"What matters for the overall economy is the degree of nominal stability the Fed manages to achieve."
Sure. What does the Fed need to do (movement or non movement of any particular policy instrument) to achieve that?
Whatever mistakes in policy instrument movement may have produced the financial crisis (and I would like to know what they were) was the more fundamental cause of the GR not the failure to move instruments so as to return to 5% ngdp growth or re=create expectations of 2% CPE growth?
You start from the right framework - but use the wrong metrics. Income velocity can move in the opposite direction as the transaction's velocity.
Money demand during C-19 is best reflected in the composition of the money stock. There became as Shadow Stats pointed out: "a flight to liquidity", where the proportion of transaction accounts to gated deposits grew, increasing Vt.
"When the Great Recession ended in mid-09, money growth tanked. While the inflation talk was "loud""
?? "Talk" is cheap. Tips expectations were hugely below target in mid 2009
"To interest rates “enthusiasts” very low interest rates as in 2009-15 indicated monetary policy was “too easy”.
I think we should be totally agnostic about what interest rate means "easy" or not "easy." Clearly monetary policy 2009-2020 was not easy enough to achieved full employment at the target rate of inflation. There are no absolute guideposts, but with inflation approaching target, if the Fed were not expected to reduce rates soon, recession would not be unlikely. I think there is a reasonable risk if the cuts are delayed until March. TIPS still has inflation under target over 5 and 10 years which to me implies a recession somewhere down the line.
The use of money is what counts, not its total quantity. It can be used as an exchange good or held as an asset. The two have to be disentangled to see what is going on. NGDP is the use of money (in exchange for output), so is the best measure of aggregate demand.
Two questions
"What matters for the overall economy is the degree of nominal stability the Fed manages to achieve."
Sure. What does the Fed need to do (movement or non movement of any particular policy instrument) to achieve that?
Whatever mistakes in policy instrument movement may have produced the financial crisis (and I would like to know what they were) was the more fundamental cause of the GR not the failure to move instruments so as to return to 5% ngdp growth or re=create expectations of 2% CPE growth?
You start from the right framework - but use the wrong metrics. Income velocity can move in the opposite direction as the transaction's velocity.
Money demand during C-19 is best reflected in the composition of the money stock. There became as Shadow Stats pointed out: "a flight to liquidity", where the proportion of transaction accounts to gated deposits grew, increasing Vt.
Great post.
I remember Charley Plosser. Then there was Richard Fischer from Dallas too.
Does the Fed balance sheet matter?
I suspect it does not much, but is a way to reduce debt loads on taxpayers. See Japan.
"When the Great Recession ended in mid-09, money growth tanked. While the inflation talk was "loud""
?? "Talk" is cheap. Tips expectations were hugely below target in mid 2009
"To interest rates “enthusiasts” very low interest rates as in 2009-15 indicated monetary policy was “too easy”.
I think we should be totally agnostic about what interest rate means "easy" or not "easy." Clearly monetary policy 2009-2020 was not easy enough to achieved full employment at the target rate of inflation. There are no absolute guideposts, but with inflation approaching target, if the Fed were not expected to reduce rates soon, recession would not be unlikely. I think there is a reasonable risk if the cuts are delayed until March. TIPS still has inflation under target over 5 and 10 years which to me implies a recession somewhere down the line.
Very nicely put.
The use of money is what counts, not its total quantity. It can be used as an exchange good or held as an asset. The two have to be disentangled to see what is going on. NGDP is the use of money (in exchange for output), so is the best measure of aggregate demand.