tag:blogger.com,1999:blog-6837159629100463303.post8914918962944595156..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: The trouble with Nick Rowe's expectations without concrete stepsJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-6837159629100463303.post-32952690158264231402014-11-08T11:24:43.872-08:002014-11-08T11:24:43.872-08:00To tell the truth, I agree that there doesn't ...To tell the truth, I agree that there doesn't seem to be any good reason to pick M0 over M1 (or MZM) a priori. The reason I like M0 isn't ideological (in fact, the whole monetarist view seems to be quite a bit to the right of my personal politics) -- I like M0 because it does an amazing job of explaining inflation in the information transfer model:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/02/this-model-is-sufficiently-awesome-to.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/02/this-model-is-sufficiently-awesome-to.html</a><br /><a href="http://informationtransfereconomics.blogspot.com/2014/02/models-and-metrics.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/02/models-and-metrics.html</a><br /><br />That's the only reason I emphasize physical currency -- it fits the data far better than other measures (with this model):<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2013/07/all-your-base.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2013/07/all-your-base.html</a><br /><br />Now why is it physical currency, rather than say the money created by fractional reserve banking (e.g. M1, M2 and MZM)? I can't say with certainty ... the reason for choosing M0 is empirical. But I have some ideas that may or may not be right.<br /><br />M1, M2 and MZM are better correlated with NGDP, which I believe gives a hint. They are medium of exchange measures. M0 works best in the inflation model because it defines the unit of account. Physical currency is a bit like the kilogram model in Paris.<br /><br />I talk more about this here:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/06/money-unit-of-information-and-medium-of.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/06/money-unit-of-information-and-medium-of.html</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-25221993627204208832014-11-08T10:46:55.128-08:002014-11-08T10:46:55.128-08:00it could be possible for non-banks to hold central...it could be possible for non-banks to hold central bank accounts, or for central banks to issue a form of digital currency like bitcoin.<br /><br />But anyway, I don't really see why higher inflation states necessarily require additional physical currency. I tend to use my debit card wherever I can, whereas in the past I would have always used cash. I don't see why using cards would be less inflationary than using physical cash.Philippenoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-5432951587506807282014-11-08T09:41:49.186-08:002014-11-08T09:41:49.186-08:00That would be a possibility -- it would change the...That would be a possibility -- it would change the definition of the unit of account from a piece of paper to some bits on a computer somewhere. The question is whether all electronic money would be the same (e.g. the stuff in our bank accounts that goes into the measures M1 and M2), or whether just central bank reserves defined money.<br /><br />There would likely be a 'monetary regime change', which I've noted on several occasions ... here for example:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/09/the-us-economy-1798-to-present.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/09/the-us-economy-1798-to-present.html</a><br /><br />I also discussed the idea of electronic money with Tom Brown <a href="http://informationtransfereconomics.blogspot.com/2014/06/hard-core-information-transfer-economics.html?showComment=1404293561547#c3536872652670515160" rel="nofollow">in comments</a>. I am not 100% certain what happens when 'MB' becomes all reserves ... but it would definitely lead to a change.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-80522991844195158612014-11-08T06:20:32.066-08:002014-11-08T06:20:32.066-08:00And higher inflation states of the economy require...And higher inflation states of the economy require the additional currency"<br /><br />I'm not sure why that should necessarily be the case. It's possible to imagine a future in which there is no physical currency. In that case, things like reserve deposits at the central bank would be the only form of base money.Philippenoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-40679175623234606282014-11-05T14:56:03.054-08:002014-11-05T14:56:03.054-08:00That is a good question. In this model, M0 and NGD...That is a good question. In this model, M0 and NGDP set each other -- one rising tends to make the other rise. Because of this, in a sense, causality goes both ways with the price level (this link talks about interest rates, but it's a similar argument):<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/05/causality-in-information-transfer.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/05/causality-in-information-transfer.html</a><br /><br />A rising price level causes people to demand more currency and additional currency causes a rise (most of the time) in the price level.<br /><br />Really what is happening in this model is that with additional currency, the potential states of the economy that have higher inflation become more likely. And higher inflation states of the economy require the additional currency in order to stay in existence ... otherwise inflation will fluctuate back to a lower inflation state.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-71916163239601167742014-11-05T13:36:35.006-08:002014-11-05T13:36:35.006-08:00or alternatively, currency in circulation increase...or alternatively, currency in circulation increases because people are spending more, not that people spend more because currency in circulation increases...Philippenoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-10906074007345534992014-11-05T13:34:35.545-08:002014-11-05T13:34:35.545-08:00"believe that physical currency ("M0&quo..."believe that physical currency ("M0") sets inflation"<br /><br />Why do you believe that? Isn't it more likely that currency in circulation increases because prices rise rather than currency in circulation somehow causing prices to rise ?Philippenoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-15157427227386630522014-11-01T16:21:55.165-07:002014-11-01T16:21:55.165-07:00Thanks!
I took a quick read of the first referenc...Thanks!<br /><br />I took a quick read of the first reference but it will take much more than a quick read to understand!<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-40529439823889533302014-11-01T15:36:49.944-07:002014-11-01T15:36:49.944-07:00Sure thing -- here is the theory behind the index:...Sure thing -- here is the theory behind the index:<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 />Here is another look at it:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/06/money-unit-of-information-and-medium-of.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/06/money-unit-of-information-and-medium-of.html</a><br /><br />The "information transfer index" is something like a conversion factor between different units of information; in this case it converts "money information" (M0) into "NGDP information".Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-25425141522127768532014-11-01T14:53:58.575-07:002014-11-01T14:53:58.575-07:00I thought I would try to understand your reference...I thought I would try to understand your reference 3. No luck in goggling <br /><br />κ = (log M0/c) / (log NGDP/c) or "information transfer index"<br /><br />Could you point a lazy guy like me to some explanation?Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.com