Understanding Hawks and Doves

Understanding Hawks and Doves

How do hawks and doves on the Federal Open Market Committee differ in their views of appropriate monetary policy and their related projections for inflation and unemployment? We find that hawks project higher inflation despite building tighter policy paths into their projections. Doves project lower inflation despite having easier policy paths, although their projections are somewhat closer to the median. In addition, hawks see a steeper inflation-unemployment tradeoff than doves up to a one-year horizon.

Source: Federal Reserve Bank of Kansas City

New NBER Working Paper: "The Role of Financial Policy"

From a new paper by Roger Farmer, "The Role of Financial Policy."

Abstract:

I review the contribution and influence of Milton Friedman's 1968 presidential address to the American Economic Association.  I argue that Friedman's influence on the practice of central banking was profound and that his argument in favour of monetary rules was responsible for thirty years of low and stable inflation in the period from 1979 through 2009.  I present a critique of Friedman's position that market-economies are self-stabilizing, and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neo-classical economists. 

Gated copy is available here.

New NBER Working Paper on Bitcoin Economics

From Some Simple Bitcoin Economics, by Linda Schilling and Harald Uhlig 

Abstract:

How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy.  There are two types of money, both useful for transactions:  Bitcoins and Dollars.  A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work.  We obtain a "fundamental condition," which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a "speculative" condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy.
Available at the National Bureau for Economic Research (NBER): Working Paper #24483  

The Evolution of U.S. Monetary Policy

A very readable overview of monetary policy in the United States by Robert L. Hetzel, a staff economist at the Federal Reserve Bank of Richmond.

Abstract: 

Since the establishment of the Federal Reserve System in 1913, policymakers have always pursued the goal of economic stability. At the same time, their understanding of the world and of the role of monetary policy has changed dramatically. This evolution of views provides a laboratory for understanding what kinds of monetary policy stabilize the economy and what kinds destabilize it.

Available here.

Anthony Saunders of Confounded Interest; "Bubbles Shiller P/E Ratio Nears Roaring ’20s Bubble High As Home Prices Increased 43.6% Since Feb ’16"

"Asset bubbles too are difficult to define, but I know it when I see it."
Enough said.

FEE: "The CPI is a False Guide for Monetary Policy"

An Austrian economist, Richard M. Ebeling,  takes on the Consumer Price Index.

The pricing subcategories highlight the smoke and mirrors that is the statisticians’ distinction between overall and “core” inflation. People will occasionally enter the market to purchase a new stove, couch, or bedroom set, and if the prices for these goods happen to be going down, or slowly rising, we may sense that our dollar is going further than in the past.

But buying goods like these is an infrequent event for virtually all of us. On the other hand, every one of us are in the marketplace paying for food, gas for our cars, paying heating and electric bills on a regular basis. The prices of these goods and services, in the specific brands and combinations that we as individuals choose to buy, are what we personally experience as a change in the cost-of-living and our personal rate of price inflation (or price deflation).

The Consumer Price Index is an artificial statistical creation, derived from thousands of individual prices, a statistical composite that only exists in the statistician’s calculations. It is the individual goods in the subcategories of goods that determine the change in the cost-of-living and the degree of price inflation (or deflation) that we each experience.

Read the whole article here.