The CBO says… moooo

I imagine this is how it worked for court alchemists. The CBO says that it has been ordered to give a prediction of the effect the ARRA and so it has. The Economists suggests this reverse crystal ball gazing is valid because its model driven. Alchemy was model driven: if there is a Philosopher’s Stone, […]

A neat application of Robustness

Robustness is a fledgling literature in Macro. The primary concern of robust analysis is that we don’t know the exact model of the economy and this model uncertainty has policy implications. Also, the math is neat. Uncertainty about what the correct model is causes optimal policy to give heavy weight to worse-case scenarios. Ellison and […]

Dear liberal overlords

Meta-listen to this guy: Liberals pundits should listen to Krugman’s economic analysis of monetary policy, and ignore his pessimistic political views on its feasibility. when you listen to that guy. And consider the fact that that guy didn’t win the Noble prize in political punditry. Thanks.

The New Expectations Revolution

Sumner writes his manifesto. In the 70′s they discovered expectations mattered. Since then “expectations are important” has been muttered towards the end of macro lectures but the idea hasn’t sunk in. Sumner wants to make expectations the central concept of the discipline. Expected future outcomes (like inflation and output) determine today’s outcomes via the capital […]

*The* lesson from the Great Depression

Sumner: Because the growth that comes from rising AD strikes our intuition as a sort of “something for nothing” process, we are especially likely to fall into the mistake of thinking in zero sum game terms whenever examining international economic linkages. Common sense suggests that a low yuan cannot help both China and the rest […]

No they don’t

Paul Krugman: A perfectly standard New Keynesian model, with intertemporal optimization and all that — the kind of model that is standard in freshwater courses — says that under current conditions fiscal stimulus should be very strong… (emphasis added) The abstract from a perfectly standard New Keynesian model: This paper argues that if the zero […]

Why do expectations matter?

I meant to link this last week… but such is life when trying to convince your advisors you’re ready for the job market. I went after Prof. Delong for having an abnormal view of how normal monetary policy works but I didn’t tell you what the actual non-abnormal normal view was. Prof. Sumner does: Now […]

Ugh…

You can call Federal Reserve policies aimed at the sending of signals that alter the expected rate of future inflation “monetary policy” if you want, but then you lose analytical clarity–because the way such policies work (if they work) is not the “normal” way that “normal” monetary policy works. — Prof. Delong New rule: to […]

Yes, Keynes was a smart guy

I’ve mentioned before that I’ve attempted The General Theory on several occasions but have never really “got” it. Knowing Keynes was a smart guy and he basically founded the field I research in, I assume the problem is me not him. Really. Judge Posner wrote a “Nixon in China” summary of the book which is […]

You read this!

If you’re tired of Sumner (how would that even be possible?) and you suspect Krugman is blowing smoke (totally possible), then read this Altig post about the problems with modern macro (which he calls New Keynesian hence Krugman’s smoke). Altig works for the Fed so he’s tainted, of course, because “real criticism of the central […]