tag:blogger.com,1999:blog-8764541874043694159.post8295275435088617288..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: No, please don't show me your modelFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-8764541874043694159.post-22890265530889349562016-08-30T07:08:21.227+01:002016-08-30T07:08:21.227+01:00"What is your theory, and how have you define..."What is your theory, and how have you defined it? What thought processes brought you to this point? What are your assumptions, and how have you justified them?"<br /><br />Glad you asked:-), giving me a chance to expound on my theory.<br /><br /><br />My theory is scarcity of anything ensures proper usage. Let us take a few examples:<br /><br />1. In a place where water is scarce people are more likely to be careful in its usage than in a place where water is plentiful.<br />2. In a place where electricity is in shortage, electricity cost has to be higher in order to ensure it is not wasted or used injudiciously. You are likely to switch off the lights and fans when not using it as it pinches your pocket.<br />3. Assume you run a bar, if you want only sophisticated people coming to it, you cannot offer it free because beggars might flock to it.<br /><br />There can be many take on this but the main point is mispricing a product leads to misuse (also leads to higher demand, a topic for another day about Unicorns). <br /><br />While everything is based on money (the price you pay for it), the price of money itself is the interest you pay for it.<br /><br />Thus when you misprice money it leads to misuse, which happens to be speculation or malinvestment because speculation or malinvestment will yield better results in the short term (as long as the speculative instruments keep rising -- it can be stocks or tulips or real estate - it does not matter) but at some point it tends to break because nothing can rise for ever and at some point it will be out of reach of most people and this lack of demand will start bringing price down and a downward spiral will start in right earnest). Additionally given the nature of people when you misprice they tend to want to buy it today rather than save and buy it tomorrow (again leading to malinvestment). <br /><br />Thus my theory is simple--mispricing money (low interest rates) is the problem. Now you may ask what is the right interest rate?<br /><br />I feel the right interest rate is the rate below which savers start saving more (the interest rate at which they start showing discomfort). Incidentally I belong to the camp (probably a solitary camp) that feels savers as a group happen to be the Hercules holding up capitalism. Imagine destroying the very people who are holding up capitalism. This is what central bankers are doing and hence I hold them singularly responsible for the destruction they are causing across the world. As an aside are savers introverts? (no bearing on the topic but a thought that struck me)<br /><br />Thus, IMO, if you want to save capitalism you have to either close the central bank or ensure they cannot manipulate interest rates.kplhttps://www.blogger.com/profile/11270590963692578366noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-67224750166087918642016-08-24T21:56:40.980+01:002016-08-24T21:56:40.980+01:00Back to economists. I can only guess not beeing a...Back to economists. I can only guess not beeing an economist.<br /><br />If it is so then: Perhaps, for some economists it could be ignorance on how to include the financial system. Or an attempt to not enlighten. Yet really educated people might not take ignorace personally and might be curious to learn. Also, the financial system like the economy is dynamic rather than the beginning assumption of equilibium. <br /><br />My pet theory is that knowledge of accounting is so imoportant that economists with out it have less of an understanding, less ability to quantify in that way, and also model.<br /><br />You see accounting measures transactions or movement of ownership of all things. That is a powerful measuring tool and modeling frame work. <br /><br /><br />What I don´t understand the premise that econmists are actually ignorant of these things because the existance of National "Accounts" with seprate sectors that include the financial sector. But, on the internet the premice aperars to be predominantly correct. I mean they collect the data, some of them MUST be using it? I never saw anything about the national accounts in my macro text book. Wynne Godley used it and modeled with it.<br /><br />Buuuut, <br />"Sir John James Cowperthwaite, KBE, CMG was a British civil servant and the Financial Secretary of Hong Kong from 1961 to 1971. ... He refused to collect economic statistics to avoid officials meddling in the economy. According to Catherine R. Schenk, Cowperthwaite's policies helped it to develop from one of the poorest places on earth to one of the wealthiest and most prosperous: "Low taxes, lax employment laws, absence of government debt, and free trade are all pillars of the Hong Kong experience of economic development."[2]<br /><br /><br />1. https://www.federalreserve.gov/releases/z1/current/<br /> https://www.federalreserve.gov/releases/z1/current/z1r-2.pdf first 2 pages are a summery exapmple, the financial sector is there. <br />2. https://en.wikipedia.org/wiki/John_James_Cowperthwaite<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50055510166678810922016-08-23T22:14:07.596+01:002016-08-23T22:14:07.596+01:00I'm not sure what an endogenous shock is. Exog...I'm not sure what an endogenous shock is. Exogenous determined outside the model, endogenous determined inside. But how do you determine a shock? This may seem like semantic quibbling and perhaps it is, but if you write down some sort of model with deterministic cycles (such as these? https://economics.sas.upenn.edu/system/files/event_papers/BGP.Limit_.v2-1.pdf ) is 'shock' really the right word? I suppose if you don't know exactly when it's going to happen because you don't know relevant parameters (or perhaps model is sufficiently complex). I wonder how many of the current crop of endogenous financial crises models have predictable (not a shock) crises, and how many have unpredictable. <br /><br />you might find this presentation about pre and post crises economics models of crises interesting, covers much of what you are talking about<br /><br />http://www.gla.ac.uk/media/media_402710_en.pdfLuis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35427841541315346612016-08-22T02:00:06.462+01:002016-08-22T02:00:06.462+01:00Tweets with good point on data:
https://twitter.c...Tweets with good point on data: <br />https://twitter.com/ProfSteveKeen/status/767137047618416640<br /><br />Danny Blanchflower @D_Blanchflower Aug 20 Wyoming, USA<br /><br />@Noahpinion @Frances_Coppola @ProfSteveKeen @JoMicheII @ari1601 heterodox or orthodox one of these days you will both have to look at data<br /><br /><br /><br /> Danny Blanchflower @D_Blanchflower Aug 20 Wyoming, USA<br /><br />@ProfSteveKeen @politybooks @Noahpinion @Frances_Coppola @JoMicheII @ari1601 debate missed need both to have harsh confrontation with data.<br /><br /><br />(((FrancesCoppola))) @Frances_Coppola Aug 20<br /><br />@D_Blanchflower @ProfSteveKeen @politybooks @Noahpinion @JoMicheII @ari1601 good point<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50712322239768275512016-08-21T22:39:24.042+01:002016-08-21T22:39:24.042+01:00Hi Drew,
I instinctively feel uncomfortable with ...Hi Drew,<br /><br />I instinctively feel uncomfortable with models that have no theoretical grounding. "It works, but we don't know why it works" is far too close to cargo cult economics for me. <br /><br />Of course, the users of a model don't need to know how it works, any more than I need to have more than a passing acquaintance with how my car's engine works. If it goes wrong, I employ an engineer to sort it out. But if the creators of the model don't know why it predicts so accurately, we no longer have control of technology. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-55267964121727513762016-08-21T06:35:58.008+01:002016-08-21T06:35:58.008+01:00Accountants are not economists.
Accountants only ...Accountants are not economists.<br /><br />Accountants only count existing beans.<br /><br />Economists create inaccurate models that do not include the bean creation process.RPhttps://www.blogger.com/profile/17695303458973909485noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-74429772565694750782016-08-21T02:35:20.200+01:002016-08-21T02:35:20.200+01:00Amen!Amen!Anonymoushttps://www.blogger.com/profile/01440015860187489523noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-56583639619986739832016-08-20T22:20:41.855+01:002016-08-20T22:20:41.855+01:00Accountants include the financial system. And, th...Accountants include the financial system. And, the financial system includes accountants.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-24865966491713130182016-08-20T19:45:11.553+01:002016-08-20T19:45:11.553+01:00Yes, clearly it's a toy model, and I don't...Yes, clearly it's a toy model, and I don't have a problem with it from that perspective. I merely wished to point out its limitations as a predictive model in an advanced economy with powerful financial intermediaries and interventionist government/central bank. You have misinterpreted me, by the way: I did not assume that the crash was exogenous - I merely pointed out that the model did not specify whether the crash was exogenous or endogenous, and I said that this could make a considerable difference to the outcome. <br /><br />I do criticise some of the assumptions, though. For example, how can the agents have "perfect foresight" if they ignore the possibility of collateral value falls after the first oscillation (in which, of course, collateral values fall)? Surely we might expect that credit constraints would be tightened in each oscillation? I didn't notice any recognition of such learning effects in the maths. The idea that farmers will spend ALL of their output on servicing debt and investing in more trees is a bit far-fetched, too. <br /><br />But I agree, it does show that there can be debt crises in a peer-to-peer lending model - and that is an extremely important insight. <br /><br />I think we should distinguish between pre- and post-crisis models. Unsurprisingly, financial stability has been all the rage as a research topic since the crisis. Sadly it was not so fashionable before the crisis. Had it been, the path of history might have been very different. The Bundesbank paper you cite dates from 2013. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47928424439676384602016-08-20T19:40:33.447+01:002016-08-20T19:40:33.447+01:00Your point is well-made that economists (or arm ch...Your point is well-made that economists (or arm chair commentators) should be able to explain the logic of their models. One thing you mention briefly that deserves more attention is the difference between prescriptive and descriptive models. I think that it's impossible to have a good descriptive model that isn't based in some type of theory which can be explained by the modeler. Descriptive models, by definition should help you understand what is going on in the economy. I do, however, think that you can have a high-performing predictive model absent theory. This isn't the kind of model I would necessarily want, but I have seen many cases in industry of "black box models" that consistently predict well, but no one (sometimes not even the modeler in the case of neural nets and such) can explain the theory behind why it's doing what it's doing. It depends on the use case for the model. To be fair, these types of models are also what can lead to edge cases where an algorithm starts a downward spiral of trades. My point is that we should consider what the model is meant to accomplish before saying that there can only be theory-based models.Drew Moxonhttps://www.blogger.com/profile/05375092513460922335noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-87837696667317316892016-08-20T19:05:23.472+01:002016-08-20T19:05:23.472+01:00"Even in economics, we would expect frictions..."Even in economics, we would expect frictions to slow and eventually stop the oscillation."<br /><br />I need to work through the maths and it's really quite complex, but I think it does slow actually but I'd need to really go through the maths which I have not much desire to do. Anyway, obviously it's just a toy model - the point is it IS a model of credit *cycles* - you kept acting like its a financial accelerator model where the crash is exogenous, but in section three both the buildup in debt and asset price boom, plus the subsequent crash, are entirely endogenous. The shock this model uses in section 3 is just a positive productivity shock to get it going, like turning the ignition key on for the model. I just want to make this clear. And I do think the boom and bust dynamics are at least somewhat corollary to the housing crisis and various other crises - obviously it's nowhere near a 1 to 1 mapping, it's just a toy model (not a farming model either, that's just for illustrative purposes).<br /><br />And generalized toy models are useful. For instance, there are actually a huge amount of papers with detailed models of the financial sector, I could have just googled 'financial fragility' and got the first result that came up, e.g. https://www.bundesbank.de/Redaktion/EN/Downloads/Bundesbank/Research_Centre/Conferences/2013/2013_10_21_ffm_mo_session_3b_paper.pdf?__blob=publicationFile<br /><br />In fact even my masters thesis was just a VAR model relating non performing loan ratios of all the top US banks on their balance sheets to various macroeconomic indicators. This model can actually predict a banking collapse in theory, if banks have a given level of capital and a recession hits (which I find it SO annoying when people keep insisting economists ignore banks, when I spent half of my 4th year doing nothing but examining bank balance sheets).<br /><br />But the thing is, with these highly detailed models - a regulator can just make a few tweaks and they instantly become invalid. But a highly generalized model - if even in a super simple economy with just farmers can have a tendency towards debt crises, that's fairly telling no? That points out that debt crises is a problem more fundamental than modern banking idiosyncrasies. Britonomisthttps://neweconomicsynthesis.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-19708840238609254822016-08-20T15:39:46.374+01:002016-08-20T15:39:46.374+01:00Oh, and one further point. Section 3 effectively s...Oh, and one further point. Section 3 effectively sets up a perpetual-motion model. But they don't exist in reality. Even in economics, we would expect frictions to slow and eventually stop the oscillation. For example, leverage buildup might diminish over subsequent cycles due to learning. So if the oscillation DOESN'T slow, something must be maintaining it. K-M don't include the financial sector, so in their model creditors lend directly to debtors. They assume that debtors (farmers) will always make themselves fragile by borrowing up to the maximum. And they assume that creditors will always lend to borrowers, even if doing so vastly increases the likelihood of loss. If the Austrians looked at this, they would be screaming "misallocation of capital due to central bank low interest rate policy". Whether or not you agree with this, at least they have an explanation. K-M does not. You criticised Minsky for exactly the same thing. <br /><br />I would also point out that because K-M is a farming model, output directly relates to landholding. Leveraging up in order to buy land therefore increases output (and, in Section III, investment). That is not true in a residential property market. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-62985337780685471702016-08-20T07:50:59.895+01:002016-08-20T07:50:59.895+01:00Why do most economists seem to have a personal iss...Why do most economists seem to have a personal issue in including the financial system in their theories and models?RPhttps://www.blogger.com/profile/17695303458973909485noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69838825547808340892016-08-20T07:31:55.667+01:002016-08-20T07:31:55.667+01:00More on ratios:
http://www.principlesofaccounting....More on ratios:<br />http://www.principlesofaccounting.com/chapter-13/leases/<br />Part of a free book/course on accounting.<br /><br />Accounting is so much more valuable to learn than economics. If one can't bring them selves to learn the basics of accounting maybe the first part of this book might be encouragement.<br /><br />"Double Entry: How the merchants of Venice shaped the modern world - and how their invention could make or break the planet" by Jane Glesson-White<br /><br />https://books.google.com/books?id=xrtwYoT_ZOAC&dq=jane+gleeson+whiteAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84788959031690401302016-08-20T06:45:52.394+01:002016-08-20T06:45:52.394+01:00Liquidity ratios
http://www.investopedia.com/term...Liquidity ratios<br /><br />http://www.investopedia.com/terms/l/liquidityratios.aspAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-76087595379573717252016-08-20T06:38:52.602+01:002016-08-20T06:38:52.602+01:00Francis said,
"You can't just look at th...Francis said,<br /><br />"You can't just look at the data and arbitrarily decide that households are borrowing too much. You need to know the expected trajectory of house prices, incomes and inflation, as well as household debt. Data were there, but there were no models to interpret it. "<br /><br />I think accountants using accounting ratios picked up on it early. It was in the accounting data. <br /><br />Just off hand ratios that can be looked up in accounting books:<br /><br />Interest coverage ratio<br />Time to cover<br />Leverage ratios<br />Margin of Safety - Benjamin Grahm<br /><br />Why is it that accountants are not interviewed on TV about the economy?<br /><br />Point 2: If you offshore 3% per year of jobs of 30 year mortgage debtors would that cause a subprime problem? If the house prices are run up with available credit does that encourage employers to look for employees with a lower cost basis abroad? If people borrow to escape loss of purchasing power of money did that run up demand in over priced houses?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-27591639317633931602016-08-20T05:57:18.142+01:002016-08-20T05:57:18.142+01:00Question:
Are economics students usually requir...Question: <br /><br />Are economics students usually required to learn double entry bookkeeping or accounting?<br /><br />If not why? If so, in what countries?<br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-52969795540013102032016-08-20T03:20:49.796+01:002016-08-20T03:20:49.796+01:00Let me give you an example of why an endogenous sh...Let me give you an example of why an endogenous shock might have a completely different effect from an exogenous one. <br /><br />A few days ago, my cat broke her leg. We don't know how she did it, but the vet thinks she got her paw trapped in something and broke her leg freeing it. My cat is young, fit and healthy. The broken leg is an exogenous shock - it does not stem from her state of health. The animal hospital pinned her leg back together and she is already back on her feet and (hopefully) on the road to recovery. <br /><br />But suppose that she broke her leg not because of an extreme incident, but because she had some illness that made her bones fragile and liable to break under ordinary stress. In this case, it would be quite wrong to model the ordinary stress that broke her leg as an "exogenous shock" of a similar order to the one that I described above. The outcome is the same, but there isn't really a "shock" at all. The cause of the break is the illness. And because the problem is the illness, the treatment needs to be different and the recovery is likely to be much slower. <br /><br />Kiyotaki-Moore clearly intends to model the second of these. But actually all it does is state that the cat is ill, then apply a shock of some kind to break the cat's leg. This is why the type of shock matters. If it applied the first kind of shock, it would break the leg even if there were nothing wrong with the cat. But the break could then be taken as proof of illness. The result would be misdiagnosis and wrong treatment. <br /><br />An incomplete model like Kiyotaki-Moore can have useful insights, but it is not by itself an adequate diagnostic tool.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-59723129132144078702016-08-20T02:53:06.765+01:002016-08-20T02:53:06.765+01:00I'm not mischaracterising anything. All I did ...I'm not mischaracterising anything. All I did was point out that Kiyotaki-Moore does not define whether the trigger shock is exogenous or endogenous. And I asked whether endogenous and exogenous shocks had different effects. That's a reasonable question, surely?<br /><br />Kiyotaki-Moore does not model the whole cycle. It does not attempt to explain the buildup of credit, and it relies on an undefined "shock" as the trigger for the crisis. Both of these omissions stem from the same cause, namely the complete exclusion of the financial sector from the model. In my view any model which purports to model a financial crisis but does not include, or build upon, a coherent and accurate model of the financial system is fundamentally flawed. Kiyotaki-Moore offers some useful insights regarding the way a crisis propagates itself. But simply is not a predictive model of a financial crisis. Not by a long way. <br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-52214490774593327802016-08-19T23:53:50.783+01:002016-08-19T23:53:50.783+01:00"Defined in this way, therefore, the fall of ..."Defined in this way, therefore, the fall of Lehman can only be regarded as endogenous, whereas Kiyotaki-Moore's shock might not be. "<br /><br />Again, I think you're simply mischaracterizing Kiyotaki-Moore at this point. The initial 'shock' is fairly irrelevant to the story (and remember, a shock in economics can be both positive and negative, a shock is just an unanticipated change in a variable). The 'shock' in this paper in section 3 is simply a small positive shock which starts the cycle off. It is not the crisis. The crisis in this model is fully endogenous, it is caused by high leverage, booming land values and credit constraints. The cycle does not go from boom to bust due to any exogenous shock.Britonomisthttps://neweconomicsynthesis.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38337267003524919442016-08-19T22:45:35.539+01:002016-08-19T22:45:35.539+01:00I still don't think you are quite getting my &...I still don't think you are quite getting my "endogenous shock" point. <br /><br />I dismiss completely the idea that an essentially endogenous shock can be treated as "exogenous" for the purposes of a model, for reasons I shall explain shortly. So that leaves two possible ways of looking at this. Lehman is an endogenous shock under either approach. <br /><br />Firstly, the financial crisis was - initially - a crisis of the financial system, not of the whole economy. There were severe spillover effects to the rest of the economy, of course. But the trigger for the financial collapse was a shock to the financial system which came from WITHIN the financial system. Terrorism is endogenous to the political system, yes, but it wasn't the political system that collapsed. To the financial system, terrorism is exogenous. <br /><br />That is something of a micro definition, I agree. So now let's take the economy as a whole. What would be a genuinely exogenous shock? I suppose if the earth got hit by an asteroid you might regard that as exogenous. Maybe the Icelandic volcanic eruption that caused air traffic to be grounded for three weeks in 2010 was an exogenous shock. And perhaps the Japanese tsunami, and Hurricane Katrina. Acts of God are exogenous - would you agree? <br /><br />And that brings me to the essential difference that I pointed out in the post between Kiyotaki-Moore's shock to productivity and the financial crisis. A productivity shock in farming can be caused by adverse weather. If it's weather, then it's exogenous to the economy, since humans don't cause or control weather. But the fall of Lehman was ENTIRELY caused by the activities of humans. Defined in this way, therefore, the fall of Lehman can only be regarded as endogenous, whereas Kiyotaki-Moore's shock might not be. <br /><br />I think the majority of economic shocks are endogenous. And I think economists define endogenous shocks as exogenous in order to avoid having to include in their models the human systems that give rise to them. It's understandable, in order to keep the models tractable, but we should really distinguish between shocks that are endogenous to some aspect of the economy that is not being directly modelled, and shocks that are genuinely exogenous. <br /><br />Of course, you might decide that as humans are part of the natural order, so is anything we create, including our economic system. In this case, then, the only genuinely exogenous shock would be an alien invasion, since even an asteroid hit is a natural hazard. Evolutionary economics are great fun, but seriously - how far do you want to take this? <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-13937128106238092582016-08-19T22:31:17.415+01:002016-08-19T22:31:17.415+01:00"and did not even recognise the possibility o..."and did not even recognise the possibility of adverse effects if they did."<br /><br />I'm not sure this is so true, I know they were at least aware of many other people warning them, because there were repeated attempts from Greenspan & later Bernanke to reassure people about housing ("prices are regional" etc...). In fact, look at this article: http://www.irishtimes.com/news/greenspan-warns-of-speculative-fervor-in-housing-1.1180262<br /><br />"[Greenspan] said any fall in home prices was unlikely to have a broad impact on the economy."<br /><br />Hah! If only Greenspan was aware of and thought properly about the implications of models like Kiyotaki Moore, I certainly don't think he would be so confident about it not having broad impacts then (of course, he may have been fully aware and just didn't want to talk down the market). <br /><br />Anyway, I think we need to set the record straight on this model, because until now it has been mischaracterized. It's not a simple Bernanke style model of a financial shock being amplified. Section 3 is a full model of oscillating credit cycles, making the economy go from boom to bust persistently. The bust is not exogenous, but it's caused by the boom + leverage! Sure, you might need a small positive shock to get it going, but once you do you get a persistent credit cycle oscillation that looks awfully familiar. In this model, it generates a boom in land values coupled with rising leverage, eventually the leverage gets too high and you get a collapse (this part is all endogenous). It looks a lot like a housing boom & bust to me.<br /><br />So really, the model is a lot more powerful than you give it credit for in the OP, I think it should at least be updated a little as I think you rather rudely dismissed it there - it's not the collapse is not a simple shock that comes out of the blue.Britonomisthttps://neweconomicsynthesis.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-499160026415195602016-08-19T22:15:53.886+01:002016-08-19T22:15:53.886+01:00I should have changed the word "predict"...I should have changed the word "predict" to "demonstrate".<br /><br />This would allow looking at things that have already occurred and not require the often impossible prediction of the future.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-75786372143963172352016-08-19T22:10:43.987+01:002016-08-19T22:10:43.987+01:00Haha, that's true!
With regard to the house...Haha, that's true! <br /><br />With regard to the house price trend, it is abundantly clear that US policymakers did NOT expect house prices to fall, and did not even recognise the possibility of adverse effects if they did. I've read through the minutes of every FOMC meeting from 2004-2008. The principal concerns, all the time, are inflation and the "normalisation" of interest rates. Rising house prices are regarded with approval. The tailing-off of house price rises from 2006 onwards was regarded with some concern, but not because of the possibility of a sharp fall in domestic demand and a debt deflationary spiral, which is what actually happened. No, the concern was simply that normalisation of interest rates might have to slow down. Seriously, they were asleep at the wheel. <br /><br />I can sort of forgive US policymakers for this, given that the US had not experienced a serious fall in house prices since the 1930s. But UK policymakers were just as bad, with much less excuse. The UK suffered the worst housing crisis in living memory in 1990 - yet only 25 years later, the Bank of England was ignoring everything except inflation, the FSA was letting lenders do whatever they liked and Gordon Brown was celebrating "the end of Tory boom & bust".<br /><br />To be fair, there were some warnings. The BIS persistently warned about the derivatives bubble from 2005 onwards, as did Raghuram Rajan at the IMF. Why they were ignored I don't know. Behavioural economics might have some insights on herding effects and the madness of crowds as applied to central bankers and government policymakers, I suppose. Lemmings, anyway. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41950994542298684632016-08-19T22:04:01.591+01:002016-08-19T22:04:01.591+01:00Now, if the stick in the mud economists say we hav...Now, if the stick in the mud economists say we have theories that are not vague and the theories actually specifically predict things contrary to the real world data, then what?<br /><br />Specifically wrong is obviously wrong! <br /><br /><br />Anonymousnoreply@blogger.com