Wolfgang Münchau

Wow. Wolfgang Münchau on macro:

"The mainstream invested a life’s work in developing their DSGE models. They will not let go easily.... My hunch is that, unlike in mathematics, the successful challenge will come from outside the discipline, and that it will be brutal."

Bernanke on term premiums and wage hikes

German wage hikes: A small step in the right direction by Ben Bernanke

Why are interest rates so low, part 4: Term premiums by Ben Bernanke

the Euler equation and modern macro

The equation at the core of modern macro by Noah Smith

Game of Thrones

new excerpt from The Winds of Winter

global secstags or no?

Secular stagnation and capital flows - can capital flows mitigate or even eliminate the problems generated by secular stagnation? by Jérémie Cohen-Setton on 7th April 2015

Do You Really Want to Know How Ben Bernanke Thinks? Also Larry Summers and Paul Krugman by DeLong (April 5, 2015)

Germany's trade surplus is a problem by Ben Bernanke (April 3, 2015)

The global secular savings stagnation glut by Ryan Avent (Apr 3rd 2015, 16:23)

The New Job Figures and Secular Stagnation by John Cassidy

Larry Summers and Ben Bernanke are having the most important blog fight ever by Matt O'Brien (April 2, 2015)
Ben Bernanke and the "Ask Nicely" Strategy for the Trade Deficit by Dean Baker (April 2, 2015)

Bernanke Says Global Imbalances Bedevil the World Economy. Discuss. by Josh Barro (April, 2, 2015)

Krugman and Summers Versus Bernanke on Secular Stagnation by Dean Baker (Thursday, 02 April 2015 05:29)

Full Employment, Trade Deficits, and the Savings Glut: A Fascinating Debate in the Macro Blogosphere by Jared Bernstein (April 2nd, 2015 at 9:29 am)

Liquidity Traps, Local and Global (Somewhat Wonkish) by Krugman (April 1, 2015 6:12 PM)

Economist's View discussion

Why are interest rates so low, part 3: The Global Savings Glut by Ben Bernanke (April 1, 2015 11:00am)

On Secular Stagnation: A Response to Bernanke by Larry Summers (April 1, 2015 7:30am)
link to Summers's website

Why are interest rates so low, part 2: Secular stagnation by Ben Bernanke ( March 31, 2015 11:00am)

I think Krugman and Summers are saying that even if we eliminate the trade deficit, we'd continue to stagnate and private investment levels would continue to shrink.

What is the level of world savings and investment? Who is saving too much? Look at Bernanke's third entry.

liquidity traps and capital flows

Liquidity Traps, Local and Global (Somewhat Wonkish) by Krugman

Better Call Saul

AV Club reviews Better Call Saul, “Pimento” 

“They call it the caviar of the South.”

Barney Frank, Obama, TARP and homeowner relief

Question for Brad DeLong and the Debt School of the Downturn: What Would Our Saving Rate Be If We Didn't Have Debt? by Dean Baker, Monday, 01 December 2014 05:32

via DeLong

David Dayen: Barney Frank Explains the Financial Crisis: “The TARP legislation included specific instructions to use a section of the funds to prevent foreclosures…

…Without that language, TARP would not have passed…. The Bush administration… used none of the first tranche on mortgage relief, nor did Treasury Secretary Henry Paulson use any leverage over firms receiving the money to persuade them to lower mortgage balances and prevent foreclosures. Frank made his anger clear over this ignoring of Congress’ intentions at a hearing with Paulson that November…. Frank writes, ‘Paulson agreed to include homeowner relief in his upcoming request for a second tranche of TARP funding. But there was one condition: He would only do it if the President-elect asked him to.’…

Obama rejected the request, saying ‘we have only one president at a time.’ Frank writes, ‘my frustrated response was that he had overstated the number of presidents currently on duty’…. Obama’s unwillingness to take responsibility before holding full authority doesn’t match other decisions made at that time. We know from David Axelrod’s book that the Obama transition did urge the Bush administration to provide TARP loans to GM and Chrysler…. It was OK to help auto companies prior to Inauguration Day, just not homeowners. In the end, the Obama transition wrote a letter promising to get to the foreclosure relief later, if Congress would only pass the second tranche of TARP funds. Congress fulfilled its obligation, and the Administration didn’t….

Frank… first leveled [this] in May 2012 in an interview with New York magazine. Nobody in the Obama Administration has ever denied the anecdote…. I suppose those reviewing ’Frank’ can offer an excuse about this being ‘old news’…. The political media’s allergy to policy is a clear culprit here. Jamie Kirchick’s blanket statement in his review of ‘Frank’ that ‘readers’ eyes will glaze over’ at the recounting of the financial crisis is a typical attitude. But… people [who] suffered needlessly for Wall Street’s sins… would perhaps be interested in understanding why…

Bernanke

Former Federal Reserve Board Chair Ben Bernanke gave the keynote speech at a Center on Budget and Policy Priorities forum on policies that promote economic growth and employment.

Greece

Destroying the Greek economy in order to save it by Mark Weisbrot

It could hardly be more obvious that this is not about money or fiscal sustainability, but about politics. This is a government that European authorities didn’t want, and they wish to show who is boss. And they really don’t want this government to succeed, which would encourage Spanish voters to opt for a democratic alternative — Podemos — later this year. 

The IMF projected the economy to grow by 2.9 percent this year, and until the last month or so, there was good reason to believe that — as in 2014, after years of gross overestimates — its forecast would be on target. This growth would likely have kept Syriza’s approval ratings high, together with its measures to provide food and electricity to needy households and other progressive changes. The ECB’s actions, by destabilizing the economy and discouraging investment and consumption, will almost certainly slow Greece’s recovery and could be expected to undermine the government’s support. 

If carried too far, European officials’ actions could inadvertently force Greece out of the euro — a dangerous strategy for all concerned. They should stop undermining the economic recovery that Greece will need if it is to achieve fiscal sustainability.

Bernanke, Krugman, Piketty, and Stiglitz

Why are interest rates so low? by Ben Bernanke

video of "Thomas Piketty, Paul Krugman and Joseph Stiglitz: The Genius of Economics"

Immigrant Song

We come from the land of the ice and snow,
From the midnight sun where the hot springs flow.
The hammer of the gods will drive our ships to new lands,
To fight the horde, sing and cry: Valhalla, I am coming.

"euthanasia of the rentier"

Weekend Reading: John Maynard Keynes on the "Euthanasia of the Rentier" by DeLong

Yellen speech on normalizing policy

Normalizing Monetary Policy: Prospects and Perspectives by Janet Yellen

Krugman and the General Theory, DeLong on Keyens

Today's Economic History: John Maynard Keynes on the Trade Cycle by DeLong

People Claiming That Even John Maynard Keynes Is No True Keynesian!: April Fools Festival Day XVIII by DeLong

Introduction by Paul Krugman to The General Theory of Employment, Interest, and Money, by John Maynard Keynes

Piketty in JEP

Putting Distribution Back at the Centerof Economics: Reflections onCapital in the Twenty-First Century by Piketty

DeLong, Fed, and Confidence Witch

The Assumptions Behind the Federal Reserve’s Choice of 2% per Year Were Erroneous: Focus by DeLong

The Confidence Witch by Francesco Saraceno

Kalecki

Political Aspects of Full Employment

"Kalecki" at EV saying monetary policy doesn't work.

Steve Randy Waldmann

That wasn't full employment monetary policy. That was monetary policy taking advantage of "opportunistic disinlflation" in order to keep labor markets wrong. Meanwhile financial markets were deregulated. Deregulating financial markets is not monetary policy. Waldman is wrong here.

Game of Thrones: Catch the Throne: The Mixtape, Volume 2

via the Soundcloud

Sumner on Krugman and Europe

Krugman on European Growth and the Euro

For simplicity, suppose we started with US and eurozone interest rates being equal. After the monetary injection the eurozone rates are lower.  So the euro is expected to appreciate.  But in the long run it’s expected to be 10% lower.  That means the immediate effect of a monetary stimulus shock must be a more that 10% decline in the euro.  Dornbusch called this exchange rate overshooting.  The model is composed of 4 theories (QTM, PPP, IPT, liquidity effect.)  Most of us are not as adept at juggling 4 theoretical balls in the air at the same time as Krugman, so we struggle with the concept.  As for empirical evidence, these things are hard to test. I’d argue that each component is pretty well established, and that’s good enough (and I suspect Krugman would agree.)  In any case, it’s too beautiful a theory not to use once and a while.  Here’s Krugman:

So, can we say anything about how the recent move in the euro fits into this story? One way, I’d suggest, is to ask how much of the move can be explained by changes in the real interest differential with the United States. US real 10-year rates are about the same as they were in the spring of 2014; German real rates at similar maturities (which I use as the comparable safe asset) have fallen from about 0 to minus 0.9. If people expected the euro/dollar rate to return to long-term normal a decade from now, this would imply a 9 percent decline right now. 

What we actually see is almost three times that move, suggesting that the main driver here is the perception of permanent, or at any rate very long term European weakness. And that’s a situation in which Europe’s weakness will be largely shared with the rest of the world — Europe will have its fall cushioned by trade surpluses, but the rest of us will be dragged down by the counterpart deficits. 

Now, this is not how most analysts approach the problem. They make a forecast for the exchange rate, then run this through some set of trade elasticities to get the effects on trade and hence on GDP. Such estimates currently indicate that the dollar will be a moderate-sized drag on US recovery, but no more. What the economic logic says, however, is that if that’s really true, the dollar will just keep heading higher until the drag gets less moderate.

Krugman’s looking at real rates to abstract from inflation.  While the Dornbusch overshooting model does a nice job of explaining the recent dramatic plunge in the euro, the model also predicts that the real exchange rate is unaffected in the long run. But that’s because interest rates are unaffected in the long run.  Krugman’s readers don’t know this, but unless I’m mistaken he’s arguing that the recent fall in long-term interest rates in Europe is the income effect, not the liquidity effect.  I actually like that argument, but it’s not the way Keynesians usually look at changes in long-term rates occurring in close proximity to QE.  Most Keynesians would say the ECB is driving bond long term bond yields lower.

So Krugman’s arguing that the big fall in the expected 10-year future exchange rate reflects worsening prospects for long term European growth, not just monetary stimulus.  That argument makes sense to me.  But he’s also arguing that this increasing long-term pessimism occurred at almost exactly the same time that expectations of short-term growth became more optimistic.  That might be true, but I kinda doubt it. And yet I can’t think of a better explanation for the fall in the future expected value of the euro.

So I’ll file this under “unresolved problems.”