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(CNN)   Economists yelling for Yellen   (money.cnn.com) divider line 3
    More: Interesting, Janet Yellen, Federal Reserve, Moody's Analytics, Treasury Secretary Larry Summers, economists, Mark Zandi  
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1669 clicks; posted to Business » on 06 Aug 2013 at 9:54 AM (50 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-08-06 03:18:39 PM
1 votes:
Baby Boomer consumerism is going extinct, so it doesn't matter how much money they print. No one is buying shiat.
2013-08-06 02:27:24 PM
1 votes:

Lost Thought 00: The operation of the Fed is pretty much determined automatically by their mandate as compared against leading economic indicators. Is there any reason not to simply have it run by an algorithm?


The ideal dumb algorithm, from what I read, would be NGDP targeting. Basically the Fed saying "the US economy, measured in dollars, WILL grow at (e.g.) 2% per year." If they were committed to that, it would make lots of problems go away - coordination, inflation expectations, possibly even the Zero Lower Bound. And it should be within their power (never bet against the printing press).

How much of that 2%/year goes into real growth vs. inflation is entirely up to other factors: fiscal policy, markets, etc.

Though if you had to tweak the growth rate because the economy "wanted" to grow faster than 2% real and holding it back was causing too much unemployment, we might be right back where we started with a Taylor-rule dual mandate.

/My favorite Occupy protest sign: "F*** Opportunistic Disinflation - it's a DUAL mandate"
2013-08-06 01:14:38 PM
1 votes:

Lost Thought 00: The operation of the Fed is pretty much determined automatically by their mandate as compared against leading economic indicators. Is there any reason not to simply have it run by an algorithm?


A lot of people think it pretty much is under normal circumstances. The 'Taylor rule' (http://en.wikipedia.org/wiki/Taylor_rule) is a formula where the central bank sets an interest rate based on targets for growth and inflation, with weights on each for their relative importance. For political reasons, the fed will never admit to following a Taylor rule, but a lot of analysts think that, particularly under Volcker, they did use it in practice. I've heard arguments that Greenspan made the housing bubble worse by keeping credit loose in the 2000s, even though the rule would suggest he could have tightened it. A lot of countries go even simpler than the Taylor rule, with just an explicit inflation target and more or less automatic changes in monetary policy to try to hit the target.
Where algorithms break down is when something extreme happens, like the recession in 07. The problem with big recessions is that the real interest rate bottoms out at about -1% (0.125% nominal interest minus about 1% inflation), so conventional monetary policy kind of runs out of power past a certain point and you need to do things like QE and all the assorted ways in which the Fed intervened to keep markets from locking up completely (which are seriously complicated and need to be developed case by case for each different crisis). The Fed's like a car: 95% of the time a computer could run it as well as, or arguably better than, humans. But the 5% of the time when something unexpected happens and the usual routines break down, you need a person at the wheel who can adapt and improvise. That's why people who can handle an economic crisis well, like Bernanke or Mark Carney here in Canada, are so valuable. The Brits offered Carney a 7 figure salary to poach him over to England and fix all their shiat. Economics is a soft science, and expert judgement seems to trump formulas most of the time.
 
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