"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Thursday, October 21, 2010

Really good links - Price level targeting - International Yuan - China - Mankiw - Social discount rate - Bailouts and AD

Dave Altig, senior vice president and research director at the Atlanta Fed - Benefits of sticking with a simple price level target - "Some potential benefits of simply sticking with a price-level target is that it (a) is clearly consistent with longstanding Federal Open Market Committee (FOMC) behavior (as attested to by the second chart above); (b) avoids a potentially confusing impression that the central bank is jumping from one framework to another to serve whatever is convenient at the moment; and (c) gives the public a clearer way to monitor if and when the long-term price-level objective is being compromised (as can be seen by comparing the implied tolerance bounds in the two charts above)"

Karl Smith - Paul Krugman and Yuan - "It should mean that when the Fed loosens policy, that China responds by loosening the International Yuan which in turn gets shunted towards commodities. Thus rather than boosting the consumer price level as we hope, Fed easing actually winds up boosting commodities.
        This is because China is offsetting the total increase in worldwide consumer demand by tightening the Yuan at home, and boosting the total increase in commodity demand by loosening the Yuan abroad.
        Thus this Yuan policy does all the wrong things."

Paul Krugman - China raises rates - "So, the United States is pursuing an expansionary domestic monetary policy, which increases overall world demand; however, a side consequence of this policy is a weaker dollar. China is pursuing a weak-yuan policy; to counter the inflationary domestic effects of that policy, it’s pursuing a contractionary domestic monetary policy, reducing overall world demand."

Greg Mankiw - Marginal tax rates - "Mike [Kinsley] says, "If Mankiw’s marginal tax rate has actually been 80 percent for all these years, it doesn’t seem to have affected his incentives very much, and 90 percent won’t, either."
        Mike might recall that he has, as an editor, several times tried to recruit me to write something for him. I turned him down every time. If he had offered me a reasonable fee, and somehow could have promised that this income and all the investment returns it subsequently generated would be free of all taxes, I might well have accepted the jobs."

Brad DeLong - Compound interest and social discount rate - "If long-term real interest rates are as Mankiw describes them, then either the future must be so filthy rich and so satiated with wealth that there is no point in saving, or it is profoundly irrational to consume more than bare subsistence today because the opportunity cost in terms of how much you are impoverishing the future is so large."

Karl Smith - Bailouts and Aggregate Demand

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