Really interesting speech by @federalreserve Governor Chris Waller on R-star. This speech should put to bed the claim that R-star no longer relevant. Au contraire, it is very much alive and well! A short 🧵on his speech (1/n) federalreserve.gov/newsevents/spe… First, he delivers some body blows to those--including me--who have claimed R-star's decline (as evidenced by 10 year treasury yield) over the past few decades was due to a slowdown in productivity and population growth rates. (2/n)

Great thread, Vitor, on the arguments for the floor system. A few comments. First, a corridor system (CS) naturally collapses to a floor system in a ZLB environment. That is when a floor system and the flexibility it provides is needed. The ECB could always revert back to it if the need arose Second, the floor system has not been a panacea for interest rate control. The central bank still has to estimate the point where reserve demand is satiated so as to keep right level of reserves in the system. That value is dynamic and hard to know as the Fed learned in 2019 repo crisis. Also, other central banks with corridor systems post-2008 have done fine with corridor systems. See the Bank of Canada up through the pandemic.

Great show this week with @LevMenand & Josh Younger who discuss how Treasury market liquidity is a policy choice! They have a new paper covering the legislative and regulatory history that have led to the current fragility in Treasury markets. (1/5)
directory.libsyn.com/episode/index/… Their paper is titled "Money and Public Debt: Treasury Market Liquidity as a Legal Phenomenon" and it can be found here: Using history, they show that even with large surges in public debt, treasury market liquidity is still a policy choice. (2/5) shorturl.at/gDEN1

Delighted to John Coates of @Harvard_Law to discuss the rising influence of index funds and private equity over corporate America. (1/4)directory.libsyn.com/episode/index/… Our discussion is based on his new book "The Problem of 12: When a Few Financial Institutions Control Everythig" and it is timely topic as we see folks on both the right and left responding to growing influence of institutions like Blackrock, Vanguard, and State Street. (2/4)

Delighted to have @chrishughes on the show this week to discuss Arthur Burn's legacy, including the implications of his views for today's inflation & how his backstopping of shadow banking in the 1970s reverberate to the present. (1/7) directory.libsyn.com/episode/index/… As @chrishughes notes, Arthur Burns was an interesting character. He had led the CEA, AEA, NBER, and was a very prominent public intellectual. He had the gravitas and stature that made him the Larry Summers of his day. He was very influential on economic policy in the 1970s (2/7)

Delighted to have @NathanTankus back on the show to discuss the future of MMT, solutions to the debt ceiling, the Fed coming full circle on targeting financial conditions, and the Fed issuing its own securities. (1/5) directory.libsyn.com/episode/index/… Our discussion of the Fed issuing its own securities was really interesting and is based off Nathan's essay crisesnotes.com/federal-reserv… where he shows a number of Fed memos and a 2009 Janet Yellen speech on the matter. Here is an excerpt from the speech: (2/5)

Finally, from a bigger macro perspective, this speaks to the question of who ultimately bears the losses on Treasuries created by the unexpectedly high interest rates. Putting treasuries on the Fed balance sheet pushes some of this loss onto taxpayers and away from bondholders. Addendum 1

https://twitter.com/davidbeckworth/status/1635080368851406849

Former FDIC Vice Chair and KC Fed President. (Also, my current colleague at @mercatus)

https://twitter.com/tom_hoenig/status/1634717363697336320

https://twitter.com/tom_hoenig/status/1634717028538892289

And he is back! @JosephPolitano returns to discuss the missed recession of 2022, the outlook for inflation, whether raising rates can raise inflation, and more! (1/4) directory.libsyn.com/episode/index/… We also got to talk about @JosephPolitano's move to being a full-time substack writer and how people like him are bringing, IMHO, much needed creative destruction to the economic profession. This is especially timely given the high barriers to entry into top econ programs.(2/4)

Delighted to have @cconces back on the podcast to discuss inflation expectations issues, including data availability, uses, and challenges for policymakers. directory.libsyn.com/episode/index/… (1/5) One finding in the literature is that we don't see large changes in spending from changes in HH inflation expectations. There could be data and identification issues here, but at a minimum it should give policymakers pause when using HH inflation expectation data... (2/5)

Some comments on the non-monetary policy decisions reported the January FOMC minutes. (i.e. that part up front in the FOMC document that most observers skip over.) Some real nuggets in there. (1/6) First, this is an interesting part. The Chair is empowered to act between FOMC meetings to adjust stance of monetary in exceptional circumstances. Is this standard fare or something new @KalebNygaard, @PeterContiBrown, @TimDuy? (2/6)

@R2Rsquared Ricardo, the framework would be symmetric--a pure AIT framework--but for the the second-to-last paragraph in the FOMC's statement on longer run goals and monetary policy. This where the F in FAIT comes into play. (1/4) @R2Rsquared Consistent with that paragraph, Former Fed VC Rich Clarida had several speeches where he called the framework an "asymmetric" approach that doesn't respond to all shocks affecting inflation and noted it is a version of a Bernanke's TPLT. For example (2/4): federalreserve.gov/newsevents/spe…

Delighted to have Elisabeth Kempf & Lubos Pastor of @ChicagoBooth join the podcast today to discuss their provocative and interesting paper "50 Shades of QE". They, along with coauthors @BrianosaurRex & Martina Jančoková, show estimated QE effects ...(1/4) directory.libsyn.com/episode/index/… ... varies between central bank and academic researchers. The former find large effects for QE while the latter find smaller and often insignificant effects. Table 1 below shows these striking differences. The authors go on to show... (2/4)

An amazing chart that suggests unit-root recessions are a policy choice. Will this outcome be the norm in future recessions? The Fed's new framework says yes in theory, but how it is used and how fiscal policy responds will matter too.(1/4)

https://twitter.com/jasonfurman/status/1486702125535186944

Yes, this amazing outcome came at the cost of higher inflation in 2021-2022. But if inflation does ultimately return to target and long-run inflation expectations remain anchored, as they currently are, this will be an amazing success story for macro policy. (2/4)

Whew, the FOMC is still happy with the FAIT framework. No buyer's remorse. FOMC vision of monetary policy: policy rate hikes > balance sheet shrinkage

Great show with @M_C_Klein today where he carefully lays out the reasons why most of the uptick in inflation will fade as we reach the other side of the pandemic. directory.libsyn.com/episode/index/… (1/6) Yes, we had helicopter drops & supportive monetary policy, but they only restored the economy's dollar size to its trend. They plugged a hole. They didn't create above-trend spending, like we saw in the 1970s, which is needed to create a permanently ↑ trend inflation rate. (2/6)

A 🧵on the growing concerns that the higher inflation is becoming persistent. (1/n) Yes, inflation has been higher for longer than most expected, including me. But that doesn't mean the current levels of inflation will be persistent. And that is what matters for the macro policy response. (2/n)

Delighted to have @judgeglock join me to discuss how the U.S. housing finance got to place it is today. It is a rich history off-balance sheet government activity backstopping housing that has led us to the point... directory.libsyn.com/episode/index/… (1/4) ...where GSE/FHA/VA makes up most of the mortgage origination in the United States. The financialization of the U.S. economy can be traced back to this development in the early 20th century. (2/4)

Timely discussion today with @AntonioFatas on hysteresis and its implications for running the economy hot. A few observations: directory.libsyn.com/episode/index/… (1/n) @Noahpinion @greg_ip @martinwolf_ @LHSummers First, hysteresis says there is not a clean break between the business cycle and trend economic growth. Or, put differently, the classical dichotomy in macro is not always binding (2/n)

.@RameshPonnuru and I make the case to actually embrace some 'catch-up' inflation this year as it is needed to restore the dollar size of the economy to its pre-pandemic trend path. (1/n)
nytimes.com/2021/02/17/opi… Put differently, our argument amounts to closing the NGDP Gap. mercatus.org/publications/m… This is not as trivial as some on here make it out to be. (2/n)

Thrilled to have @R2Rsquared to discuss dollar swap lines, fiscal solvency when r < g < m, and the inflation outlook. directory.libsyn.com/episode/index/… (1/3) A few highlights. Dollar swap lines (DSLs) are a win-win for the Fed. 1st, DSLs are safer than lending to U.S. domestic banks since foreign central banks bear the risk of DSLs. 2nd, The backstopping of global dollar funding markets by DSLs increases seigniorage flows to US (2/5)