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« Keynesians stories do not imply Keynesian policies. | Main | Wartime Prosperity Revisited »


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What he is talking about is basiclly what Bryan Caplan would disagree with, right. This conecept is why he is not an Austrian.

I don't know what Bryan Caplan thinks about uncertainty. But I do know that attempts to reduce uncertainty to an unambiguous probability distribution over a fixed set of possibilities that commands agreement by all actors is quite outlandish. (Its only saving grace is that it reduces people's mathematical problems.)

Economists, like Ned Phelps, have argued that such a view was partly responsible for the underappreciation of the uncertainties involved in the new derivative securities that arose prior to the financial crisis.

In a world where the methods that economists use did not dominate their common sense we Austrians would be pushing against an open door. But that is not our world.

Thanks to Peter Lewin for this interview.

The full text of my keynote address: What do we know for certain about uncertainty, which relates to what Mario is talking about, will be available soon and I will post the link.

@Mario Rizzo:

I was talking about this discusion of Bryan with Pete Boettke.

Bill, I think I am generally siaktpcel about the natural interest rate as a concept. In my view interest rates play are a rather small role in the monetary transmission mechanism or at least it is just one of many asset prices which can be distorted by monetary policy. One might as well speak of the natural rate of exchange rate or the natural rate of the equity prices. By talking about interest rates we fall into the Austro-Keynesian trap that low interest rates and easy monetary policy is the same thing. Rather I share the view of Friedman and Scott that low interest rates normally is a reflection that monetary policy has been tight and inflation expectations are low.Greenspan's bond market back in 2005 is a very good example of mis-reading the signals from the market.

Tom, thanks for dipropng by.My reference to uselessness of the natural interest rates mostly concerns my view that the level of interest rates does not tell us anything about the price of money. The price of money is determined by the demand and supply for money, while interest rates is is the price of credit Friedman or Yeager happily would teach us. Furthermore, in terms of understanding the monetary transmission mechanism I would not spend much time looking at interest rates even though central bankers seem obsessed with it (as do some Austrians ). See also my story about Ben Volcker and the transmission mechanism:

Lars,The 1920/21 NGDP spike (especially when WWI-related government spdneing is excluded) is quite sharp, so there was probably not enough time for a lot of nonsubstitutable capital to be built up on expectations of that spdneing trend being continued. I don't see the relevance of the top of this peak as a reference level for evaluating the rest of the decade.I agree, though, that the NGDP trend over the 20 s does not explain the length or depth of the depression only the necessity of *some* subsequent contraction. A ten year depression clearly depends on other factors (including a sharp NGDP contraction).

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