstream academic macroeconomic theory,” which may not coincide with other definitions. That said, I think it captures what people are interested in, as opposed to any other narrower definition. The terms in the above definition are vague, and so I will spell the definition out in more detail below.

What I find interesting about this question is that I think the usual post-Keynesian approach to this question is misleading. The usual charge is that neoclassical economics has real world political connotations. I think that the real connotations are for academic politics. The real world political content of neoclassical economics just reflects that it is being developed by individuals and groups that have a conservative bent. (Note that I deliberately wrote conservative and not free market, as the focus is more on serving the interests of the governing elites, and developed countries are mixed economies.)

Wednesday, January 31, 2024

Inflation Hedging: Do Not Ask For The Impossible

I ran into this article on inflation hedging with inflation-linked bonds from FT Alphaville. I just scanned it quickly, but I think that the the approach used makes the topic unnecessarily complicated. I addressed the issue in my book Breakeven Inflation Analysis, and the odds are that I also over-complicated the analysis on the basis that I wanted to keep my book longer than five pages. This article is an attempt to reiterate my views in as short a text as possible.

The way to think about this is to not dive into the weeds of details of inflation-linked bonds, and go back to basics. We need to analyse the following premise:

I want a guaranteed high return over a particular investment horizon if event X happens.

Monday, January 22, 2024

Why The "Friedman Thermostat" Analogy Should Be Uncomfortable For The Mainstream

Nick Rowe’s article on Milton Friedman’s Thermostat has popped up in online conversation. For those of you unfamiliar with it, it is about inferring statistical relationships between inflation and interest rates. Although I agree that it is possible to do some silly correlation analyses between those variables1, if we think about the analogy more carefully, it points to concerns with the mainstream approach.

Friday, January 19, 2024

Waller Comments

Nick Timiroas highlighted an exchange from Fed Governor Waller (link to speech/interview transcript) on Twitter. This article consists of two rants based on the transcript, plus a bonus rant in the appendix based on what somebody else said.

Monday, January 15, 2024

A Response To A Question About Post-Keynesian Interest Rate Theories (...And A Rant)

I got a question about references for post-Keynesian theories of interest rates. My answer to this has a lot of levels, and eventually turns into a rant about modern academia. Since I do not want a good rant to go to waste, I will spell it out here. Long-time readers may have seen portions of this rant before, but my excuse is that I have a lot of new readers.

(I guess I can put a plug in for my book Interest Rate Cycles: An Introduction which covers a variety of topics around interest rates.)

Wednesday, January 10, 2024

A Non-Forecast 2024 Outlook

Since I am not in the forecasting game, I not on top of what the consensus views are. I also no longer pay attention to others’ Year Ahead Forecasts (which tend to be produced in December and long forgotten by February — people seem to produce them solely because it’s traditional). However, I wrapped up my “central banks as banks” article sequence, and I am now going to catch up on some charts to see where we stand. For brevity, I am just looking at a handful of American charts; I could possibly do some comments on other markets later. As a spoiler, I am repeating what I have been saying for at least a year.