The post is in praise of interest on reserves and abundant reserves, with (of course) some suggestions for improvements.   and let me know if it isn't working.  ..read more

The term premium question is, do you earn more money on average holding long term bonds or short-term bonds? Related, is the yield curve on average upward or downward sloping? Should an investor hold long or short term bonds?  ..read more

And Fiscal Theory makes the Fiscal Theory of the Price Level list of best books for 2023 ..read more

Problem 1: The sign is "wrong" . There was video, but sadly I took too long to write this post and the NBER took down the conference video.  " observation. Prices are less sticky in high inflation countries. The Phillips curve more vertical. Output is less affected by inflation. The Calvo fairy visits every night in Argentina. To Lucas, high inflation comes with variable inflation, so people understand that price changes are mostly aggregate not relative prices, and ignore them. Gourio and Ngo use a new-Keynesian model with downwardly sticky prices and wages to express the idea.  Whe ..read more

has fallen, though I still suspect it may get stuck around 3-4%. But  "are 18.9% higher than its [their] pre-pandemic level." And some important prices have risen even more. "Rental costs continue to rise in lagged response to the 46.1% surge in home prices."  Those who are taking a victory lap about the end of  (the rate of change of prices) are befuddled by continuing consumer (and voter) anger.  Well, prices are not the same thing as inflation ..read more

I conclude that we don't have a simple economic model that produces the standard belief. ("Simple" and "economic" are important qualifiers.)  ), asking just what do we (we economists) really know about how interest rates affect inflation. Today, what does contemporary economic theory say?  like the standard story.  Models that modify that simple model to achieve something like result of the standard story do so with a long list of complex ingredients. The new ingredients are not just sufficient, they are (apparently) necessary to produce the desired dynamic pattern. Even these m ..read more

," several of my papers from the 1990s* and excellent recent reviews from  Maybe popular wisdom is right, and economics just has to catch up. Perhaps we will. But a popular belief that does not have solid scientific theory and empirical backing, despite a 40 year effort for models and data that will provide the desired answer, must be a bit less trustworthy than one that does have such foundations. Practical people should consider that the Fed may be less powerful than traditionally thought, and that its interest rate policy has different effects than commonly thought. Whether and un ..read more

This story is passed around like well worn truth. However, we'll see that it's actually much less founded than you may think. Today, I'll look at simple facts. In my next post, I'll look at current empirical work, and we'll find that support for the standard view is much weaker than you might think. Then, I'll look at theory. We'll find that contemporary theory (i.e. for the last 30 years) is strained to come up with anything like the standard view.   underlying her AEA presidential address, which concludes of current events that as a result of the Fed's recent interest-rate increase ..read more

 This is a question about which one can honorably disagree. (WSJ opeds have a hard word limit, so I did not have room for nuance on this issue.)  I think the answer here is simple: To Blinder there is no "nominal anchor." In my analysis, there is ..read more

asked Mike Boskin, Brigitte Granville,  Ken Rogoff and me whether 2% is the right inflation target. See the link for the other views. I pretty much agree with them in the short run -- don't mess with it -- but took a different long run view. Apparently Greenspan was a fan of price level targeting and hoped to get there eventually, which is the sort of long run approach I took here.  The price level measures the value of money. We don’t shorten the meter 2% every year. Confidence in the long-run price level streamlines much economic, financial, and monetary activity. The corresponding ..read more