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D. Tohmatsu
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1. I would be very surprised if the data (especially on wealth) was even remotely accurate. 2. I don't think it requires data to know that if the economic reward for working hard is nothing, then people will not work hard.
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Jeff, Sorry, had not seen some of your more recent comments when I posted. BTW - Don't think it has anything to do with the liquidity preference. I think it's just a function of the counter-party. Unless there is an ultimate counter-party (or an expectation of one in the future) outside of the banking system, the swap will be ineffective as a policy action. OMP which merely increase reserves have no impact.
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What impacts AD is marginal changes in the volume of financial assets exchanged by the non-banking sector for real goods and services. Money is used as an intermediate medium to facilitate the exchange. Marginal changes to the volume of financial assets exchanged for goods and services can be independent of changes to both nominal and real rates, but marginal changes in Base less ER correlates pretty well (with some adjustment). However, you can't conclude causality. If the banking sector marginally increases net purchases of financial assets from the non-banking sector (e.g. makes loans to the non-banking sector), the quantity of money has to increase. Yin and Yang. Nick is wrong to assume causality when only correlation exists and Jeff is wrong to think it's necessarily and always correlated to changes in r. BTW - It would be nice if you would both acknowledge that Tbill-reserve swaps do absolutely nothing.
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Nick: "The standard NK model assumes agents with identical preferences with non-zero EIS. Let us accept that assumption. The standard NK model says that if the central banks sets r above r*, then C and Y will fall below C* and Y*, according to the consumption Euler equation. Let us see if that conclusion still follows if agents can costlessly barter at the sticky relative prices." Don't want to jump into the middle of an entertaining discussion, but wouldn't that require perfectly elastic supply and demand curves.
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Nick: "Is the Fisher effect that obvious and trivial? Try explaining it to some heterodox economists!" What is a heterodox economist? Nick: "(And remember that money will generally not be precisely super-neutral, if the nominal interest rate on currency is stuck at 0%.)" By this are you referring to changes in V caused by changes in nominal r on non-currency money.
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Nick, you're description of the "long run" part of theory is somewhat misleading. The accurate way to state it is, "If the Central Bank successfully achieves it's target to lower the real interest rate on paper money, then the nominal rate on electronic money will be higher. Which, BTW is obvious and trivial even when described in an obtuse manner.
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Jeff, you said; "Sure, they'd think they got it. Even though you didn't say anything about what operation you carried out. Did you just print it up and give it away? Did you buy t-bills with it? Does it matter? Are you going to tax it all back next year or sell back the t-bills? Ever? What is the path of nominal t-bill rates between now and then?.... " This is an important point that you make. Most people don't get this and assume that the effect of a helicopter drop would be identical to OMP, which it is not ...just as the effect of a bank lending money would not be identical to the effect of a bank giving money away. Your point on the level of bank reserves is also important and usually overlooked by monetarists. OMP which merely result in an increase of bank reserves held by commercial banks at the Fed will have no more effect on the economy than if the Minneapolis Fed did OMP with the St. Louis Fed as their counter-party.
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Jan 25, 2014