tag:blogger.com,1999:blog-6837159629100463303.post80000639684595453..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Velocity of money and interest ratesJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-6837159629100463303.post-56524769844811931862020-07-11T07:56:42.194-07:002020-07-11T07:56:42.194-07:00As a higher proportion or a higher volume of bank ...As a higher proportion or a higher volume of bank deposits are saved, money velocity decelerates. I.e., an increase in bank CDs adds nothing to GDP.Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-90680827941084492792020-07-11T07:55:44.237-07:002020-07-11T07:55:44.237-07:00The IS=LM equation has leakages. $15 trillion in b...The IS=LM equation has leakages. $15 trillion in bank-held savings are un-used and un-spent, lost to both consumption and investment, as banks pay for their earning assets with new money - not existing deposits. That's why money velocity has decelerated since 1981 (essentially the end of the monetization of time deposits, end of gate keeping restrictions on interest-bearing accounts).Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-62601534134107903422020-07-11T07:42:44.425-07:002020-07-11T07:42:44.425-07:00Money velocity is determined by the remuneration r...Money velocity is determined by the remuneration rate on excess reserve balances. It is just like the old Regulation Q ceilings for commercial bank customer accounts. But today, there is a preferential differential in favor of the banks, as opposed to the nonbanks (formally thrifts).<br /><br />When SOFR is higher than the remuneration rate, money velocity rises and vice versa. Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-37436165936217149262016-01-20T20:27:07.578-08:002016-01-20T20:27:07.578-08:00Implicitly.
log P ~ k log(M0)
log rL ~ c log(NGDP...Implicitly.<br /><br />log P ~ k log(M0)<br />log rL ~ c log(NGDP/M0) = c log(V_M0)<br />log rS ~ c log(NGDP/MB) = c log(V_MB)<br /><br />where MB = monetary base, M0 = MB less reserves<br /><br />c is (the same) constant for both rS = short interest rate and rL = long interest rate<br /><br />P = price level<br /><br />They (P, rL) are related to each other through this diagram<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/03/the-effects-that-move-interest-rates.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/03/the-effects-that-move-interest-rates.html</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-87196092696688149252016-01-20T18:03:25.358-08:002016-01-20T18:03:25.358-08:00Those links are not using any relation between vel...Those links are not using any relation between velocity of money and interest rates, are they? <br />Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-55874101076512670012016-01-19T15:02:54.563-08:002016-01-19T15:02:54.563-08:00Core inflation has only been about 0.5% in Japan s...Core inflation has only been about 0.5% in Japan since 2013 and the price level remains consistent with the model prediction. Here's the recent update:<br /><br /><a href="https://twitter.com/infotranecon/status/689581638687154176" rel="nofollow">https://twitter.com/infotranecon/status/689581638687154176</a><br /><br />And here was the last update:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2015/11/matthew-yglesias-moves-goalposts-on.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2015/11/matthew-yglesias-moves-goalposts-on.html</a><br /><br />I always thought hyperinflation referred to inflation rates well north of 10% ... we didn't refer to it as hyperinflation the 1970s.<br /><br />Or have the hyperinflation goalposts moved so that a burst of 2% inflation due to a 3% VAT tax increase means it's time to buy a wheelbarrow to haul your extra yen for some dagashi? Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-33194104334689925052016-01-19T13:47:27.696-08:002016-01-19T13:47:27.696-08:00So using this model can you then model hyperinflat...So using this model can you then model hyperinflation?<br /><br />Can you use this to make a different prediction for Japan? (I think your last one was wrong. :-))Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-34397202736938373272016-01-16T19:28:16.617-08:002016-01-16T19:28:16.617-08:00Thanks, Jason.
Thanks, Jason.<br /><br />John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-80511775618580075022016-01-16T19:13:12.230-08:002016-01-16T19:13:12.230-08:00As always, well put. And nice insight.
I managed ...As always, well put. And nice insight.<br /><br />I managed to do some tweaking and fit the modified CC model (it's just a linear transform of velocity) a bit better, shown in an update.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-76444154789493328932016-01-15T17:57:38.442-08:002016-01-15T17:57:38.442-08:00Jason,
The empirical validity of CC models is hig...Jason,<br /><br />The empirical validity of CC models is highly dependent on the calibration. The relevant result from the model is that the marginal utility of consumption of cash goods is equal to the marginal utility of consumption of credit goods times one plus the opportunity cost of holding money (roughly equal to the nominal interest rate). In this case, the money demand function depends almost entirely on the utility function. The function may be linear, as models with log preferences suggest, or it may be logarithmic like the ITM version of the money demand function. <br /><br />I guess what the authors of the paper are referring to in the quote above is that the utility functions that make CC models plausible fail to square with either micro or macro evidence (i.e. agents are too risk adverse in calibrations where the money demand function is empirical). I'm not sure if this serves to invalidate the model wholly. My intuition is that there is a way to at least preserve the good aspects of the model (e.g., the possibility of an empirically valid money demand function as well as the property that money demand becomes indeterminate at the zero lower bound) whilst making up for its shortcomings (requiring implausibly risk averse agents to be empirically valid) without deviating so far from mainstream economic theory, as you do, or making extremely implausible assumptions, as MIUF models do.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.com