tag:blogger.com,1999:blog-6837159629100463303.post4266643136133269629..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Musical chairs and Taylor rulesJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6837159629100463303.post-89668816236328791222015-11-05T08:21:02.083-08:002015-11-05T08:21:02.083-08:00Welcome Jose.
I learned much of what I know of mo...Welcome Jose.<br /><br />I learned much of what I know of monetary economics from Sumner, and he is fairly reasonable when discussing the mechanisms of monetary economics. However, he tends to see data (or evidence in general) through the lens of confirmation bias and doesn't seem to understand other models (see e.g. <a href="http://mainlymacro.blogspot.com/2015/11/tax-cuts-vs-spending-vs-helicopters.html" rel="nofollow">here</a>) -- a problematic combination as it makes you unable to see how the same evidence might be consistent with another model.<br /><br />As far as the SE term -- that was entirely Sumner's doing. It is a Systematic Error that was his way of representing the difference between a central bank that targets a NGDP futures market (SE = 0) and one that targets inflation, interest rates or unemployment (in which case SE ≠ 0).<br /><br />Here is the reference:<br /><br /><a href="http://www.themoneyillusion.com/?p=28215" rel="nofollow">http://www.themoneyillusion.com/?p=28215</a><br /><br />And here was my take on that model:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2015/01/is-this-market-monetarist-model.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2015/01/is-this-market-monetarist-model.html</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-86495178436075340282015-11-05T03:42:27.284-08:002015-11-05T03:42:27.284-08:00Jason, this is the first time I enter your blog, c...Jason, this is the first time I enter your blog, congrats on the rigorous analysis you try to do with your models. I have been following Sumner's blog for a few months now, and I find most of what he says very reasonable. For various reasons, I find his focus on NGDP his most interesting (and useful) proposition. But, in your analysis above, I was wondering, how do you interpret the SE you include in the model ? Jose Romeu Robazzinoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-41523552691652900562015-11-03T18:16:07.820-08:002015-11-03T18:16:07.820-08:00I agree that Sumner's model is incredibly gene...I agree that Sumner's model is incredibly generic. However, due to the nature of DSGE, I think it would be hard to come up with a DSGE model with the same frictions as Sumner's 'model' that give with different policy implications than he suggests.<br /><br />Part of the problem I see is that a lot of Sumner's model relies on a very high degree of assumption. He assumes that monetary policy works at the zero lower bound. That assumption needs to at least have some economic logic behind it - something that I don't believe Sumner has provided (although maybe I can coax him into it by continuing to comment on his post).John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-22791739908669405232015-11-03T10:41:10.843-08:002015-11-03T10:41:10.843-08:00I think failure of the divine coincidence is a goo...I think failure of the divine coincidence is a good way to characterize it. And yes it is fairly conventional. However, my point (and I will add a bit at the end to emphasize it) is that it's not just conventional but so incredibly vague that the 4 "characteristics" of the model can be satisfied by just about any framework that can have totally different additional consequences but still conform to the 4 characteristics.<br /><br />For a physics analogy (sorry), it's like saying:<br /><br />1. It's a gauge theory<br />2. It conserves energy<br />3. It has matter<br /><br />The theories that conform to those can be as different as the strong force, the weak force and electromagnetism.<br /><br />I'm sure there are several NK theories that have Sumner's 4 characteristics that have completely different policy implications.<br /><br />Actually, the IT model satisfies those basic characteristics! And it reduces to the IS-LM model in its low inflation limit. Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-33255789663582503452015-11-02T20:07:18.484-08:002015-11-02T20:07:18.484-08:00Hi Jason,
I'm glad you liked my take on Sumne...Hi Jason,<br /><br />I'm glad you liked my take on Sumner's post.<br /><br />In a lot of ways, Market Monetarist 'models' are pretty conventional, except for the gratuitous usage of NGDP and the focus on nominal wage rigidity. Market Monetarists need nominal wage rigidity to explain why the divine coincidence isn't always true and that an NGDPLT is better than an inflation target or a price level target. The gratuitous usage of NGDP is just annoying and unnecessary. Sumner could have given his entire model without referencing nominal gross domestic product until he suggested the optimal policy in the model. I suppose I should read Sumner as "nominal wage rigidity exists, therefore divine coincidence fails, therefore we need to target NGDP." I just wish he wouldn't present his models as being so unconventional just so he can use the word "NGDP" ten times more than necessary. <br />John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.com