tag:blogger.com,1999:blog-6837159629100463303.post5996110151702452929..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Models matterJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-6837159629100463303.post-55222891865671000092014-06-21T14:57:38.512-07:002014-06-21T14:57:38.512-07:00Thanks for the link; that's an interesting tak...Thanks for the link; that's an interesting take on <i>Big Ideas</i>: macroeconomics as assumption organization.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-18099066479790522302014-06-21T10:13:28.388-07:002014-06-21T10:13:28.388-07:00The title of this one reminded me of your post her...The title of this one reminded me of your post here Jason (it was a link from Noah's blog: the response to his book review):<br /><br />http://arambachan.blogspot.com/2014/05/caveat-importance-of-models-in-macro.htmlTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-36372594850783724202014-06-11T11:08:17.047-07:002014-06-11T11:08:17.047-07:00And here is that post
http://informationtransfere...And here is that post<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/06/answering-some-technical-questions.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/06/answering-some-technical-questions.html</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-45474283229041536542014-06-11T08:25:13.143-07:002014-06-11T08:25:13.143-07:00That's awesome!
I started a comment and reali...That's awesome!<br /><br />I started a comment and realized that it would work better as a new post dedicated to these questions. I should have it up sometime today and I'll post a link here when it's ready.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-87204813123590314982014-06-11T03:03:35.778-07:002014-06-11T03:03:35.778-07:00So I'm (slowly) attempting to re-create your m...So I'm (slowly) attempting to re-create your models. So far quite interesting and very educational and here is my first-ish attempt: <br /><br />http://imgur.com/vqGMUC3 <br /><br />Couple of questions/points:<br /><br />1) I'm a little stuck on how you're getting the blue & red vectors. I grok the general concept but are those vectors representing changes in P or NGDP? My first attempt was just taking the gradient of the P surface but that doesn't seem to line up...<br /><br />2) I don't know if this is just the vagaries of the Matlab solver(s), but I'm not getting the exact fits that you are for the parameters. A lot of the time I don't seem to get proper fits at all and it's extremely dependent on starting values.. is this your experience as well?<br /><br />3) Do you have a data source for countries other than the US? I'm struggling to find good data series for places like Japan etc. and have had it with navigating the often byzantine central bank websites of these countries<br /><br />4) When you put multiple countries on one chart, how are you normalizing P? I assume with a P0, but is that fitted value.. or do you say normalize all your CPIs before feeding them in..?<br /><br />5) I've been trying to read up on information theory and the original paper - curious as to if there's any way of combining multiple sources, detectors etc. into one model - my math/intuition is not developed enough to work out how that might be done but it seems like an interesting avenue to explore...<br /><br />Thanks anyway, and sorry for the long list!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-10896244660446712072014-05-27T06:39:05.249-07:002014-05-27T06:39:05.249-07:00duh, "achieved" not "reduced"....duh, "achieved" not "reduced"....<br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-64035092631723089912014-05-27T06:37:17.594-07:002014-05-27T06:37:17.594-07:00Scott, Jason,
It's interesting that you are t...Scott, Jason,<br /><br />It's interesting that you are talking about the Eurozone. In some parts of the Eurozone we do indeed have a liquidity trap with real rates well above zero, because risk premia are higher than elsewhere in the currency union. In such an environment fiscal expansion itself causes real rates to rise. The central bank can offset to some extent by explicitly committing to specific asset purchases in those areas - but Scott, I don't think full offset is possible or desirable. After all, if the central bank offsets completely there is no reason for fiscal reforms or deleveraging, is there?<br /><br />It's fair to say this is all about expectations, not reality: OMT is currently subject to legal challenge and may never be used, but as long as markets believe in it, rates will stay low. But in the end, permanent falls in risk premia can only be reduced by fiscal reforms, deleveraging and return to growth. <br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-27079415626598129732014-05-20T18:43:03.233-07:002014-05-20T18:43:03.233-07:00I haven't run the models -- India is currently...I haven't run the models -- India is currently at a monetary base (currency component) of ~12% of NGDP vs the US at ~7%, so it is possible India could run into stagnation. But I'd really have to get some good time series data, not just the current values.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-1661024571572419272014-05-20T12:53:39.349-07:002014-05-20T12:53:39.349-07:00Jason, O/T: does ITM have anything to say about po...Jason, O/T: does ITM have anything to say about possible inflation targets for "Chindia?":<br /><br />http://thefaintofheart.wordpress.com/2014/05/20/will-chindia-join-the-europa-america-stagnation-westernized-central-bankers-battle-prosperity-globally/Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-70361533679072790692014-05-20T08:38:50.819-07:002014-05-20T08:38:50.819-07:00You are suggesting a strong EMH interpretation, th...You are suggesting a strong EMH interpretation, then?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-75206716528513218862014-05-20T05:42:08.660-07:002014-05-20T05:42:08.660-07:00Jason, "I stand by my dots". The right p...Jason, "I stand by my dots". The right place is 2003.II. Because after that things changed significantly. Also, Forward Guidance was widely discussed in the June FOMC meeting (so there was someting in the air before the formal implementation).<br />Also, the NGDP "killer" dot is right on Q2 2003! My point was that FG was effective in changing 'trends'. And you must agree it was.João Marcushttps://www.blogger.com/profile/13658264244033012660noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-76901419753199013072014-05-20T01:20:32.887-07:002014-05-20T01:20:32.887-07:00It is possible also for NGDP to increase if the MB...It is possible also for NGDP to increase if the MB is stable. Just imagine the fed maintained MB stable and transferred all the excess reserves evenly into the hands of the public. People would spend and NGDP would increase. <br /><br />The people could get these reserves if the fed converted them into currency and mailed them out to everyone of if the fed allowed all people to hold reserve accounts and transact in them like commercial bank deposits. dannyb2bhttp://cmamonetary.orgnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-69164027222829631352014-05-19T22:21:44.302-07:002014-05-19T22:21:44.302-07:00I find the ideas on here really insightful in comp...I find the ideas on here really insightful in comparison to other blogs out there. <br /><br />I completely agree that MB to ngdp correlatives with diminishing effectiveness of policy. But I'm trying to understand what causes an increase in MB to NGDP. The efficiency of the transmission of MB into the system will determine its effect on NGDP. If money didn't transmit into the system (information medium) then its the same as if the MB didn't increase at all.<br /><br />I believe you would call it an inefficient transfer of information. Or even information not traveling at all.<br /><br />If the credit market is blocked due to demand/supply for credit low then MB effect on NGDP is diminished becuase most NDGP activity involves credit exchanges for goods and services in current system. Therefore MB increases and then NGDP doesnt or not much. dannyb2bhttp://cmamonetary.orgnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-37917538480986669722014-05-19T21:35:34.916-07:002014-05-19T21:35:34.916-07:00@dannyb2b Using the monetary base has some deeper ...@dannyb2b Using the monetary base has some deeper theoretical meaning -- see e.g. here<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/03/how-money-transfers-information.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/03/how-money-transfers-information.html</a><br /><br />But ostensibly you could set up a market <i>P:NGDP→PD</i> where PD is private debt and see where that leads you empirically.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-82497280324240506632014-05-19T20:53:34.256-07:002014-05-19T20:53:34.256-07:00"the information transfer model says that mon... "the information transfer model says that monetary expansion (in reserves or currency) has only a small effect on the price level when the base is large relative to NGDP"<br /><br />Would it be even more accurate to measure private debt to ngdp (instead of MB to ngdp) to ascertain the effectiveness of monetary expansion (effect on price level)? Because affecting the interest rate is changing the price of credit wouldn't the overhang of credit to ngdp indicate the effectiveness of credit expansions on the economy? <br /><br />The higher MB to NGDP was a consequence of ineffective monetary policy because affecting credit prices becomes less effective once credit is too high. It seems the cause of ineffectiveness is the actual credit market. dannyb2bhttp://cmamonetary.orgnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-69346023490484889612014-05-19T19:53:32.333-07:002014-05-19T19:53:32.333-07:00The "forward guidance" points on the gra...The "forward guidance" points on the graphs don't appear in the same place (nor where forward guidance was actually issued in mid-Q3 of 2003 -- i.e. August).<br /><br />For unemployment and inflation, the dots appear just after 2003Q3 (this are the only ones in the right place).<br /><br />For employment, the dot appears between Q2 and Q3 of 2003.<br /><br />For NGDP it appears at just before 2003Q2. This one is the killer. If it was to fall when forward guidance was issued (August 2003, or mid Q3), then the FG dot would appear in the middle of the rise it was supposed to have caused.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-82761733549060209452014-05-19T17:33:15.905-07:002014-05-19T17:33:15.905-07:00Mark -- I agree that the monetarist viewpoint is a...Mark -- I agree that the monetarist viewpoint is a coherent one that is consistent with empirical observations. The problem I have is that it's not the only one and it is difficult to unambiguously associate the raising of interest rates with monetary contraction that directly impacts AD.<br /><br />For example, did the ECB raising interest rates impact Spain through fiscal policy? <a href="http://www.telegraph.co.uk/finance/financialcrisis/9572501/Spains-rising-debt-costs-eat-up-austerity-gains.html" rel="nofollow">Debt service</a> in Spain jumped fourfold in 2012 after the ECB rate increase, adding 30 G€ in payments, or about 3% of 1 T€ NGDP. Because of the budget constraints, that meant government spending decreased about 3% of NGDP -- accounting for the entire loss. It is interesting that Italy had a larger impact -- Italy's debt to GDP is higher.<br /><br />So we have two coherent stories:<br /><br />[Monetary] Did the ECB raise rates signalling contractionary monetary policy, lowering the growth in the price level and causing Spain's NGDP to take a 3% hit, with zero fiscal impact of higher interest rates?<br /><br />[Fiscal] Did the ECB raise rates in an an environment of ineffective monetary policy (no impact on the price level), leading to a 3% of NGDP increase in debt service, leading to a 3% impact on NGDP?<br /><br />The point of my blog post was that the information transfer model has the potential to unambiguously say it was one case or the other ... <i>without pre-judging which one</i> (the explanation depends on the fits to the data and <b>both</b> explanations are a priori possible).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-28558524939208488672014-05-19T14:48:19.539-07:002014-05-19T14:48:19.539-07:00Wrong, link, I meant this one:
http://thefaintofh...Wrong, link, I meant this one:<br /><br />http://thefaintofheart.wordpress.com/2014/05/19/to-geithner-the-fed-was-the-hero/Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-29601929713073303392014-05-19T14:46:25.294-07:002014-05-19T14:46:25.294-07:00Jason, Marcus raises some good questions here, but...Jason, Marcus raises some good questions here, but I'm wondering if you might have an alternative set of answers:<br /><br />http://thefaintofheart.wordpress.com/2014/05/19/inflationary-tinder/Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-8191147253065093592014-05-19T14:27:02.359-07:002014-05-19T14:27:02.359-07:00Jason, also, it's phenomenal that MB>NGDP r...Jason, also, it's phenomenal that MB>NGDP rises nonlinearly as rates approache absolute zero. This is the incentive mechanism whereby stagnant reserves are exchanged for NGDP-positive currency. It's a feature of the system, not a bug.<br /><br />They will never reach absolute ZLB, because MB goes infinite. I'd like to see them try.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-83026215013889244752014-05-19T12:57:14.262-07:002014-05-19T12:57:14.262-07:00My two favorite monetary guys chatting. I am in h...My two favorite monetary guys chatting. I am in heaven. Keep it up.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-44272471764471302342014-05-19T10:58:58.580-07:002014-05-19T10:58:58.580-07:00I think you're missing the whole point.
The ...I think you're missing the whole point. <br /><br />The ECB raised the MRO rate in April and July 2011. The Euro Area entered a 6-quarter double-dip recession the following quarter. Whereas RGDP declined by 1.4% in the Euro Area as a whole between 2011Q3 and 2013Q1, it declined by 2.7% in Spain and 4.1% in Italy, and similarly hit the entire periphery much harder than the core. <br /><br />What's the point of Spain and Italy doing a fiscal stimulus (assuming it wouldn't have caused their respective bond markets to do somersaults, which given what was happening at the time is not even debatable) if the ECB is simply going to offset it?Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-33157226217099977432014-05-19T10:12:02.067-07:002014-05-19T10:12:02.067-07:00Mark -- that may apply, but in that case Spain an ...Mark -- that may apply, but in that case Spain an Italy are basically acting like independent nations without their own currencies (not as e.g. states in the US); they would be unable to use monetary policy. That strengthens the argument for fiscal policy. In some sense, monetary policy becomes part of the ceteris paribus. The central bank can't act to offset fiscal stimulus in just part of the Euro area -- it would literally have to be disinflationary for the whole union to cancel out Spain's fiscal expansion.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-82991493393758498502014-05-19T10:05:32.292-07:002014-05-19T10:05:32.292-07:00Scott, I originally understood your comment as &qu...Scott, I originally understood your comment as "you can't be in a liquidity trap if interest rates are rising" but I see now that you were claiming that if the ECB can raise rates (i.e. giving forward guidance of contractionary policy), it can offset fiscal expansion. <br /><br />The Keynesian view is that expansionary monetary policy in a liquidity trap results in money hoarding (so the extra money has no effect on the price level); the ECB's contractionary move in that case should only de-hoard that money. I would imagine that even Keynesians believe that eventually the central bank could take away everyone's hoards and start producing some real deflation -- but we are assuming an inflation target (that is currently not being met due to slack in AD). Another way, the central bank can't reach 2% (stuck at 0% because of the liquidity trap), so fiscal policy comes into raise inflation to 2%. The central bank would have to then offset by ignoring its inflation target (but that contradicts the assumption of an inflation target).<br /><br />I think that is the Keynesian view (or at least how I understand it) -- the information transfer model says that monetary expansion (in reserves or currency) has only a small effect on the price level when the base is large relative to NGDP ... quite literally ∂P/∂MB ≈ 0. So even contraction doesn't do much to the price level.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-9388665374314804732014-05-19T07:05:21.640-07:002014-05-19T07:05:21.640-07:00True, many Euro Area banks are getting unsecured o...True, many Euro Area banks are getting unsecured overnight funds at the EONIA rate, but banks on the periphery, which is about a third of the Euro Area by NGDP, are partially or totally cut out of the unsecured interbank market and can only finance themselves through the ECB’s operations at the MRO rate. Thus the MRO may not the most important rate in Germany or France, but it almost certainly is the most important rate in Italy and Spain.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.com