Third in a three part series on QE and Business Investment. https://thefaintofheart.wordpress.com/2015/11/01/qe-and-business-investment-the-var-evidence-part-3/

https://thefaintofheart.wordpress.com/2015/10/15/stephen-williamson-discovers-var-analysis/

"And I doubt I am alone in trying to figure out what:...means." We need more truly empirical studies. (How's that?) "OTOH, I did try to find some proof about:...and I see nothing but the statement." In Part 1 I explain the source of the data. https://thefaintofheart.wordpress.com/2015/08/02/fiscal-and-monetary-policy-interaction-during-the-age-of-zirp-part-1/ "Personal Current Taxes is not available at a monthly frequency. However Personal Income (PI) and Disposable Personal Income (DPI) are available at a monthly frequency, and Personal Current Taxes is simply Personal Income less Disposable Personal Income. Personal Current Taxes, Contributions for government social insurance, domestic (A061RC1), Personal current transfer payments: To government (W062RC1M027SBEA) and Compensation of employees: Supplements to wages and salaries: Employer contributions for government social insurance (B039RC1M027SBEA) are all components of general government current receipts, and are all available at a monthly frequency back to January 1959. Personal current transfer receipts: Government social benefits to persons (A063RC1) is a component of current transfer and interest payments, and is also available at a monthly frequency back to January 1959. I shall term the sum of these monthly current receipts, less the monthly current transfer, Net Personal Taxes, although it includes the employer contribution for government social insurance." If you read the entire post you'll see why this particular data is of interest. You can try and reconstruct the data series yourself from the FRED codes I have provided, or you can just go to this link: https://research.stlouisfed.org/fred2/graph/?graph_id=246953&category_id=

Hi-Yo, Silver! Away! http://dreadfullybusy.com/wp-content/uploads/2015/06/LoneRangerFanClub.com_.jpg

"Think basil Rathbones sheriff of Nottingham" Hmmm. I think I like that image. http://www.basilrathbone.net/films/robinhood/rh513.jpg

"What is the chance that the Fed changes its assumptions for their monetary policy response to fiscal policy offsets from tax changes?" Realistically, none. Nevertheless one should never stop advocating better monetary policy. It's too important. "It may take ten years or more, but I hope to one day meet you in Wilmington for some cold beer and hot jimmies spread out on brown paper." Sounds good. I'm looking forward to it.

"We have one piece of statistical analysis that is contrary to what a lot of empirical studies show." Actually there is an incredible dearth of truly empirical studies (e.g. ex ante VAR studies). There has been a veritable cornucopia of theoretical studies stuffed with implausible assumptions. Color *me* unconvinced.

"Aren't there numerous studies that Obama's stimulus helped?" I have seen no ex ante VAR studies similar to my own, which in turn is similar to Fatas and Mihov (2001), albeit with monthly frequency data. The advantage of VAR studies is that they tend to be atheoretical and so aren't subject to too many potentially implausible assumptions. "Didn't Fed officials regularly say that austerity was hurting the recovery?" Precisely, and that is almost certainly what is generating this perverse negative fiscal multiplier result. The Fed was reacting to what it believed will be the effects of fiscal austerity. QE3 was mainly launched in response to the then forthcoming fiscal cliff. Net Personal Taxes (see my post for the explicit definition) were up by 40.5% year on year in April 2013. Nevertheless Q4 on Q4 RGDP growth rates averaged about 1.5% in 2011 and 2012, but about 2.5% in 2013 and 2014. The Fed expected the fiscal cliff to slow real growth so it boosted monetary stimulus. But the fiscal cliff had no significant negative effect so real growth ended up going up rather than just staying the same.

Unfortunately unemployment (UE) itself hasn't been significantly correlated with fiscal or monetary variables in this setting. But industrial production is, and it's still a passable monthly frequency proxy for real GDP (RGDP). And RGDP is correlated with UE. The effect of government spending should still be detectable even if it is tiny. To be honest, I'm surprised by the lack of statistical significance of government spending, but I have tried to be very thorough in justifying that result.

Last in a three part series on fiscal and monetary policy interaction in the age of Zero interest rate policy. https://thefaintofheart.wordpress.com/2015/08/08/fiscal-and-monetary-policy-interaction-during-the-age-of-zirp-part-3/

The conclusion of a 12 part series (see numbered links at bottom of this post) using Vector Auto-Regression (VAR) analysis to study the effects of the US Quantitative Easing (QE) on output and prices. https://thefaintofheart.wordpress.com/2015/07/27/the-monetary-base-and-the-channels-of-monetary-transmission-in-the-age-of-zirp-conclusion/

Yes, I still live in Delaware. I've been teaching calculus and statistics for the Mathematics Department at the University of Delaware. I just finished my PhD in economics at the University of Delaware this spring. My dissertation is titled "Tax Structure and Growth: Evidence from the EU-27 During 1995-2007". It should be published by ProQuest shortly, as nearly all US doctoral dissertations are these days. Since January I've been the "Primary Research Assistant" at the Program for Monetary Policy at the Mercatus Center at George Mason University, through which I'm helping Scott Sumner write a book on monetary policy (Scott has said that I'll be listed as the coauthor). And I'm in the process of cofounding M3Advisers, an economic consulting firm, with Marcus Nunes (Historinhas), Benjamin Cole and Justin Irving. In short, this doesn't leave me much time for commenting. In fact, Marcus has told me that anytime I feel the urge to comment, to simply write a blog post instead, and he'll post it at Historinhas.

https://thefaintofheart.wordpress.com/2015/06/12/is-iceland-krugmans-inadvertent-case-for-the-monetary-policy-offset-of-fiscal-policy/

What evidence do Mian and Sufi provide in support of the claim that we are in a "new auto sales" bubble or are experiencing a "subprime auro loan boom"? The graph of "new auto sales" is based on Census data and is actually "Retail Trade: Auto and Other Motor Vehicles" which includes used autos: http://www.census.gov/retail/marts/www/timeseries.html Yes, nominal retail auto sales is up by over 50% since early 1998. But nominal disposable personal income has nearly doubled in the last 16 years. Consequently retail auto sales were only 7.5% of disposable personal income in April, which is lower than anytime from January 1992 through December 2007, which is as far back as such records go: https://research.stlouisfed.org/fred2/graph/?graph_id=181535 It's up sharply from its low of 5.2% five years ago, but it's still way down from the 9.5% rate it averaged in early 1998. That doesn't sound like a "bubble" to me. What about the evidence for a "subprime auto loan boom"? None is provided by Mian and Sufi, but that's not surprising because there are no official statistics on auto loans by quality. Experian has been tracking auto loan quality since 2007, and it finds that the proportion of subprime auto loans fell to 36% in 2009 and rose to 43% by early 2013: http://www.businessweek.com/ap/2013-03-05/more-subprime-buyers-getting-auto-loans Based on Experian's findings for new auto loans: http://www.businessweek.com/articles/2013-11-27/subprime-loans-are-boosting-car-sales It sounds to me like the proportion of subprime auto loans is now only a little higher than it was before the recession. Moreover, outstanding auto loans were only 7.0% of disposable personal income in April 2014, which is lower than at any time in the decade from March 1999 through March 2009, and lower than it was from September 1986 through September 1989. https://research.stlouisfed.org/fred2/graph/?graph_id=181536 And it's still down over 20% from its peak of 8.8% in September 2003. Again, this doesn't sound very much like a "boom", does it? In my experience, thoughtlessly regurgitating platitudes usually gets in the way of seeking out the empirical evidence.

Subprime Lending Drives Spending - House of Debt My response is here: http://thefaintofheart.wordpress.com/2014/06/14/does-lending-cause-nominal-spending-or-does-nominal-spending-cause-lending/

"The posts headline promises way more then u deliver" It's a blog post, not a PhD dissertation. "A case of a few numbers adding very little" The UK's correlation between aggregate demand growth and fiscal consolidation across time is almost perfectly positive. In other words, when Krugman admits he was wrong, he is somewhat understating matters. "As I recall there was a price impacting tax increase in the mix" Doesn't that fact only support what I say in the post about a negative aggregate supply shock?

When has Thomas Friedman ever indicated he even knows the difference between nominal and real GDP?

Wrongness, OK and Not - Paul Krugman My response is here: http://thefaintofheart.wordpress.com/2014/06/13/stuff-happens-or-why-the-fiscalist-model-never-seems-to-fit-the-data/

As long as monetary policy is capable of affecting the level of NGDP, any attempt to push NGDP towards what fiscal policy makers perceive to be more optimal levels will be offset by monetary policy makers provided they think NGDP is already at optimal levels. This is precisely why it makes no sense to initiate fiscal stimulus/consolidation with the goal of affecting the level of NGDP under such circumstances. The only effective solution to change what monetary policy makers perceive to be the optimal target.

Given the state of U.S. infrastructure, there may be good reasons to engage in infrastructural investment purely for its own sake. http://www.infrastructurereportcard.org/a/documents/2013-Report-Card.pdf But if you don't believe in the liquidity trap (and I don't), fiscal policy cannot make up for bad monetary policy.

Procyonm, Traditionally "crowding out" is a phenomenon viewed in the context of interest rates. This is usually modeled with the IS/LM Model, with the type of private sector spending being crowded out in that case being physical investment. But when the zero lower bound in policy interest rates is hit, it may be possible to increase government spending without increasing interest rates and thus without crowding out private sector spending. However, suppose you don't believe that the zero lower bound in interest rates is much of a constraint on monetary policy (i.e. in the "liquidity trap") because you believe that the other channels of the Monetary Transmission Mechanism (MTM) are far more important (as I do). Then it is possible for the central bank to set (within reason) the level of nominal GDP (NGDP), and by extension the level of real output (real GDP or RGDP) through (unconventional) monetary policy actions. Under those circumstances discretionary increases/decreases in government spending necessarily cause decreases/increases in private sector spending since the sum of government spending and private sector spending is NGDP. So, yes, I think you are correct. Unless the central bank accomodates changes in government spending, changes in government spending will have little effect on overall output. They will merely change the public/private composition of output. And all indications are that central banks normally do not accomodate changes in government spending. In particular, note that in the US QE3 was largely initiated in response to the then impending "fiscal cliff" in order to prevent real output from being adversely affected from cuts in government spending. And in this it was largely successful. Thus the key to a faster recovery from the Great Recession is better monetary policy.

My policy perscription is doing expansionary monetary policy (because it works). Here are my three previous posts. http://thefaintofheart.wordpress.com/2014/06/07/what-simon-wren-lewis-thinks-he-knows-is-not-true/ http://thefaintofheart.wordpress.com/2014/06/10/simon-wren-lewis-tries-to-explain-how-it-is-possible-the-u-s-hummingbird-can-fly-despite-not-following-his-policy-advice/ http://thefaintofheart.wordpress.com/2014/06/11/simon-wren-lewis-needs-help-figuring-out-what-nothing-and-zero-mean-and-the-real-asymmetry-between-monetarists-and-fiscalists/ Note that the third post addresses the meaning of "doing nothing".

Me? I'm not asking for anything.

Good and Bad Blog Debates - mainly macro My response: http://thefaintofheart.wordpress.com/2014/06/12/is-fiscalist-policy-advice-consistent-with-their-research-and-just-how-interested-is-simon-wren-lewis-in-debt-stabilization/

Peter K., In my post I link to a post by J.W. Mason and one by Nick Rowe on this subject, both of which I think are very helpful (and approach it from differing perspectives). Simon Wren-Lewis also provides multiple links to posts which explain this division of labor between monetary and fiscal policy. Have you tried reading some of these links? If you have, and nevertheless still have questions I would be happy to share my own views.