Regardless of Edmund Conway’s contempt* for the publication, I actually really enjoy the Bank’s Quarterly Inflation Report.  Like many of their speeches etc, it is quite informative, and useful for explaining how they think. Some quotes:

The Bank’s asset purchases have injected money into the economy, raising the prices of a range of assets and improving companies’ access to capital markets. Nevertheless, spending growth remains weak . . . One reason why money growth has been subdued is that some households and companies have paid down debt instead of keeping that money on deposit.

Funny, the Bank’s explanatory leaflet says “Putting more money into our economy to boost spending“.   Lots more there.

Then there’s Chris’s excellent post on Capital.  This touches some important issues that Duncan had earlier raised.   Why is there not more capital investment when there are evidently many opportunities?  Which means I now have to read something by some people called Marglin and Bhaduri, cheers Chris.

Stefan Karlsson, a bit of an arch-monetarist, nevertheless comes down against the Sumner Solution to getting Inflation:

Sumner disagrees. He seems to think that the Fed can and should target inflation, or more accurately nominal GDP (NGDP) growth . . .  I don’t think one of Sumner’s proposed actions for creating inflation and therefore by extension higher NGDP growth, namely raising inflationary expectations, will really be that effective. Almost all market participants already know that the Fed wants inflation to return (specifically to about 2%), and are doing what they believe will be effective to create it. Announcing that target formally won’t make any difference.

That is where I think we are in the UK.  The statement ‘look we’re trying for 2% inflation’ does nothing to boost growth, because that’s about where we are.  But Sumner could quite rightly come back with: target NGDP growth instead.  I am beginning to agree with him, on that subject.

For the doom-mongers, repossesssion figures are going to disappoint.  Like unemployment figures, coming in much better than expected.  The Conservatives should be secretly quite happy with these aspects of their presumed inheritance.

The normally sound Don Paskini gives us the totally unhelpful information on whatthe PUBLIC think should be used to solve financial crises.   Next week, we will give you the polling data on how they want cancer to be cured: through drugs, invasive surgery or holistic bee wax therapy?  You decide.  Because democracy is always such a good way of solving technical systemic problems.

Except the question of redistibuting wealth, which is political.  But then, most people are below the mean, so the answer is always yes . . .

This post, and the experiments that have led from it, have made me laugh really hard today.  Try typing in “Is it OK to” in your Google toolbar.

*actually, his analysis is worth reading


4 thoughts on “What I’ve been reading

  1. Reading the BoE Inflation Report and Andrew Haldane’s speeches/papers cheers me up. These guys are thinking relevantly and to some purpose about the uncertainties and theri future mangement; and show no sign of fobbing us off with false precision about where we are and where we are going.

    Scott Sumner’s stuff is specifically about the shape of his model, not really about how it might apply now. Karlsson is replying off beam, perhaps because Sumner appears to be building conceptual bridges from monetarism to the real economy. (Not that I think thea NGDP targetting for central banks is right, but the idea helps think around what are the constraints on real GDP growth – an issue we have been conceiving for far too long in terms of trend projections.)

  2. I actually think the BOE’s stuff – speeches and publications – is excellent, for wonks like us. But the broader communication is lacking, if you take the Sumner view that you need to be really shocking people into producing NGDP growth on a level target.

    My problem with SS is that he does not adequately prove his contention that a central bank can achieve whatever NGDP growth it wants – not on a timescale that has much meaning (the Keynes Long Term Dead quote is actually still relevant). The mechanism that QE works through seems to get bunged up at the asset price stage. I think the government WITH the central bank might be able to make that promise, though the skittishness of the bond market may stand against it.

    Don’t you think an NGDP target of 5-6% while we are in big economic slack territory might be a useful indicator of bullish intentions?

  3. Monetarists sometimes express themselves as though central banks had fairy godfather powers. I don’t think that serious monetarists have ever meant that for any real central bank; only for the platonic ideal of a determined central bank.

    An NGDP target is like an inflation target. It can only be set convincingly by the government; and only maintained convincingly by the central bank. As I implied in a comment to Scott, right now I think a 5-7% NGDP target would make sense. It needs no more to start it than an emphatic change in the emphasis in the forthcoming Budget Report from the ‘real’ to the nominal figures. It would then be reinforced by a letter of instruction from the Chancellor to the Bank setting out the switch from inflation targetting. I would leave the switch to explicily targetting levels rather than first differences to a future year. I am not sure how important that is in the long run; and I am reasonably sure it does not matter in the short run.

    As to communication, the Government needs to signal its bullish resolve loudly. The BoE can back that resolve but it cannot supply it. For that resolve to have its desired effect, the economic policy embodying it must come accross as coherent, honest and focussed. But can you see any policy presentation in which either Gordon Brown or George Osborne has meddled giving that impression?

  4. Great comment.

    My problem with level targetting is (a) introducing it to my thinking i.e. paper might add 2000 words and a few days to this already late paper and (b) I do think expectations are important: and how are expectations of a price level communicated through the economy?

    Also, you can imagine chaotic effects. Suppose the economy takes a dip in year 1, so that we have to make up an extra 2% of growth in year 2. Does this mean that rational wage bargainers ought to be asking for 2% extra pay? Even as the economy is in recession? My mind is boggling over all the potential problems. I could see underrepresented employees faced with falling wages, and Bob Crow’s lot getting a bonanza

    Rambling now. See you around. I didn’t know you followed Sumner too

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