tag:blogger.com,1999:blog-582368152716771238.post3276558490264677576..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Macro Handbook 2John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-582368152716771238.post-47384269910463161072015-04-17T22:08:24.593-05:002015-04-17T22:08:24.593-05:00"I opined that most of the "uncertainty&..."I opined that most of the "uncertainty" was about how much you have to torture estimates to avoid the conclusion that interest rate rises raise output and inflation." --John Cochrane.<br /><br />Does it work the other way too? Do cuts in interest rates cut inflation?<br /><br />Should the Fed adopt a 0% inflation target now, and, to get there, go to negative interest rates? <br /><br />When Fed Chairman Paul Volcker dramatically raised rates in 1981 (and when the Reagan Administration was running large primary and total federal budget deficits), that seemed to "crack" inflation. Did 1980s inflation really fall in response to Volcker's reduction in rates that soon followed?<br /><br />In a nation with chronic deflation, it makes sense, of course, for businesses and consumers to move to cash as a savings vehicle (no bank administrative costs, and a risk-free investment barring robbery), and then to use ready cash to avoid taxes on transactions. <br /><br />It is wise policy for central banks to shoot for minor deflation, or even low inflation, given the ready availability of cash? <br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com