Contrary to the oil price rise due to the war in Ukraine, the "administered" prices would not be the "asked" prices, were they not “validated” by (M*Vt), i.e., “validated” by the world's Central Banks. Oil prices paralleled money flows, the volume and velocity of money. It can be no other way.
Many times, an increase in oil price (even a large one) is the result of expansionary monetary policy. In other words, the increase in prices is the result of a demand shock. Other times they reflect a shift (for any reason) in the supply curve for oil.
Take: Donald Kohn “I know of no model that shows a transmission from bank reserves to inflation”. That is the source of monetarism's error. That's how I predicted both the flash crash in stocks and the flash crash in bonds.
William Poole - President, Federal Reserve Bank of St. Louis
“However inflation is measured, economists agree that monetary policy has at most a minimal influence on the rate of change in the price level over relatively short time periods—months, quarters or perhaps even a year. Central banks are responsible for medium- and long-term inflation—such inflation, as Milton Friedman wrote, is a monetary phenomenon that depends on past, current and expected future monetary policy. As a practical matter, the medium- to long-term likely is a period of two to five years.”
Contrary to Nobel Prize–winning economist Milton Friedman and Anna J. Schwartz’s “ A Monetary History of the United States, 1867–1960, “there is no “Fool in the Shower”. Monetary lags are not “long and variable”. The distributed lag effects for both real output and inflation have been mathematical constants for over 100 years.
"My only disagreement with Poole, who is not a believer in the “gap theories of inflation”, is that the stance of monetary policy is not best characterized by either the determination of a monetary aggregate or through a federal funds rate policy, but through the movements in NGDP growth. And to obtain the “natural” rate of unemployment, NGDP growth should remain stable at a sustainable rate"
I really do not see the need to "characterize" a "stance." The question at every point is, what should the Fed _do_ with its policy instruments? Which outcome should the Fed be attempting to affect with its actions. With only a normal level of "Brownian Movement" shocks, keeping inflation (and in this moving equilibrium one metric ought to be about as good as another)
or NGDP growing at a steady rate would be the same thing. Unemployment would be NAIRU and the policy interest rate (one of a vector of instruments) would be at r*.
But which outcome should the Fed target for a:
Positive demand shock?
Negative demand shock?
Positive supply shock?
Negative supply shock?
A FAIT target that I favor would suggest temporary over-target inflation [NB I do not think the Fed should ever aim for under-target inflation] followed by disinflation until the "average" target rate is reestablished. [I don't think "A" in FAIT adds any clarity beyond signaling that over-target inflation is temporary.] The "Flexible" is aiming at allowing/facilitating relative prices (not just the relative price of labor and goods as if these were homogeneous) to adjust to the shock. Determining how much over target inflation -- the trajectory of the deviation from target -- the Fed should engineer and which instruments should it use if what we pay them for. And however they do it, my guess is they could do it better if the Treasury gave us more TIPS with intermediate tenors and a tradeable nominal Trillionth and if the Fed itself were willing to make more frequent, smaller and not necessarily monotonic adjustments in the instruments it is using.
Fantastic post!
Contrary to the oil price rise due to the war in Ukraine, the "administered" prices would not be the "asked" prices, were they not “validated” by (M*Vt), i.e., “validated” by the world's Central Banks. Oil prices paralleled money flows, the volume and velocity of money. It can be no other way.
Many times, an increase in oil price (even a large one) is the result of expansionary monetary policy. In other words, the increase in prices is the result of a demand shock. Other times they reflect a shift (for any reason) in the supply curve for oil.
Take: Donald Kohn “I know of no model that shows a transmission from bank reserves to inflation”. That is the source of monetarism's error. That's how I predicted both the flash crash in stocks and the flash crash in bonds.
William Poole - President, Federal Reserve Bank of St. Louis
“However inflation is measured, economists agree that monetary policy has at most a minimal influence on the rate of change in the price level over relatively short time periods—months, quarters or perhaps even a year. Central banks are responsible for medium- and long-term inflation—such inflation, as Milton Friedman wrote, is a monetary phenomenon that depends on past, current and expected future monetary policy. As a practical matter, the medium- to long-term likely is a period of two to five years.”
Contrary to Nobel Prize–winning economist Milton Friedman and Anna J. Schwartz’s “ A Monetary History of the United States, 1867–1960, “there is no “Fool in the Shower”. Monetary lags are not “long and variable”. The distributed lag effects for both real output and inflation have been mathematical constants for over 100 years.
"My only disagreement with Poole, who is not a believer in the “gap theories of inflation”, is that the stance of monetary policy is not best characterized by either the determination of a monetary aggregate or through a federal funds rate policy, but through the movements in NGDP growth. And to obtain the “natural” rate of unemployment, NGDP growth should remain stable at a sustainable rate"
I really do not see the need to "characterize" a "stance." The question at every point is, what should the Fed _do_ with its policy instruments? Which outcome should the Fed be attempting to affect with its actions. With only a normal level of "Brownian Movement" shocks, keeping inflation (and in this moving equilibrium one metric ought to be about as good as another)
https://thomaslhutcheson.substack.com/p/housing-and-inflation-metrics
or NGDP growing at a steady rate would be the same thing. Unemployment would be NAIRU and the policy interest rate (one of a vector of instruments) would be at r*.
But which outcome should the Fed target for a:
Positive demand shock?
Negative demand shock?
Positive supply shock?
Negative supply shock?
A FAIT target that I favor would suggest temporary over-target inflation [NB I do not think the Fed should ever aim for under-target inflation] followed by disinflation until the "average" target rate is reestablished. [I don't think "A" in FAIT adds any clarity beyond signaling that over-target inflation is temporary.] The "Flexible" is aiming at allowing/facilitating relative prices (not just the relative price of labor and goods as if these were homogeneous) to adjust to the shock. Determining how much over target inflation -- the trajectory of the deviation from target -- the Fed should engineer and which instruments should it use if what we pay them for. And however they do it, my guess is they could do it better if the Treasury gave us more TIPS with intermediate tenors and a tradeable nominal Trillionth and if the Fed itself were willing to make more frequent, smaller and not necessarily monotonic adjustments in the instruments it is using.
https://thomaslhutcheson.substack.com/p/improving-fed-decisions
What does NGDP targeting do with each of the four kinds of shocks?