Prices vs. inflation and a mortgage puzzle

Mickey Levy's excellent WSJ oped leaves some thoughts. 

Inflation has fallen, though I still suspect it may get stuck around 3-4%. But prices "are 18.9% higher than its [their] pre-pandemic level." And some important prices have risen even more. "Rental costs continue to rise in lagged response to the 46.1% surge in home prices."  Those who are taking a victory lap about the end of inflation (the rate of change of prices) are befuddled by continuing consumer (and voter) anger. 

Well, prices are not the same thing as inflation.

Evergreen expectations

 

A lovely plot from the always interesting Torsten Slok. The graph shows the actual federal funds rate, together with the path of "expected" funds rate implicit in fed funds futures market prices. (Roughly speaking the futures contract is a bet on where the Fed funds rate will be at various dates in the future. If you want to bloviate about what the Fed will do, it's easy to put your money where your mouth is!) 

A lot of graphs look like this, including the Fed's "dot plot" projections of where interest rates will go, inflation forecasts, and longer term interest rate forecasts based on the yield curve (yields on 10 year bonds imply a forecast of one year bonds over the 10 year period.) Just change the labels. 

Leonhardt on investment

 David Leonhardt's pean to investment in the Sunday NY Times Magazine starts well:

A cross-country trip today typically takes more time than it did in the 1970s. The same is true of many trips within a region or a metropolitan area....Door to door, cross-country journeys often last 10 or even 12 hours.

Bhattacharya on Covid censorship

A week ago Jay Bhattacharya gave a great talk at the weekly Stanford Classical Liberalism workshop. (Link in case the embed doesn't work.) He detailed the story of government+media Covid censorship, along with the dramatic injunction in the Missouri v. Biden case. The discovery in that case alone, detailing how the administration used the threat of arbitrary regulatory retaliation to get tech companies to censor covid information -- along with other matters, including the Hunter Biden laptop -- is astonishing. We now know what they did, no matter what judges say about its technical legality. 

Political prisoner dilemma

This is a draft oped. It didn't make it as events in Israel are now consuming attention. But sooner or later we need to elect a president and live with the results. I went light on the economics, but you can see the basic game theory of the analysis. It amplifies some comments I made on Goodfellows. 

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 If, as it appears, the election will come down to Trump vs. Biden, the US is headed for a constitutional crisis, and the social, and political chaos that implies. Like prisoners of the economists’ dilemma, there seems no easy way out. 

Whichever wins, the others’ partisans will pronounce the president to be fundamentally illegitimate. In turn, Illegitimacy justifies and emboldens scorched-earth tactics, more norm-busting and institution-destruction.

Heterogeneous Agent Fiscal Theory

Today, I'll add an entry to my occasional reviews of interesting academic papers. The paper: "Price Level and Inflation Dynamics in Heterogeneous Agent Economies," by Greg Kaplan, Georgios Nikolakoudis and Gianluca Violante. 

One of the many reasons I am excited about this paper is that it unites fiscal theory of the price level with heterogeneous agent economics. And it shows how heterogeneity matters. There has been a lot of work on "heterogeneous agent new-Keynesian" models (HANK). This paper inaugurates heterogeneous agent fiscal theory models. Let's call them HAFT.