tag:blogger.com,1999:blog-8764541874043694159.post5397932654479611404..comments2024-03-28T07:33:46.151+00:00Comments on Coppola Comment: Interest rates and deflationFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger54125tag:blogger.com,1999:blog-8764541874043694159.post-35608433241697365302014-03-27T20:39:43.588+00:002014-03-27T20:39:43.588+00:00Travis,
No, there is no equivalent of TIPS spread...Travis,<br /><br />No, there is no equivalent of TIPS spreads in Europe. And because most financing in Europe comes from banks not stocks, stock markets are nowhere near as useful as they are in the US. Bond markets are much more significant.<br /><br />Americans really need to look beyond their own borders. Europe is very different from the US. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28258849424723853492014-03-27T20:29:17.235+00:002014-03-27T20:29:17.235+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Couple points:<br /><br />(1) I'm not an authoritative expert. I imagine someone like Sadowski, Sumner or Beckworth would be better at finding the relevant data and interpreting it than me.<br /><br />(2) I'm not sure Sumner or Sadowski would consider bond prices a reliable indicator. In general, we don't consider them to be very reliable here in the U.S. With bond price changes, it's difficult to disentangle changes in the liquidity effect, income effect, price level effect and the expected inflation (Fisher) effect.<br /><br />I think they consider changes in TIPS spreads the most useful indicator of all. Is there anything equivalent in Europe? After that, I think stock prices are considered the second-most useful (for gauging the impact of surprise changes in policy).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63877746542695305582014-03-27T20:08:03.517+00:002014-03-27T20:08:03.517+00:00Travis,
What made by far the biggest difference t...Travis,<br /><br />What made by far the biggest difference to Eurozone bond prices was the OMT announcement. Prior to that, the ECB had given no indication that it would act to preserve the integrity of the Eurozone, so (with the precedent of ERM) markets were anticipating a possible disorderly breakup, one or more countries leaving and redenomination with a vast devaluation. OMT was a clear signal from the ECB that it would "do whatever it takes" (in Draghi's words) to preserve the integrity of the Eurozone. Unfortunately the legality of OMT has now been challenged by Karlsruhe. Markets don't seem to be taking much notice of this at the moment, but I think that is because they are preoccupied with Fed tapering, BoJ activism and - above all - the growing risk of a financial crisis in China. Compared to the last of these, the Eurozone looks like a safe haven. And don't forget the monetary idiots out there who are investing in the Euro because the ECB is now the only major central bank that has not done QE. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-29544705910008300562014-03-27T19:42:24.396+00:002014-03-27T19:42:24.396+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Key question: over the past 18 months, what central bank news resulted in the biggest quick surges of Eurozone stock prices? Maybe news from the Fed / BOJ has been more influential than news from the ECB / Germany but then again maybe not.......Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-17763425429336650402014-03-27T19:11:15.521+00:002014-03-27T19:11:15.521+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Frances Coppola,<br /><br />I read this paragraph you wrote:<br /><br />http://www.pieria.co.uk/articles/the_ecb_is_irrelevant_and_the_euro_is_a_failure<br /><br />"Whether or not the ECB does QE – or any other form of monetary easing, for that matter – will in the end make little difference. QE cannot be done in any way that would genuinely benefit the periphery without incurring political and legal challenge from Germany: there is already a legal challenge to the ECB’s OMT programme that has prevented Spanish and Italian yields from spiralling out of control. If QE were done in a more even-handed way (for example, buying a weighted basket of Eurozone government bonds) it would worsen the existing credit bifurcation by making German bunds even scarcer. There are other things that the ECB could do, such as another round of LTROs to prop up the Eurozone’s dysfunctional banks YET again, or FLS-style funding support for SME lending, or even buying up packages of SME bonds. It could even experiment with negative rates on reserves. But it’s all so much window dressing."<br /><br />You might be right that the common currency area is hopeless and unsalvageable. However, the huge general increase in Eurozone stock prices over the past 18 months may suggest otherwise.<br /><br />I bet even Spanish stock prices are higher now than they were 18 months ago, which indicates that sticky wage expectations are slowly adjusting, etc. Easier money would have made the adjustment far less painful. Nevertheless, I sense that positive adjustments are still happening that will result in full employment..........eventually. I pray to God that they figure out how to avoid deflation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-43292362870847296032014-03-27T18:57:30.908+00:002014-03-27T18:57:30.908+00:00Travis,
I don't think we should ignore intern...Travis,<br /><br />I don't think we should ignore international effects. In my view it is mainly QE from other central banks that has been propping up the Eurozone, particularly the Fed and the SNB. Do you realize that the SNB's cap on CHF amounts to a massive QE programme - probably the largest in the world compared to the size of its economy? Now the Fed's QE is being tapered off, the BoJ is taking over the job of keeping the Eurozone afloat, along with recovery in the UK and the US ("a rising tide floats all boats"). ECB will get the credit for this, but I really don't think it deserves it. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89600969662369651962014-03-27T17:59:50.512+00:002014-03-27T17:59:50.512+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />You have an interesting theory of why expansionary monetary policy from the ECB would be ineffective. And your theory might be right. Here's how I would test your theory:<br /><br />I know two things: (1) over the past 18 months, the ECB has made a number of announcements that were surprisingly expansionary and (2) European stock prices are generally far higher than they were 18 months ago.<br /><br />If, say, Spanish stocks reacted as positively or even more positively to those surprises than German stocks do, then I think the ECB could still really help Spain with aggressive QE and/or a higher inflation or NGDP target.<br /><br />I might try to get Mark Sadowski to weight on this one later.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-59965998184043316292014-03-27T17:40:52.440+00:002014-03-27T17:40:52.440+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Hahahaha, yeah, I've read lots of Glasner's posts and he's said "insane Bank of France" over and over and over again.<br /><br />On a more serious note, Glasner also notes how Friedman missed the powerful and rapid impact George Warren's gold purchase / dollar devaluation program had in 1933:<br /><br />http://uneasymoney.com/2013/08/21/why-hawtrey-and-cassel-trump-friedman-and-schwartz<br /><br />http://uneasymoney.com/2011/09/26/misrepresenting-the-recovery-from-the-great-depression<br /><br />Glasner, Sumner and I believe that George Warren and 1933 illustrate that a country that is truly determined could put millions of unemployed people to work within a short period of time with aggressive currency devaluation.<br /><br />Here's a post where Stiglitz suggested that the potential power of monetary policy is limited and Glasner STRONGLY objected:<br /><br />http://uneasymoney.com/2011/08/10/the-fed-has-not-done-enough-and-it-has-not-fired-most-of-its-ammunitionAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-33466359171938310202014-03-27T17:38:32.403+00:002014-03-27T17:38:32.403+00:00Hehe. They read me!
http://krugman.blogs.nytimes...Hehe. They read me! <br /><br />http://krugman.blogs.nytimes.com/2013/06/03/the-triumph-of-peter-kenen-the-revenge-of-robert-mundell/?_php=true&_type=blogs&_r=0<br /><br />The Euro is like a very badly constructed gold standard, with national central banks that have no control of monetary policy (it's all automated in the Target2 system) and a central "gold market" clearing house that calls itself a central bank but doesn't behave like one. Because the monetary mechanism is completely dysfunctional, fiscal policy has to do the heavy lifting. The trouble is that markets don't like that, so now the EU has disabled the fiscal approach too. Hence my comment about a depression without end. Krugman has said something similar - I've quoted him here:<br /><br />http://www.pieria.co.uk/articles/can_labour_markets_be_too_flexible Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-85132723743341806082014-03-27T17:23:51.813+00:002014-03-27T17:23:51.813+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />I'll study your stuff on the Eurozone more. But let me just note this: Krugman and Market Monetarists agree that the root of the problem is the common currency area. Namely, countries like Spain and Ireland really really really need a currency devaluation. However, they can't do it because they're stuck in the Euro.<br /><br />Krugman made that point by comparing Spain with Germany and Ireland (stuck in the Euro) with Iceland (not stuck in the Euro):<br /><br />http://krugman.blogs.nytimes.com/2010/02/09/anatomy-of-a-euromess<br /><br />http://www.imf.org/external/np/seminars/eng/2011/isl/pdf/pk.pdf<br /><br />And here's David Beckworth on the Eurozone's problems:<br /><br />http://macromarketmusings.blogspot.com/2011/09/is-it-time-for-eurozone-to-get-rid-of.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-82055589915595368672014-03-27T17:20:11.690+00:002014-03-27T17:20:11.690+00:00Travis,
I've just watched the first Sumner vi...Travis,<br /><br />I've just watched the first Sumner video, on the Great Depression (as you say, it takes up some time!). I wanted to give you some feedback.<br /><br />I already knew that the 1929 crash and the 1929-1933 contraction were due to conditions in the world gold market. The immediate cause of the Great Depression was the disorderly breakup of an overstretched international gold standard: there had been evidence of strain throughout the 1920s. I agree with Sumner that the final trigger was concurrent monetary tightening by all three major central banks, but it was going to break at some time anyway, I think. The ultimate cause was the unsatisfactory resolution of WW1 (which Sumner also mentions). <br /><br />Sumner mentions the need for cooperation between central banks, a point also made by Liaqat Ahmed. But that was never really going to happen, because diplomatic relations in Europe were stretched to breaking point after WW1: the US and UK cooperated, but even that caused some bitterness (see Rothbard on this). <br /><br />I've written about this here:<br /><br />http://www.pieria.co.uk/articles/currency_wars_and_the_fall_of_empires<br /><br />Note that I state here that I regard the failed attempt to restore the gold standard in the 1920s as the proximate cause of the Great Depression. I think this is consistent with Sumner's view.<br /><br />I'm also pleased that Sumner mentions France, as does Glasner. Glasner describes the Bank of France as "insane": Sumner is more generous, simply saying France was pursuing its own national interests. But it was actually Michael Pettis who showed me the significance of France, and the price it paid for its "insanity". Friedman completely missed this. In fact most American analyses of the Great Depression largely ignore the European dimension, so this is refreshing<br /><br />Thanks again. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-60738452137506964472014-03-27T16:51:12.829+00:002014-03-27T16:51:12.829+00:00He was right about the Fed.
More recently he'...He was right about the Fed. <br /><br />More recently he's been saying the same about the ECB. But in this case I don't wholly agree, not because it is inappropriate but because the inadequate institutional construction of the Euro emasculates monetary policy in the periphery. Monetary conditions there are very, very tight, and the ECB is so hedged around with treaty limitations and threats of legal action that it can do very little to ease the situation. I fear any monetary easing such as QE or Euro devaluation would benefit the core countries more than the periphery, making the existing bifurcation worse. The Eurozone periphery is in a depression without end while the Euro and its institutions remain unreformed and the ECB remains politically captive. I've written about this rather a lot myself - see here, for example:<br /><br />http://coppolacomment.blogspot.co.uk/2014/03/deflation-and-ecb.html<br /><br />Note the last paragraph. I'm arguing for the shackles to be removed from the ECB. As I said, the framing is different but in substance I'm not far removed from Scott's POV. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-77201634342751110432014-03-27T16:44:41.258+00:002014-03-27T16:44:41.258+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Two other posts where Sumner explains how he took Friedman's approach and corrected its flaws using the insights of Lars Svensson, Michael Woodford and Robert King:<br /><br />http://www.themoneyillusion.com/?p=2810<br /><br />http://www.themoneyillusion.com/?p=753Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-80887349692845571222014-03-27T16:24:29.783+00:002014-03-27T16:24:29.783+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Frances Coppola,<br /><br />Hooray, appreciate your open-mindedness!<br /><br />Those videos I linked to above are THE BEST but they take up substantial time.<br /><br />Here's more Glasner and Sumner on 1933 and George Warren, FDR's agricultural economist who saved the world:<br /><br />http://uneasymoney.com/2011/09/26/misrepresenting-the-recovery-from-the-great-depression<br /><br />http://www.themoneyillusion.com/?p=308<br /><br />Two posts where Sumner goes in-depth into "root causes" of the Great Contraction of 1929 and 1930:<br /><br />http://www.themoneyillusion.com/?p=1680<br /><br />http://www.themoneyillusion.com/?p=4286<br /><br />And an old gem exploring the intellectual "zeitgeist" of the 1930's with several posts in the comments section from Glasner:<br /><br />http://www.themoneyillusion.com/?p=3316<br /><br />You should also check out Sumner's feverish posting in February, March and April 2009. It was truly heroic. Remember: everyone was saying "The Fed is out of ammo, the Fed is out of ammo!" Sumner was the lone voice in the dark saying over and over "That's not true!" And then Tyler Cowen linked to him and his ideas spread like wildfire........Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-24540757047961840702014-03-27T15:07:14.467+00:002014-03-27T15:07:14.467+00:00Travis, nice to see you here. And thanks for the l...Travis, nice to see you here. And thanks for the links. I have a free afternoon today, so you have provided me with exactly what I need to fill it! <br /><br />I read a wide range of material and have read some of Sumner's work before - rather less of Glasner's, I admit, though what I have read chimes very much with my own world view. As you may have gathered if you read my discussions with Tom Brown and JKH above, I like the rigour of Sumner's approach but I have some problems with the framing. <br /><br />I'm determinedly apolitical, so "left" and "right" don't mean much to me. British "left" and "right" are different from the US anyway: our Conservative party is similar to your Democratic party and we don't really have anything like the Republicans, certainly not in mainstream parties. I suppose we are a much more left-wing society generally. <br /><br />I don't know if you are aware that John Aziz is only a recent "leftie" - he used to have Austrian economic views and wrote occasionally for Zero Hedge. It's been very interesting watching (and influencing!) his conversion to a more Keynesian world view. He's my editorial colleague at Pieria. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-82513105863635379412014-03-27T14:45:06.044+00:002014-03-27T14:45:06.044+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />I encourage you to further study the material of Glasner and Sumner. Two brilliant economic historians largely operating independently arriving at very very similar conclusions.<br /><br />Another thing: Glasner’s ideology might appeal to you more than Sumner’s.<br /><br />Sumner, Marcus Nunes and Morgan Warstler lean right with their ideologies while Glasner and Mark Sadowski lean left.<br /><br />I suspect that Glasner receives more love from Krugman, Noah Smith and John Aziz because he leans more left than Sumner does.<br /><br />However, Sumner is a very open-minded guy. If you dig a little deeper, you’ll see that he’s a utilitarian who actually agrees with numerous left-wing arguments.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-11982337743977823172014-03-27T14:43:35.496+00:002014-03-27T14:43:35.496+00:00TravisV here from themoneyillusion comments sectio...TravisV here from themoneyillusion comments section.<br /><br />Frances Coppola,<br /><br />You might be interested in checking out Glasner and Sumner’s strong agreement on the “root causes” of the Great Depression. Here’s Sumner:<br /><br />http://www.themoneyillusion.com/?p=4220<br /><br />http://vimeo.com/11700175<br /><br />And here’s Glasner:<br /><br />http://uneasymoney.com/2013/08/21/why-hawtrey-and-cassel-trump-friedman-and-schwartz<br /><br />And here’s a great video where Sumner provides his detailed view of the 2008 Great Recession:<br /><br />http://vimeo.com/38915078Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-2769223177358636332014-03-27T11:26:22.655+00:002014-03-27T11:26:22.655+00:00JKH,
I did tweak the definitions in the IS-LM mod...JKH,<br /><br />I did tweak the definitions in the IS-LM model somewhat, because I want to use it specifically to model the monetary system rather than the general economy. <br /><br />I've used Scott Sumner's definition of M. Once you restrict the definition of M to monetary base, then all other forms of "money" have to be part of S (defined as a stock rather than a flow in this case, though that isn't how I would usually define S). It neatly avoids the "moneyness" problem without compromising L, since the ultimate in "liquidity" for non-banks is currency. The classic retail bank run is the ultimate slide down the LM curve, since people reject bank money in favour of physical cash. <br /><br />When you treat bank money as part of S, then the fact that people buy other assets with it doesn't matter - it's simply the exchange of one risky asset for another. It's the creation and destruction of bank money that causes the IS curve to shift. That's how I see it, anyway. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66957828945107566452014-03-27T08:33:07.331+00:002014-03-27T08:33:07.331+00:00Frances,
I certainly agree with the important sub...Frances,<br /><br />I certainly agree with the important substance of your points.<br /><br />A few minor notes:<br /><br />“In the IS-LM model M is base money”.<br /><br />I don’t recall seeing that before. I thought it was undefined and up to the “user” to decide what M was. It just needs to be fixed under a given LM curve. Although the central bank could determine both base money and broad money along with it based on the simplistic gold standard / money multiplier type thinking you cite. Defining it as base money “works”, but I just don’t recall see that as a necessary specification of the model previously. But I don’t look at IS-LM very often.<br /><br />I think your points on credit creation are good backfill to a model that doesn’t actually specify credit creation – it uses what is in effect national accounts construction for I and S without reference to flow of funds. In theory, ‘I’ can increase without credit creation – through retained earnings of corporations for example. And new houses can be purchased with existing cash (at least in part). So to that extent, a fixed money supply on a given LM curve can finance a right sliding IS curve through higher money velocity, which drives you up the LM curve as IS moves to the right. Your construction of it is more practical, but the truth is a mixture of velocity and credit effects – certainly not like Keens redefinition of aggregate demand for example.<br /><br />I agree with your points on both money multiplier and IS causalities, of course. That old Harless post was a good one.<br /><br />In fact, I think the ‘IS’ label is redundant – from the point of view that ‘I’ would suffice given the identity of I and S that must be in place at ALL times (assuming compatible sector treatments for the definition of I and S) for a “feasible” solution to “equilibrium”.<br /><br />“If M "tracks" credit creation, as was the case prior to 2008, the LM curve rather than the IS curve shifts and the money multiplier remains constant.”<br /><br />That’s another potential interesting interpretation of ISLM. One can have a little bit of fun with ISLM in that way. I had been thinking of doing a post on it some time ago but never got around to it. I think I would have emphasized my point above about the redundancy of what really is a necessary ‘I’ curve given the identity with S that must hold under any “feasible” solution for “equilibrium” of this type.<br /><br />Regarding Krugman’s latest – he's switched over to ISMP at times over the past year in acknowledgment of the “interest rate school” (i.e. endogenous money) of central banking. I think he goes back to core ISLM here to make the point about the ultimate usefulness of it as a “gadget”, whatever refinements are superimposed on that.<br /><br />P.S.<br /><br />What's your interpretation of Krugman's definition and view of "loanable funds"?JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28508191635995354052014-03-27T04:49:29.899+00:002014-03-27T04:49:29.899+00:00Hi JKH,
As someone said on Twitter, Krugman appea...Hi JKH,<br /><br />As someone said on Twitter, Krugman appears to have confused Lars Syll with Peter Schiff. Lars was making a powerful point about the impossibility of reflecting Knightian uncertainty in simple macroeconomic models such as IS-LM. Krugman didn't really address the substance of his post at all. <br /><br />Krugman's point is dangerously close to the argument that only economic concepts expressed in mathematical language are important, That is how Minsky's theories came to be sidelined for so long. Having said that, though, personally I find IS-LM a powerful tool if it is correctly used. The trouble is that most people get it wrong. <br /><br />In the IS-LM model M is base money. Inflation is ignored (because it is a short-run model), so M is nominal. The supply curve for M is a vertical line, so the nominal monetary base is fixed (not surprisingly since the IS-LM model comes from a gold standard era). Broad money (represented by the IS curve) floats in relation to the monetary base, and the ratio of the two is the money multiplier. <br /><br />The money multiplier has been widely misinterpreted as an ex ante determinant of the amount of money that banks are "allowed" to create, when it is actually an ex post descriptor of the amount of money banks HAVE created in relation to base money - i.e. the demand for credit, which is an important driver of nominal GDP. <br /><br />I visualise this as the IS curve "sliding" up and down the fixed LM curve. I so want an interactive graphic for this! It would be really handy for showing how real interest rates and output respond to the creation and destruction of credit money. Basically, real interest rates and output rise as more credit money is created, and fall as credit money is destroyed. It's an excellent depictor of the procyclicality of bank credit creation. <br /><br />I don't think people should get hung up on what is implied by the IS curve (saving=investment). The IS relationship has also been widely misinterpreted, in this case to mean "there has to be saving in order for there to be investment", which implies that banks "lend out" deposits. But there is no such causal relationship. It is actually more accurate to say that investment drives saving (indeed this is how Andy Harless describes it), which is consistent with bank lending creating new deposits - when the deposit is spent (invested) it becomes the saving of the recipient. <br /><br />If M "tracks" credit creation, as was the case prior to 2008, the LM curve rather than the IS curve shifts and the money multiplier remains constant. FRED shows the money multiplier as pretty much a straight line until 2008. But that's not the case now. <br /><br />The UK actually has a completely fixed monetary base at the moment, since it is not doing QE but is maintaining its asset purchases at £375bn. The US's monetary base is still increasing, of course, though it is an exogenous increase rather than a response to credit demand. The classical IS-LM model with fixed LM therefore applies better to the UK than the US at the moment. But we should not use it as a determinant of monetary policy. It is a short-run model which describes an existing situation. It does not predict a future path. <br /><br />I'm thinking aloud here, really - so do comment on the above. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49126119492726127672014-03-27T03:17:01.139+00:002014-03-27T03:17:01.139+00:00Hi Frances,
I’m no expert on ISLM, but a couple o...Hi Frances,<br /><br />I’m no expert on ISLM, but a couple of thoughts:<br /><br />First, (side-bar aspect) the Krugman post:<br /><br />“You see that a lot among people who reject IS-LM as too simple and unsubtle: what they have ended up doing in practice, for the most part, is predicting soaring inflation and interest rates, because whether they know it or not they have effectively reverted to crude quantity-theory and loanable-funds models.”<br /><br />I don’t quite understand this comment. He’s not talking about post Keynesians or “endogenous money types” here, it he? Rather about freshwater “dark age of macro types” like Lucas, etc. And their beef is not about the simplicity of ISLM but the irrelevance of Keynesianism in all forms. Yet the simplicity criticism comes mostly from post Keynesian types.<br /><br />Second, regarding your comment above, not sure I understand:<br /><br />“I think it is important for us endogenous money types to understand the significance of the IS curve. In the IS-LM model, demand for money is inversely proportional to demand for credit. The intersection of the IS curve with the LM curve tells us the relative demand for credit versus money (M) for a given combination of interest rate and output. The IS curve shifts in response to changes in demand for M. When the IS curve shifts leftward and the intersection with the LM curve moves downward, demand for loans has reduced and therefore the amount of credit in the economy has fallen relative to the monetary base. In endogenous money we would say that outside money hasn't changed but inside money has reduced. In Scott-speak we would say that the money multiplier (ratio of monetary base to credit money) has reduced. It's the same thing, and the effect is the same - output (Y) falls.”<br /><br />The LM curve is a fixed money curve, no? So I’m not sure how the IS curve sliding left is supposed by the model to mean that credit has actually fallen. That would suggest that money has also changed. Or is that your point – you are relating the fixed money assumption to the monetary base and letting broad money float?<br /><br />Sorry, I think I’ve jumped in here about 80 per cent late on discussions you’ve been having and I haven’t been following. So please set me straight me as necessary.JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38307220170342105892014-03-26T21:15:26.617+00:002014-03-26T21:15:26.617+00:00Not to me. A distant relative of my ex-husband. Ni...Not to me. A distant relative of my ex-husband. Nice wine though. :)Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-73748342812328885532014-03-26T20:58:39.890+00:002014-03-26T20:58:39.890+00:00BTW, I've visited here:
https://www.francisfor...BTW, I've visited here:<br />https://www.francisfordcoppolawinery.com/visit<br />Any relation?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63926329510454248142014-03-26T18:14:43.258+00:002014-03-26T18:14:43.258+00:00Wow. Wow. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-1213709101514899302014-03-26T17:28:55.407+00:002014-03-26T17:28:55.407+00:00BTW Frances, congratulations on being the second m...BTW Frances, congratulations on being the second most famous Franc[insert vowel here]s Coppola on Google. :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.com