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I'm having trouble imagining this scenario of real interest on reserves because I tend to think of the equilibrium real rate as exogenous, determined by the world market. Thus if the central bank matches that real rate somehow, we have equilibrium, but it is unstable because slight deviation from the equilibrium real rate opens up an arbitrage opportunity. This doesn't really have anything to do with a special role for money as exchange medium.
Real Interest on Reserves
A central bank issues currency and wants to target the price of apples in terms of that currency. So it opens an apple window, and posts a sign promising to buy or sell unlimited quantities of apples at $1 each. Done. Arbitrage ensures that the market price of apples in the economy is always $1 ...
Thanks! I guess I've been wrongly labeling Nick a market monetarist as well! I'm glad someone finally pointed it out.
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harv...
I think the central bank should decide how the technological innovation affects the marginal product of labour, and adjust its target for the real wage accordingly. I think that George Selgin nails it, though he seems to be regarded as a market monetarist. Indeed he writes about NGDP targeting.
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harv...
Frank it would be interesting to find that the price of haircuts is correlated with some measures of unemployment and not with others. I think that Nick is simply pointing out that the price of haircuts matters much more for macroeconomic stabilization than the price of apples does, because haircuts are a very labour-intensive product.
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harv...
I'm thinking that if we want to maintain labour market equilibrium (full employment) it is better to stabilize the price of the labour-intensive good, which in this case is probably the haircut. But it is somewhat difficult to discuss this without a more complete picture of how workers spend their incomes (with a large fraction going to rent on land).
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harv...
You say that the economy produces two goods. One might wonder why it matters which one is chosen as numeraire. I think the key is to explain how this choice affects factor prices - land and labour, which are contracted with long-term agreements that are mostly fixed in nominal terms. Whereas most of us buy apples on the spot market.
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harv...
It seems to be a fine model for the real value of government debt (including the money stock), but FTPL is a poor name for it because it does not really examine the price level. You are right that we need to look at money demand and the quantity of money to say where exactly the price level will be.
John Cochrane On Neo-Fisherianism, again
First I am going to give you the intuition behind the model in John Cochrane's new paper. It's a very good paper, though I confess I've only skimmed it, because it's very long, and I don't understand all the math. Then I'm going to explain what I think is wrong with it. Then I'm going to explain...
If we are going to focus on central bank and treasury balance sheets, then I think that Nick's analogy to stock splits is particularly helpful. Without any announcements of QE or tax rate adjustments, there are no changes to these balance sheets in real terms, and increasing R is a purely nominal adjustment. I'm a newcomer to this analysis and hope I'm not missing something.
John Cochrane On Neo-Fisherianism, again
First I am going to give you the intuition behind the model in John Cochrane's new paper. It's a very good paper, though I confess I've only skimmed it, because it's very long, and I don't understand all the math. Then I'm going to explain what I think is wrong with it. Then I'm going to explain...
Yes, in terms in csissoko's "New Monetarism" LETS do help reduce search costs. But I think you and some others are also asking how the over-issuance of LETS is prevented, so that they are only used to meet the needs of trade, by qualified borrowers. I believe csissoko tackles this general question in her paper on Real Bills and trade credit, and I wonder how much of that analysis carries over to the LETS system.
Green Bitcoin vs Red=Green LETS: Nominal Anchor vs Needs of Trade
Both Bitcoin and LETS are monetary exchange systems. There are many differences between Bitcoin and LETS. I am going to ignore all of those differences except the one I want to focus on. Those other differences are off-topic. [Yes, this post is not really about Bitcoin vs LETS. I am just using B...
Nick, I think you're right: Bitcoin can be a numeraire because it is a base money. But LETS is a system of credit and thus relies on a base, outside money.
Green Bitcoin vs Red=Green LETS: Nominal Anchor vs Needs of Trade
Both Bitcoin and LETS are monetary exchange systems. There are many differences between Bitcoin and LETS. I am going to ignore all of those differences except the one I want to focus on. Those other differences are off-topic. [Yes, this post is not really about Bitcoin vs LETS. I am just using B...
Yes Bitcoin definitely imposes the cash-in-advance constraint that you write about, csissoko, while LETS does not. I like Nick Rowe's occasional reminders that in addition to elasticity, we also need a nominal anchor for our money, and this makes LETS dependent on an external numeraire. But I think you are pointing out that Bitcoin is similarly dependent because we cannot have an equilibrium if people try to use Bitcoin as the numeraire.
Green Bitcoin vs Red=Green LETS: Nominal Anchor vs Needs of Trade
Both Bitcoin and LETS are monetary exchange systems. There are many differences between Bitcoin and LETS. I am going to ignore all of those differences except the one I want to focus on. Those other differences are off-topic. [Yes, this post is not really about Bitcoin vs LETS. I am just using B...
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