tag:blogger.com,1999:blog-6837159629100463303.post3755416556226773713..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Losing my vestigial monetarismJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-6837159629100463303.post-21009691380463515582018-02-02T16:47:44.736-08:002018-02-02T16:47:44.736-08:00Tom,
Yes, market monetarism doesn't appear to...Tom,<br /><br />Yes, market monetarism doesn't appear to be falsifiable under any circumstances reasonably expected to occur in the foreseeable future. Jason has demonstrated this weakness better than anyone else I've seen.Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-6918525983271748042018-02-01T15:24:09.887-08:002018-02-01T15:24:09.887-08:00Sumner would probably say "make a credible an...Sumner would probably say "make a credible announcement of their intention to do so (specifically wrt the central bank)" ... and thus zero "concrete steps" would be required.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-13362898564050233082018-02-01T15:22:24.469-08:002018-02-01T15:22:24.469-08:00If a government/central-bank were to set out to ca...If a government/central-bank were to set out to cause high inflation (> 10%) on purpose, what do you suppose is the minimum they could do to cause that (if anything)?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-54686056263109402352018-02-01T15:20:51.393-08:002018-02-01T15:20:51.393-08:00Good point.Good point.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-62051060939853765182018-02-01T11:39:42.146-08:002018-02-01T11:39:42.146-08:00"Hanging onto" isn't quite the phras..."Hanging onto" isn't quite the phrase I'd use. For cases where base money expands at a rate r >> 10%, the quantity theory is a decent model of inflation. I make no claims about whether that inflation has a positive or negative effect as demand management (i.e. "monetarism" = demand management via monetary policy). Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-61102304237800813942018-02-01T10:00:26.945-08:002018-02-01T10:00:26.945-08:00So using quantity theory above 8%/y would be a ves...So using quantity theory above 8%/y would be a vestigial bit of monetarism you're hanging onto?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-89733820788342106002018-01-31T18:46:57.969-08:002018-01-31T18:46:57.969-08:00I agree on the first point. However, it is better ...I agree on the first point. However, it is better that a model is at least hypothetically testable than not. <br /><br />Can go lower than 8% annual money supply growth, on your second point, and the test won't be perfect under any circumstances.<br /><br />Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-84635608068399496122018-01-31T16:24:02.220-08:002018-01-31T16:24:02.220-08:00First, let me say that just conceiving of ways to ...First, let me say that just conceiving of ways to test a model does not improve the Bayesian prior the model is correct and does not count as any sort of validation.<br /><br />Now once you get much above the 8%/y level of inflation, you're nearing the breakdown of the connection between money and real assets and <a href="https://informationtransfereconomics.blogspot.com/2018/01/money-is-aether-of-macroeconomics.html" rel="nofollow">the quantity theory</a> starts to take over (or see <a href="https://informationtransfereconomics.blogspot.com/2017/03/belarus-and-effective-theories.html" rel="nofollow">here</a>).<br /><br />And this kind of thing can actually happen. In physics there is a good analog. If we think of high energy QCD as high inflation QTM. At high energy (~ 1 GeV), the strong force is all about quarks (QCD). But once you get down to say ~ 100 MeV, you can pretend that quarks don't even exist and you can just talk about hadrons.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-58801029731385581682018-01-31T15:56:44.412-08:002018-01-31T15:56:44.412-08:00I mostly agree with you, but I think it's poss...I mostly agree with you, but I think it's possible to conceive of ways market monetarism could be refuted, without appeals to psychology. For example, if a central bank near the ZLB began simply creating money sans asset purchases by computer program and providing everyone in the country with a set amount of new money on a set schedule to produce, say 8% more money each year, and continue indefinitely, and prices fail to move upward in rough proportion, that would begin to make me think market monetarism is being refuted.<br /><br />Of course, it's not realistic to think anything like that will happen, but the point is merely that it's possible to conceive of ways to test the model at the macro level.Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-65239682767283776462018-01-31T10:37:01.148-08:002018-01-31T10:37:01.148-08:00I am open to the idea that there are sociological ...I am open to the idea that there are sociological factors where most market agents believe monetary factors control the future path of the economy and will therefore adjust accordingly. For example, the Fed dropping to zero interest rates and engaging in QE could have mitigated the size of the Great Recession because people believed it might help and stopped panicking (in information equilibrium language: agents stopped being correlated in state space due to panic and returned to doing their own thing mitigating the non-ideal information transfer).<br /><br />I think Sumner himself mentioned some version of this theory where he said that if market agents were Keynesians then Keynesian economics would be the "right" theory.<br /><br />This theory isn't really falsifiable with economic data; you'd need sociological/neuroscience data (surveys of beliefs, EEGs measuring agent's responses during a recession). At this point I just say I don't know what causes or ends non-ideal information transfer/non-equilibrium shocks. However, these periods also seem to be sparse in the time series (if they were more frequent then the information equilibrium approach would be contentless -- this is also related to why the bitcoin model is useless for forecasting: non-equilibrium shocks are too frequent).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-4432431310613644062018-01-31T10:06:30.629-08:002018-01-31T10:06:30.629-08:00The data supports rejecting monetarism that relies...The data supports rejecting monetarism that relies on monetary aggregates, bit not market monetarism, correct? You've demonstrated that market monetarism lacks empirical support and that it's too easy to always explain away failures to hit targets as due to central bank intentions or incompetence , but I don't think makesm monetarism's been refuted.Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-56894330087505261462018-01-30T19:05:41.835-08:002018-01-30T19:05:41.835-08:00Thanks Tom.Thanks Tom.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-1420093871349673232018-01-30T19:05:24.523-08:002018-01-30T19:05:24.523-08:00Cheers Todd.Cheers Todd.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-8897880461625517492018-01-30T17:37:26.774-08:002018-01-30T17:37:26.774-08:00Appreciate the level of intellectual honesty neede...Appreciate the level of intellectual honesty needed to post this.Todd Zorickhttps://www.blogger.com/profile/10976192775890569092noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-12708470952729720322018-01-30T10:58:54.351-08:002018-01-30T10:58:54.351-08:00"forgot to change the plot title" ... I ..."forgot to change the plot title" ... I figured as much.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-48986146067994943822018-01-30T10:48:49.977-08:002018-01-30T10:48:49.977-08:00It's in the figure below; the top figure is ju...It's in the figure below; the top figure is just the monetary information equilibrium model on its own (forgot to change the plot title).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-18851418076702747642018-01-30T10:46:40.361-08:002018-01-30T10:46:40.361-08:00Your first figure's legend says that the Fed&#...Your first figure's legend says that the Fed's DSGE is in red. I don't see it.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-33536510356489270632018-01-30T10:25:53.915-08:002018-01-30T10:25:53.915-08:00I love seeing the evolution of your ideas on this....I love seeing the evolution of your ideas on this.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.com