Thursday, September 17, 2015

Correctly predicting Eurozone lowflation

Paul Krugman mentions Eurozone lowflation today ...
So how’s [the Eurozone] going? Terribly. Despite QE, euro area core inflation is stuck below 1 percent.
Basically, as I predicted back in January [note: this was on 8 Jan 2015, even before Draghi's announcement of additional QE on 22 Jan 2015] of this year.

Here's an updated graph of the information equilibrium model with the new data:


  1. Nice Jason. I'm glad you keep up with these updates.

    O/T: I saw that John Cochrane had written this in his latest.

    "Yes, I'm aware of recent empirical work that QE has some effect:

    Even the strongest empirical research argues that QE bond buying announcements lowered rates on specific issues a few tenths of a percentage point for a few months. But that's not much effect for your $3 trillion. And it does not verify the much larger reach-for-yield, bubble-inducing, or other effects.

    An acid test: If QE is indeed so powerful, why did the Fed not just announce, say, a 1% 10 year rate, and buy whatever it takes to get that price? A likely answer: they feared that they would have been steamrolled with demand. And then, the markets would have found out that the Fed can’t really control 10 year rates. Successful soothsayers stay in the shadows of doubt."

    I tried my usual incantation, but it hasn't worked yet. (I left one on a prior post too a day or so prior, also w/o any luck). Perhaps John doesn't allow it ...though he did allow my comment, so that's probably not it.

    1. Also, Glasner got back to you on your two most recent comments there.


Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.

Note: Only a member of this blog may post a comment.