Thread on fiscal rules. There’s an article linked in this thread, that I have not yet read.

From what I saw, I largely agreed with the basic premises in this thread. Just a couple comments...
1) Conventional discussions of fiscal policy sustainability are silly since they often do not define sustainability. Meanwhile, the existing formal definitions make absolutely no sense, and fall apart under examination.

Since “rules” are about “sustainability,” this is awkward.
2) The MMT proposal - change fiscal review frameworks (which already exist) to look at inflation instead of debt/GDP or deficit/GDP measures - is the correct theoretical answer.

Doing the analysis is non-trivial.
In any event, the fiscal conservatives will focus on the wrong answer anyway, since it is politically convenient for them.

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More from @RomanchukBrian

16 Oct
I want to write a short rant, but my internet connection is down (and I don’t want to blow through my wireless data plan).
So I’ll do it here for now...
I keep seeing arguments like “the Bank of Canada is propping up the bond market, what would happen if they stop?”

That’s like saying “the 46 defence wouldn’t have been good if the Bears defenders couldn’t tackle people.”
The point is: that’s the way the system works.

(Shameless plug: Buy the inexpensive “Understanding Government Finance” so that you can, umm, understand government finance.)…
Read 12 tweets
14 Oct
New article: “All Road Lead To r*”

I discuss the inevitability of r* in mainstream models. The argument is simple: central banks need to know what the effect of a policy rate is on the economy.…
At any given time, they need to know whether an interest rate setting is supposed to cause the economy (in some sense) to accelerate. For a linear model, there is always going to be a “no acceleration point” (which varies over time).

They need models to estimate that point.
r* is not this non-acceleration point; it is a steady-state neutral point. But if we are a neoclassical, we usually impose assumptions to enforce the existence and uniqueness of that steady state.

(Deviations of other variables determines the single period neutral rate.)
Read 5 tweets
13 Oct
I saw this on the ‘Hedge: “MMT notes that bank loans create deposits not the other way around. Well... it's obviously wrong.”

Ah yes, MMTers discovered an accounting identity that has been known probably from before WWII.
(In case why one wonders why an accounting identity is allegedly wrong, the QE operations create deposits if the sellers are non-banks. This has meant that deposits are greater than loans.)
However, being a MMT critic seems like fun. “MMT says that lead weights fall faster than feathers in a vacuum. This is wrong.”
Read 4 tweets
13 Oct
Yet more content - “Primer: Teaching Models Versus Empirical Models”

This is another preliminary article I got out of the way before getting to my analysis of DSGE macro.…
The distinction between a teaching (or toy) model and an empirical model seems easy to understand. The problem is that publication standards in economics result in an obfuscation of this rather critical distinction.

That is, people are treating teaching models as empirical ones.
If we keep this distinction in mind, then DSGE macro is a lot easier to understand. It’s almost exclusively teaching models, that can’t be plausibly fit to data - at least in any sense an applied mathematician would understand the term.
Read 5 tweets
12 Oct
New article: “DSGE Models As Arbitrage-Free Pricing Models”

After today’s highly exciting news about auction theory, going back to boring old macroeconomics.

This article ends a mini-cycle, which provides some background for a longer cycle of articles.…
My argument is that there is too much mysticism about equilibrium concepts and DSGE models. They are just a variant of arbitrage-free pricing models, with the instruments including physically delivered composite consumer goods and labour hours.
An outsider might ask: why we are building arbitrage-free pricing models for non-existent markets? I’m sure there’s an entirely reasonable explanation for this. However, it obviously adds a near-crippling level of complexity to model construction.
Read 6 tweets
18 Jun
Thanks to “The Deficit Myth” hitting the NYT bestseller list, MMT is back on the Twitter menu. I’m going outside to write, but I just want to comment on what I’m seeing here.
If we look at tweets, we can split the MMT critics between “serious critics” and “trolls.” I follow a lot of the “serious critics,” but what I mainly see are “trolls” who get dragged into my timeline. My suggestion is to not give trolls oxygen; create a “bad MMT takes” account.
As for the serious critics, it all revolves around the “nothing new” charge. After seeing that debate 1,000 times, I’m bored of it - as I imagine any bystanders on Twitter are.

The “something new” debate is an academic debate, and should only be of interest only to academics.
Read 7 tweets

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