|Ben Bernanke. Image from Wikimedia Commons.|
Ben Bernanke is coming around to the information equilibrium model in his latest post. Ok; just kidding. But an interest rate peg seems to be the way inflation gets generated when you're stuck with low inflation. See here:
Will the UK be the first to exit the Great Recession?
Does a liquidity trap ever end?
I also found this footnote fascinating (not to say the whole post isn't good):
 So how did the pre-1951 Fed succeed in capping the rates on very long-term bonds? It’s a bit of a puzzle. Probably wartime controls and limited liquidity in the bond markets helped. It may also be that, for most of the rate-targeting period, investors were comfortable that inflation and short-term would stay low indefinitely and thus had no reason to challenge the peg (see Eichengreen and Garber). By late 1947, with inflation rising and wartime controls eliminated, the peg was coming under pressure, and the Fed had to buy a significant quantity of long-term securities to keep the peg in place (Eichengreen-Garber, p. 182).
No, Jason, it's no joke. It's because of the IE model that I came around.ReplyDelete
Ha! Well played.Delete
Interesting... my brother once got an email through his home business website (that he never looked at) from Steve Jobs wanting to buy him out for $50 million. After 6 months with no reply, Steve gave up on him. ;)Delete
Well played, indeed! :DDelete