tag:blogger.com,1999:blog-6837159629100463303.post8712584785629315502..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Beware implicit modelingJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6837159629100463303.post-70828208807002428722014-07-28T19:31:56.426-07:002014-07-28T19:31:56.426-07:00Expectations are still doing all the heavy lifting...Expectations are still doing all the heavy lifting in both Nick's and Simon's models. If people expect the economy to improve when the government spends more for silly reasons, then it will in both models. Why would we want to disavow people of this and replace it (for no good reason) with the new silly belief that the economy will improve when the Fed puts forth expansionary monetary policy?<br /><br />That was kind of a joke. However, it seems that if people genuinely believed government spending will improve the economy without trade-offs, then both Nick's and Simon's models are incorrectly specifying expectations (Simon says there is a trade off that people expect and Nick says conditions will only improve if people expect expansionary monetary policy).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-39735960394817655192014-07-28T19:14:57.400-07:002014-07-28T19:14:57.400-07:00I should have said "6 or 7 business cycles in...I should have said "6 or 7 business cycles in the post war period with decent data" ...Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-27225928626732665632014-07-28T19:13:34.736-07:002014-07-28T19:13:34.736-07:00I think he's is confusing "uninformative&...I think he's is confusing "uninformative" with "not agreeing with the data". Sumner says:<br /><br />"Tom, No I don’t agree that macro data is largely uninformative. If I viewed the world through the lens of IS-LM then I’d strongly agree with Noah, as the data doesn’t even come close to being consistent with the IS-LM approach."<br /><br />Noah isn't saying that the data is inconsistent with IS-LM; Noah is saying the data doesn't tell us whether to reject IS-LM or really any macro model. There isn't enough data to confirm any model (we've only had like 6 or 7 "business cycles" -- not nearly enough to explain macro) ... that's not something that is up for debate. <br /><br />As Sumner doesn't have a quantitative model of his own, we can't really answer the question of whether we can keep his model or reject it either, but not because the data is uninformative. It is likely that the data would be uninformative if there was such a model.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-71006881168105975842014-07-28T11:18:27.172-07:002014-07-28T11:18:27.172-07:00This may or may not be a surprise, but Sumner does...This may or may not be a surprise, but Sumner does not agree that macro data is largely uninformative (2nd comment to me):<br /><br />http://www.themoneyillusion.com/?p=27174&cpage=1#comment-359182Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-5687037359208813032014-07-27T19:18:53.743-07:002014-07-27T19:18:53.743-07:00Jason, some implicit modeling to be ware of perhap...Jason, some implicit modeling to be ware of perhaps?:<br /><br />http://mainlymacro.blogspot.com/2014/07/understanding-fiscal-stimulus-can-be.html?showComment=1406510473153#c8785886174733652719Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-73223462055399220592014-07-27T14:07:21.264-07:002014-07-27T14:07:21.264-07:00I think Nunes is doing that thing where he's n...I think Nunes is doing that thing where he's not putting the lines at the right time. Japan didn't start implementing Abenomics until about three weeks into Q1 (when they announced the new monetary targets). I'll have to look at it more closely, but I think that puts Abenomics starting halfway up the rise in exchange rates.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-22666107532309386052014-07-27T13:52:38.844-07:002014-07-27T13:52:38.844-07:00A posteriori -- ha!
And yes, if there are a large...A posteriori -- ha!<br /><br />And yes, if there are a large number of particles, the fluctuations around a random variable are very small so that the ensemble average E[X] can be taken to be just a normal variable X ... and yes it was a joke :)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-34166339453914389782014-07-27T13:47:37.739-07:002014-07-27T13:47:37.739-07:00Answered!Answered!Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-4901272468267541852014-07-27T13:24:34.898-07:002014-07-27T13:24:34.898-07:00... Also Sumner has a good question for you:
http...... Also Sumner has a good question for you:<br /><br />http://www.themoneyillusion.com/?p=27169#comment-359068Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-80743866213040951602014-07-27T12:24:53.212-07:002014-07-27T12:24:53.212-07:00Another O/T: The title of this Marcus Nunes post c...Another O/T: The title of this Marcus Nunes post caught my eye:<br /><br />http://thefaintofheart.wordpress.com/2014/07/26/in-some-cases-the-central-bank-cannot-control-inflation-while-in-others-it-cannot-promote-it/#comments<br /><br />Also, thanks for pointing me to that Noah Smith post on why macro doesn't work very well... that and the one he did on John Cochrane's speech (or article?) along the same lines that he links to were really good.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-71421939403877359392014-07-27T12:19:17.174-07:002014-07-27T12:19:17.174-07:00Wait... then X = E[X]? Does that imply X is not a ...Wait... then X = E[X]? Does that imply X is not a random variable? You were telling me about something like that in the information transfer paper...<br /><br />Knowing you, you meant it just like that. Probably another layer to the joke that I'm not getting. (BTW, I'm assuming you are joking!).Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-64585679058526687322014-07-27T12:04:40.955-07:002014-07-27T12:04:40.955-07:00And does the value for X come straight out of one&...And does the value for X come straight out of one's a-posteriori? :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-76340672955215467932014-07-27T11:25:48.176-07:002014-07-27T11:25:48.176-07:00Expectations are X times more powerful than fiscal...Expectations are X times more powerful than fiscal stimulus where X is the expected value E[X] of the power of monetary policy relative to fiscal stimulus.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-74716682037556933002014-07-27T11:14:54.173-07:002014-07-27T11:14:54.173-07:00Jason, O/T: Sumner quoted from part of an intervie...Jason, O/T: Sumner quoted from part of an interview between David Andolfatto and Michael Woodford. I pointed out <a href="http://www.themoneyillusion.com/?p=27174#comment-359034" rel="nofollow">the ending of the interview</a> (which was not Scott's focus). No surprise that Scott doesn't agree with Woodford there, but this was the bit that confused me:<br /><br />"We haven’t even scratched the surface of what monetary policy can achieve. For instance NGDPLT is 100 times more potent than fiscal stimulus."<br /><br />How do you suppose he calculated that?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-26230806448739706582014-07-26T10:22:14.422-07:002014-07-26T10:22:14.422-07:00Hi Nick,
I could see saying something like "...Hi Nick,<br /><br />I could see saying something like "Y = C + I + G + NX <b>may</b> be useless", but saying "Y = C + I + G + NX <b>is</b> useless" precludes the "first order Keynesian" interpretation. The particular partition of Y is useful in Keynesian analysis with some implicit modeling assumptions; asserting its uselessness is assuming the Keynesian view is wrong <b>based on the identity alone</b>.<br /><br />Rearranging so that C = Y - ... simply rearranges the implicit modeling assumptions so that interaction between C and G is mathematically easier to represent. However it ignores the implicit assumptions in the partition itself. Y is an aggregate made of four not completely nebulous components. I could see making a forceful argument against the "Keynezians" who say Y = X + Z where Z is everything that has a Z in it. The Keynesian partition could be represented<br /><br />(1) Y = uncoordinated expenditure (C + I + NX) + coordinated expenditure (G)<br /><br />Coupling the implicit modeling assumptions above with the microeconomic coordination problem gives a generic Keynesian view. However asserting that partition is as useless as Y = X + Z means that you've made some implicit modeling assumption that includes very strong interactions between the components -- e.g. government spending crowds out private investment ( |∂I/∂G| ~ 1 ) or monetary offset can negate fiscal stimulus ( ∂Y/∂G = 0 ).<br /><br />The identity may be useless. But that isn't known as an unambiguous fact, so you can't say the identity <b>is</b> useless.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-77438645886603821662014-07-25T04:41:01.080-07:002014-07-25T04:41:01.080-07:00Jason: the identity (by itself) is useless because...Jason: the identity (by itself) is useless because it would be equally true for *all* modelling priors.<br /><br />Suppose I wrote the same identity as: C=Y-I-G-NX. Does that tell us that if G goes up it causes C to go down? No. If we do think it tells us that, we are being fooled by our own math.<br /><br />My whole point was that writing down a particular identity in a particular way can fool us into implicit modelling.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com