Only price increases generated by demand, irrespective of changes in supply, provide evidence of monetary inflation. There must be an increase in aggregate monetary purchasing power, AD, which can come about only as a consequence of an increase in the volume and/or transactions' velocity of money.
The odd thing is that Blanchard explains very well the origin of the shocks that correctly led the Fed to crank up inflation (or NGDP growth if that's what you think it is, or should be, targeting). And when the relative price adjustments were made, to crank inflation/NGDP growth back down. [As a matter of fact, I think it did not start cranking down soon enough and so has had to crank down from higher and for longer than it otherwise would have needed to.] But then he comes out with the bizarre idea that the entire episode of over-target inflation/NGDP just happened -- popped into existence like a quantum fluctuation from the vacuum state -- immaculately untouched by the Fed instrument settings. But that to further reduce inflation from almost at target to target WILL require active tightening?
Now going forward, is it necessary to leave the EFFR (a synecdoche for the vector of monetary policy instruments the Fed might use) "higher for longer" to get PCE inflation down to 2% as Blachard thinks.? If so, is it because real wages have overshot their full employment equilibrium (which could be the implication of labor market tightness measurements, except that is not what they show)? It is hard to see why for the reasons Marcus Nunes points out here (and has been consistently pointing out!). In addition, TIPS expectations are marginally under target.
Could be that Blanchard shares the Fed’s view that once it begins to reduce the EFFR, it must continue, that reversing course (and then re-reversing if necessary) is inconceivable?
Monetary policy objectives should be formulated in terms of desired rates-of-change, RoC’s, in monetary flows, M*Vt [volume X’s velocity], relative to RoC’s in R-gDp. There is evidence to prove that rates-of-change [roc's] in nominal-gDp can serve as a proxy figure for [roc's] in all transactions. But rates-of-change in real-gDp have to be used as the policy standard.
Contrary to Nobel Laureates Dr. Milton Friedman and Dr. Anna J. Swartz, the distributed lag effect of monetary flows, the volume and velocity of our "means-of-payment" money, are mathematical constants, and not "long and variable". See: Swartz (“Money and Business Cycles”), (A Monetary History of the United States, 1867–1960, published in 1963).
That means economic forecasts within a year are infallible. But Marcus you'll have to discard your rate-of-change. There are two lags, not one. That's how I forecast both the flash crash in bonds on Oct 15, 2014, and the flash crash in stocks on May 6, 2010 (which is universally unknown).
"If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris paribus.
In other words it must be possible to effect this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets. Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity. But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole."
Toward a More Meaningful Statistical Concept of the Money Supply Leland J. Pritchard The Journal of Finance
Only price increases generated by demand, irrespective of changes in supply, provide evidence of monetary inflation. There must be an increase in aggregate monetary purchasing power, AD, which can come about only as a consequence of an increase in the volume and/or transactions' velocity of money.
The odd thing is that Blanchard explains very well the origin of the shocks that correctly led the Fed to crank up inflation (or NGDP growth if that's what you think it is, or should be, targeting). And when the relative price adjustments were made, to crank inflation/NGDP growth back down. [As a matter of fact, I think it did not start cranking down soon enough and so has had to crank down from higher and for longer than it otherwise would have needed to.] But then he comes out with the bizarre idea that the entire episode of over-target inflation/NGDP just happened -- popped into existence like a quantum fluctuation from the vacuum state -- immaculately untouched by the Fed instrument settings. But that to further reduce inflation from almost at target to target WILL require active tightening?
Now going forward, is it necessary to leave the EFFR (a synecdoche for the vector of monetary policy instruments the Fed might use) "higher for longer" to get PCE inflation down to 2% as Blachard thinks.? If so, is it because real wages have overshot their full employment equilibrium (which could be the implication of labor market tightness measurements, except that is not what they show)? It is hard to see why for the reasons Marcus Nunes points out here (and has been consistently pointing out!). In addition, TIPS expectations are marginally under target.
Could be that Blanchard shares the Fed’s view that once it begins to reduce the EFFR, it must continue, that reversing course (and then re-reversing if necessary) is inconceivable?
Monetary policy objectives should be formulated in terms of desired rates-of-change, RoC’s, in monetary flows, M*Vt [volume X’s velocity], relative to RoC’s in R-gDp. There is evidence to prove that rates-of-change [roc's] in nominal-gDp can serve as a proxy figure for [roc's] in all transactions. But rates-of-change in real-gDp have to be used as the policy standard.
Contrary to Nobel Laureates Dr. Milton Friedman and Dr. Anna J. Swartz, the distributed lag effect of monetary flows, the volume and velocity of our "means-of-payment" money, are mathematical constants, and not "long and variable". See: Swartz (“Money and Business Cycles”), (A Monetary History of the United States, 1867–1960, published in 1963).
That means economic forecasts within a year are infallible. But Marcus you'll have to discard your rate-of-change. There are two lags, not one. That's how I forecast both the flash crash in bonds on Oct 15, 2014, and the flash crash in stocks on May 6, 2010 (which is universally unknown).
"If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris paribus.
In other words it must be possible to effect this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets. Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity. But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole."
Toward a More Meaningful Statistical Concept of the Money Supply Leland J. Pritchard The Journal of Finance
Vol. 9, No. 1 (Mar., 1954), pp. 41-48