tag:blogger.com,1999:blog-582368152716771238.post2403092809137935114..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: New Keynesian StimulusJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-582368152716771238.post-87050287434701694402012-05-02T11:32:59.033-05:002012-05-02T11:32:59.033-05:00How can you suggest that the federal government wi...How can you suggest that the federal government will cut spending, and that people can plan around that action, when the federal government has never cut spending? The debt under Clinton expanded by almost three trillion dollars and spending was expanded.Will Hayeshttps://www.blogger.com/profile/08506411336035493134noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69894224025073341562012-01-29T14:45:30.160-06:002012-01-29T14:45:30.160-06:00argh! who ever said anything about hyperinflation?...argh! who ever said anything about hyperinflation?!? we're tailing about tolerating 4-5% inflation for a couple of years, to encourage businesses (and people) to sit on less cash and spend a bit more. (And to bring prices back up to trend.) And we're talking about the government spending a bit more (and adding to public debt) to compensate for all the people who are busy paying off their private debt.<br /><br />which part of this is hard to understand?!?rob.impa.brhttps://www.blogger.com/profile/09997250847068598127noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-13189075902742959072012-01-26T07:52:35.102-06:002012-01-26T07:52:35.102-06:00I have just found a note in a periodic that shows...I have just found a note in a periodic that shows the obvious fact that that no price system can support as a competitive equilibrium an allocation that is not Pareto efficient by means of contraposition reasoning for the demonstration look at(http://www.alexbcunha.com/research/pub/paper09.pdf). At least theoreticaly, it forces us to conclude that in the absence of externalities, markets tend to converge to Pareto eficient positions. <br />You can argue by saying that the very existence of regulation already means an externality and that even the most efficient market in the world is doomed to turn into a monopoly of a supereficient player. You can also argue that markets are in constant change due to facts like creative destruction and that it means that any kind of intervention is destructive due non-systematic risk. But I believe you cannot say that changing regulation hasn't got the very same problems with the adiction of political prolems such as Lobbies and interpretational distortions. <br />I mean. in my ignorance, it seems to me you are offering a medicine which is by definition incapable of healing the patient. That's the reason I would love to hear your opinion on the issue ....Eduardo Weiszhttps://www.blogger.com/profile/03047849830283545090noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59393587120599664522012-01-25T10:01:29.548-06:002012-01-25T10:01:29.548-06:00Hi,
just a quick heads-up: I went through the late...Hi,<br />just a quick heads-up: I went through the latest Werning paper on liquidity traps (admittedly not the same as any run-of-the-mill recession), and I did not notice the multiple equilibria problem or the reliance on future hyperinflation (some inflation, yes, but importantly, a boom, as he emphasizes). But he admittedly builds on a Woodford-Eggertson-type model. So what's the weakness here?<br />http://bit.ly/oCVvok<br /><br />I hope future posts will clarify the subtleties.<br /><br />Thanks!Anonymoushttps://www.blogger.com/profile/12979135259213557607noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21824186367918020342012-01-24T20:33:00.111-06:002012-01-24T20:33:00.111-06:00Mr Cochrane,
In regards to your comments about you...Mr Cochrane,<br />In regards to your comments about your alleged "Iron Discipline" of models, let me give you the words of Mr Paul Krugman (http://krugman.blogs.nytimes.com/2011/03/10/ricardian-confusions-wonkish/),<br /><br />"Here’s what we agree on: if consumers have perfect foresight, live forever, have perfect access to capital markets, etc., then they will take into account the expected future burden of taxes to pay for government spending. If the government introduces a new program that will spend $100 billion a year forever, then taxes must ultimately go up by the present-value equivalent of $100 billion forever. Assume that consumers want to reduce consumption by the same amount every year to offset this tax burden; then consumer spending will fall by $100 billion per year to compensate, wiping out any expansionary effect of the government spending.<br /><br />But suppose that the increase in government spending is temporary, not permanent — that it will increase spending by $100 billion per year for only 1 or 2 years, not forever. This clearly implies a lower future tax burden than $100 billion a year forever, and therefore implies a fall in consumer spending of less than $100 billion per year. So the spending program IS expansionary in this case, EVEN IF you have full Ricardian equivalence."<br /><br />Understood? This is one of the talking points of the Chicago school that doesn't seem to go away. PLEASE be a part of the solution.Daniel Urdanetahttps://www.blogger.com/profile/16898809180605193376noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20266800032929206172012-01-24T16:46:13.211-06:002012-01-24T16:46:13.211-06:00Dear John;
I have written a blog post that discus...Dear John;<br /><br />I have written a blog post that discusses some aspects of your JPE paper mentioned in this blog post:<br /><br />http://blog.hjeconomics.dk/2012/01/24/new-keynesian-explosions-the-cochrane-interpretation-and-explosive-solution/<br /><br />I don't quite agree with your exposition of New Keynesian models, or lack thereof, but you will see that I generally like the paper very much.<br /><br />I hope I am not misrepresenting anything; if it's the case, feel free to comment.<br /><br />Best,<br /><br />Henrik Jensen<br />University of CopenhagenHenrik Jensenhttps://www.blogger.com/profile/04159500801647150362noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66019518202223786212012-01-24T11:46:18.789-06:002012-01-24T11:46:18.789-06:00@Mr.Cochrane
I know I am going a bit OT, sorry for...@Mr.Cochrane<br />I know I am going a bit OT, sorry for this, but today I read the following mentioning multiple equilibria:<br />"Mispricing of sovereign risk and multiple equilibria in the Eurozone", http://www.voxeu.org/index.php?q=node/7553<br />The more general theoretical stuff about stimulus is interesting, and thank you very much for continuing to develop the argument! Nevertheless if you have time and you wish to do that, I would like to know your opinion on the euro situation.Anonymoushttps://www.blogger.com/profile/14377623855540455028noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75013058540985250182012-01-23T05:21:03.159-06:002012-01-23T05:21:03.159-06:00Prof. Cochrane, I am not at your level and am just...Prof. Cochrane, I am not at your level and am just an interested dummie when we talk about economics. But there things that are not clear to me in your post:<br /><br />1. You say that inflation targeting shifts the economies's equilibrium. Ok, that's obviously true. But if I understood it correctly, they do based in the first and second wellfare theorems. So, in short, you are questioning the validity of those theorems. Is there any studies on this issue? Could it give this discussion an end? I mean, if market automatically converges to equilibrium, perhaps Krugamn's argument makes complete sense for me ....<br /><br />2. When you talk about Ricardian Equivalence, you are supposing that with a rise in government expenditures means a intertemporal decrease in consumption because the agents knows for a fact they are the ones to pay it in the future. Correct? What I don't understand is that it actually means that the impact of the government expediture will be diluted in time, so that there is an actual increase in DA in the short run. Where am I wrong?<br /><br />ThaksEduardo Weiszhttps://www.blogger.com/profile/03047849830283545090noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71019457194313261752012-01-22T19:36:05.428-06:002012-01-22T19:36:05.428-06:00Here is the criticism:
With all due respect, you ...Here is the criticism:<br /><br />With all due respect, you don't fully understand the rationale behind the fiscal stimuli.<br /><br />People (the NK people) who advocate them have rather the short-term effect in mind (about the long-term effect later). Economy is in crisis, and it is not a regular cyclical crisis. Probably, the proper solution would require big structural and systemic changes (and perhaps even a paradigm change). So, financial stimuli alleviate short-term difficulties while the economy and politico-economic leaders are contemplating the proper response based on the scientific and political considerations.<br /><br />There is also a long-term effect though it is probably rather of theoretical than of a practical matter, which I don't want to discuss here -- since it is still rather a work in progress and this blog is not a proper platform for that.<br /><br />fiscal_stimulusAlex Krouglovhttps://www.blogger.com/profile/14607334043347809085noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5389872905575568182012-01-22T16:05:40.165-06:002012-01-22T16:05:40.165-06:00The impression I had gotten from Steve Williamson ...The impression I had gotten from Steve Williamson was that most of the focus in NK had gone to sticky wage/price models, with multiple-equilibrium models being (in his opinion) unfairly neglected.TGGPhttps://www.blogger.com/profile/11017651009634767649noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-45447760821481324462012-01-22T10:25:57.150-06:002012-01-22T10:25:57.150-06:00On that last post: change "not wildly unreali...On that last post: change "not wildly unrealistic" to "not realistic" or "wildly unrealistic," take your pick. I believe the latter is a better characterization, but I don't know this literature very well, so maybe someone will convince me that this view is wrong.<br /><br />DanDan O'Brienhttps://www.blogger.com/profile/15431586007792152981noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43208095260894845752012-01-22T10:05:15.835-06:002012-01-22T10:05:15.835-06:00I am a microeconomist with a very basic question f...I am a microeconomist with a very basic question for the New Keynsian folks. The model of Christiano et al. and others in this lterature assume that prices are sticky. If I am reading correctly, a numerical example in Christiano et al. assumes that the price of every input supplier in the economy is fixed at last period's value with probability .85. That is, each period there is only a 15 percent chance that an input supplier will re-optimize it's price. In the example, it appears that one period is one year. So in the face of a large negative shock, there is an 85 percent chance that each input supplier will stand and watch its demand tank for a full year without being able to respond by adjusting its price! Is this correct?<br /><br />Commodity prices plumetted in the middle of 2008. If the model requires this degree of stickiness to fit the data, the model is not wildly unrelistic. What am I missing? <br /><br />A problem I've always had with these models is that they usually make the ad hoc assumption that the speed of price adjustment is exogenous and independent of the size of the shock. However, is there any doubt that a firm's incentive to adjust price depends on the size of the shock (and probably many other factors)? "Menu costs" (or pick your favorite friction) will not cause an oil producer to hold its price 20% above market for a year as its demand plummets. What am I missing?<br /><br />Dan O'BrienDan O'Brienhttps://www.blogger.com/profile/15431586007792152981noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-85671681985668024192012-01-22T04:14:41.275-06:002012-01-22T04:14:41.275-06:00Here you go, LAL: http://en.wikipedia.org/wiki/Ric...Here you go, LAL: http://en.wikipedia.org/wiki/Ricardian_equivalence<br /><br />Ricardian equivalence states that it doesn't matter if government spending is financed by taxes now or by deficits because taxpayers will respond to deficits by reducing consumption in anticipation of future taxes.<br /><br />Those who use Ricardian models to argue in favor of deficit spending to achieve stimulus, but who would not support a tax increase to finance that same stimulus, are treating their Ricardian models as though they are not Ricardian at all.<br /><br />That's my understanding, anyway. Hope it helps.Pax Empyreanhttps://www.blogger.com/profile/04889654524008462887noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17954902479073539432012-01-22T04:11:34.277-06:002012-01-22T04:11:34.277-06:00This comment has been removed by the author.Pax Empyreanhttps://www.blogger.com/profile/04889654524008462887noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-40904722247868704802012-01-21T23:21:38.089-06:002012-01-21T23:21:38.089-06:00Hello,
Thanks for the article, I have a quick que...Hello,<br /><br />Thanks for the article, I have a quick question though: what did you meant when you said "Ricardian" ?<br /><br />At this point in the blogodebates I have really lost sight of the fundamental definitions.LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.com