Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)
Is Inflation Dead?
Some pundits seem to believe that improvements in how central banks operate mean that low inflation will continue forever. Kenneth Rogoff warns that slow productivity growth, high debt levels, pressure to reduce inequality through transfer payments, and unforeseen shocks may lead to higher inflation in the future.
Textbook References:
Pages 664-665 “Inflationary Threats”The Latest from Merle Hazard
The Fed fought the financial crisis and ensuing recession in part by pumping up bank reserves. When the economy recovers, this could generate high inflation if the Fed does not take steps to prevent it. Merle Hazard sings a humorous song about this "Great Unwind."
Textbook References:
Pages 664-665 “Bernanke and the Beast”A Hyperinflation Vacation
Graeme Wood argues that dollars (and other stable currencies) are in such high demand in countries with hyperinflation that such places make good vacation destinations.
Textbook References:
Pages 652-654 “Money and Prices during Four Hyperinflations”Hyperinflation in Hell
Comedian Yoram Bauman takes a humorous look at hyperinflation in hell.
Textbook References:
Page 652 “Money and Prices during Four Hyperinflations”February 22
MMT
The Washington Post discusses a school of thought called "Modern Monetary Theory." Its basic premise is that governments can never run out of money because they can print it. Moreover, governments should use that ability to increase spending.
Textbook References:
Page 15 “Principle 9: Prices Rise When Government Prints Too Much Money”Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
October 29
More on a Nominal GDP Target
Christina Romer endorses the idea that the Fed should target Nominal GDP.
Textbook References:
Pages 625-627 “The Federal Reserve System”Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand“
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?“
October 22
Fates to Avoid
Mankiw warns against the policy blunders made by Zimbabwe, Japan, Greece, and France.
Textbook References:
Pages 7-9 “Principle 4: People Respond to Incentives”Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Page 654 “Hyperinflation in Zimbabwe”
Page 662 “Inflation Is Bad, But Deflation May Be Worse”
October 18
A Target Path for Nominal GDP
Economists at Goldman Sachs want the Fed to target Nominal GDP
Textbook References:
Pages 625-627 “The Federal Reserve System”Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”
September 23
Why I am not very worried about inflation just now
Despite loose monetary policy, Mankiw is not worried about inflation. This is because growth in nominal wages has been so low.
Textbook References:
Pages 644-656 “The Classical Theory of Inflation”Pages 664-665 “Inflationary Threats”
September 18
Taylor on the Fed's Mandate
John Taylor argues that the Fed's goal should be price stability, not maximum employment.
Textbook References:
Pages 625-627 “The Federal Reserve System”Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”
June 9
Rajan on Monetary Policy
Raghuram Rajan discusses why extremely low interest rates have not boosted demand. He also notes that the Fed's policy punishes savers.
Textbook References:
Pages 7-9 “Principle 4: People Respond to Incentives”Pages 644-656 “The Classical Theory of Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
June 3
The Mistake of 1937
Gauti Eggertsson notes that policymakers in 1937 confused a rise in the relative prices of commodities for fundamental inflation. The result was bad policy decisions. He wonders if modern policymakers will make the same mistake.
Textbook References:
Pages 514-520 “The Consumer Price Index”Pages 664-665 “Inflationary Threats”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
February 27
Empiricists versus Theorists
Christina Romer argues that when inflation is low and the unemployment rate is high, there is little danger of inflation. She says that the Fed could engage in more aggressive quantitative easing, but seems to be overly worried about inflation expectations.
Textbook References:
Pages 14-15 “Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment”Pages 664-676 “The Classical Theory of Inflation”
Pages 809-810 “The Short-Run Phillips Curve”
January 4
Another Cost of Hyperinflation
Hyperinflation can distort one's perceptions of numbers.
Textbook References:
Pages 672-673 “Money and Prices During Four Hyperinflations”Page 675 “A Recipe for Economic Disaster”
December 18
Menu Costs During Hyperinflation
A photograph shows how people deal with menu costs during a hyperinflation.
Textbook References:
Page 675 “A Recipe for Economic Disaster”Page 679 “Menu Costs”
November 13
Help me find the photographer
A photograph shows how worthless Zimbabwe's currency has become.
Textbook References:
Page 675 “A Recipe for Economic Disaster”October 12
Woodford on Monetary Policy
Michael Woodford argues that the Fed "should allow a one-time-only inflation increase." He argues that such a move would boost current spending via its effect on expectations.
Textbook References:
Pages 654-655 “The Financial Crisis of 2008”Pages 664-676 “The Classical Theory of Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 821-822 “Bernanke's Challenges”
May 20
Follow the Money
There is a short video showing how money circulates in the U.S.
Textbook References:
Pages 670-672 “Velocity and the Quantity Equation”March 23
An Inflation Debate
Michael Kinsley and Paul Krugman disagree about how likely hyperinflation is in the U.S.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”Pages 591-593 “A History of U.S. Government Debt”
Chapter 30 “Money Growth and Inflation”
January 16
The Inflation Monster
Mankiw considers the chances of significant inflation in the coming years.
Textbook References:
Pages 13-14 “Principle 9: Prices Rise When the Government Prints Too Much Money”Pages 645-647 “Money in the U.S. Economy”
Chapter 30 “Money Growth and Inflation”
December 28
The Monetary Base is Exploding. So What?
Mankiw argues that the recent increase in the monetary base need not lead to inflation.
Textbook References:
Pages 649-658 “Banks and the Money Supply”Pages 664-676 “The Classical Theory of Inflation”
October 22
From the CEA Chair
Christina Romer discusses the economic crisis, the policy response, and the outlook for the future.
Textbook References:
Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Pages 664-676 “The Classical Theory of Inflation”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Chapter 35 “The Short-Run Trade-off between Inflation and Unemployment”
Chapter 36 “Five Debates over Macroeconomic Policy”