"He ends — rightly — by skewering Warsh for saying “inflation is a choice” and “the Fed will take ownership” while refusing to specify what the Fed would actually do."
With a less smarny Fed chair there would be no point in asking what the Fed "would actually do" as it would be understood as "whatever it takes," given the data, to achieve the lowest inflation rate consistent with full employment of resources. If the Fe already knew which lever to push up or down, it should laready have pushed it.
What we SHOULD demand is what outcome exactly the Fed expects to result from its "choice."
Re divisa, is this being put forward as an alternatve to or additional policy instrument parallel to QT/QE, IOR, EFFR?
On the first: agreed, and it's the sharper framing. "What will you do?" invites exactly the false precision Warsh is right to resist — the lever depends on the data, and if he already knew which one to pull he'd have pulled it. The demand that bites is your version: not what will you do but what outcome are you committing to. State the target and the miss becomes measurable; refuse to, and "take ownership" owns nothing. Warsh evades the answerable question and postures on the unanswerable one — which is the tell.
On the second: neither. Divisia isn't an instrument at all — it's a gauge, not a lever. QT/QE, IOR, and the funds rate are the instruments; Divisia sits alongside the incoming data as a reading that tends to move before nominal GDP does, so it tells you the gap is coming a quarter early. You'd still act through the usual tools. It informs which way to push them; it isn't another thing to push.
I had heard about Divisa. It’s explanation has to me odd tone that it “better” than simple aggregates like M2 when I had never (after the ‘70’s) thought of M2 as good for anything at all.
I take it you see it as a good NGDP proxy but available in real time. That would make it useful for NGDPLT or FAIT/FPLT. Conceptually it still looks like part of the one good, one input one price universe that I think is inadequate for dealing with sector level shocks.
Fun fact. The SL Fed President Musalem’s father and I worked together in Colombia ~ 1969 at the Departmanto Nacional de Planeacion as part of a Harvard U advisory project. He worked in the Macroeconomics division and I in the Industry division. He was married to a woman from Cali and I married a woman from Bucaramanga.
Nicely put, and I'll grant the grammar: money is the instrument, and the price level is a target in the sense that any nominal variable can be written into an objective. The question is which target you can actually hit without collateral damage — and that's where the price level fails and NGDP doesn't.
Target the price level and you commit the Fed to fighting every supply shock: oil spikes, the price index rises, the rule says tighten — into the teeth of a real shock, crushing output to defend a number. Target the NGDP level and the same supply shock passes through to prices while the spending path holds, so the Fed looks through exactly what it should look through. The price level bundles the thing the Fed controls (nominal demand) with the thing it doesn't (relative supply); NGDP isolates the first. That's the whole case for preferring it: not that the price level can't be a target, but that it's the target that makes you do the wrong thing at the worst moment.
So — is NGDP the answer? Yes. But only because the question was "which nominal target won't make you tighten into a recession."
Yes, but I want flexible PLT You are talking about a NGDP or PL “rule.” There is no qustion that NGDP is a better rule.
My onging point about a price level/infltion target (not rule) is that the undelying problem to be solved is facilitating relative price changes. It’s non-clearance of markets (multiple goods, multiple factors) becasue of downwardly sticky prices that produces unemployment and the gap between actual and potential GDP. When the Fed pours monetary stimulus over the economy, prices of fully enployed sectors rise, but quantities of sticky price sectors.
There is no economic story to be told about NGDP targeting. In principle one migh know how much stickiness there was and how much adjustment was needed to derive how much aggregate demand to apply to produce the minimum amout of PL change to maintain/restore full employement. You “know” both what the long run inflation ought to be and how mucy over target inflation to apply when out of full employment.
"He ends — rightly — by skewering Warsh for saying “inflation is a choice” and “the Fed will take ownership” while refusing to specify what the Fed would actually do."
With a less smarny Fed chair there would be no point in asking what the Fed "would actually do" as it would be understood as "whatever it takes," given the data, to achieve the lowest inflation rate consistent with full employment of resources. If the Fe already knew which lever to push up or down, it should laready have pushed it.
What we SHOULD demand is what outcome exactly the Fed expects to result from its "choice."
Re divisa, is this being put forward as an alternatve to or additional policy instrument parallel to QT/QE, IOR, EFFR?
On the first: agreed, and it's the sharper framing. "What will you do?" invites exactly the false precision Warsh is right to resist — the lever depends on the data, and if he already knew which one to pull he'd have pulled it. The demand that bites is your version: not what will you do but what outcome are you committing to. State the target and the miss becomes measurable; refuse to, and "take ownership" owns nothing. Warsh evades the answerable question and postures on the unanswerable one — which is the tell.
On the second: neither. Divisia isn't an instrument at all — it's a gauge, not a lever. QT/QE, IOR, and the funds rate are the instruments; Divisia sits alongside the incoming data as a reading that tends to move before nominal GDP does, so it tells you the gap is coming a quarter early. You'd still act through the usual tools. It informs which way to push them; it isn't another thing to push.
Great intelligence on divisa! Does FRED publish?
No, The CFS does: https://centerforfinancialstability.org/amfm_data.php
I had heard about Divisa. It’s explanation has to me odd tone that it “better” than simple aggregates like M2 when I had never (after the ‘70’s) thought of M2 as good for anything at all.
I take it you see it as a good NGDP proxy but available in real time. That would make it useful for NGDPLT or FAIT/FPLT. Conceptually it still looks like part of the one good, one input one price universe that I think is inadequate for dealing with sector level shocks.
Not 1,1,1 but TOTAL SPENDING
But isn't it spending on the one good?
S&P Global provides monthly NGDP & RGDP: https://www.spglobal.com/market-intelligence/en/solutions/products/us-monthly-gdp-index
But devisa would be even better? And wouldn't daily trades of nominal "Trillionths" be useful, too?
Fun fact. The SL Fed President Musalem’s father and I worked together in Colombia ~ 1969 at the Departmanto Nacional de Planeacion as part of a Harvard U advisory project. He worked in the Macroeconomics division and I in the Industry division. He was married to a woman from Cali and I married a woman from Bucaramanga.
"But the serious position is neither. Money is not the target. Nominal spending is — nominal GDP relative to a stated level path."
Paralleling Woody Allen's "'Sex is not the answer.' 'Sex?' is the question; 'Yes,' is the answer."
Money is not the target Money is the (not so good) instrument. Nominal GDP is _a_ target but so is the price level.
Nicely put, and I'll grant the grammar: money is the instrument, and the price level is a target in the sense that any nominal variable can be written into an objective. The question is which target you can actually hit without collateral damage — and that's where the price level fails and NGDP doesn't.
Target the price level and you commit the Fed to fighting every supply shock: oil spikes, the price index rises, the rule says tighten — into the teeth of a real shock, crushing output to defend a number. Target the NGDP level and the same supply shock passes through to prices while the spending path holds, so the Fed looks through exactly what it should look through. The price level bundles the thing the Fed controls (nominal demand) with the thing it doesn't (relative supply); NGDP isolates the first. That's the whole case for preferring it: not that the price level can't be a target, but that it's the target that makes you do the wrong thing at the worst moment.
So — is NGDP the answer? Yes. But only because the question was "which nominal target won't make you tighten into a recession."
Yes, but I want flexible PLT You are talking about a NGDP or PL “rule.” There is no qustion that NGDP is a better rule.
My onging point about a price level/infltion target (not rule) is that the undelying problem to be solved is facilitating relative price changes. It’s non-clearance of markets (multiple goods, multiple factors) becasue of downwardly sticky prices that produces unemployment and the gap between actual and potential GDP. When the Fed pours monetary stimulus over the economy, prices of fully enployed sectors rise, but quantities of sticky price sectors.
There is no economic story to be told about NGDP targeting. In principle one migh know how much stickiness there was and how much adjustment was needed to derive how much aggregate demand to apply to produce the minimum amout of PL change to maintain/restore full employement. You “know” both what the long run inflation ought to be and how mucy over target inflation to apply when out of full employment.