Inflation - Revision history

Eric Rasmusen: /* Measuring Inflation */

2024-03-16T16:27:20Z

‎Measuring Inflation

Eric Rasmusen: /* Miscellaneous */

2024-03-16T16:25:51Z

‎Miscellaneous

Rasmusen p1vaim at 19:41, 31 December 2021

2021-12-31T19:41:15Z

Rasmusen p1vaim at 01:10, 24 December 2021

2021-12-24T01:10:53Z

Rasmusen p1vaim at 21:05, 23 December 2021

2021-12-23T21:05:39Z

Rasmusen p1vaim at 21:05, 23 December 2021

2021-12-23T21:05:28Z

Rasmusen p1vaim at 21:05, 23 December 2021

2021-12-23T21:05:13Z

Rasmusen p1vaim at 21:04, 23 December 2021

2021-12-23T21:04:44Z

Rasmusen p1vaim at 23:54, 20 December 2021

2021-12-20T23:54:47Z

Rasmusen p1vaim at 23:54, 20 December 2021

2021-12-20T23:54:37Z

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 ==Measuring Inflation==
-*Summers's paper is trying to explain consumer sentiment, not measure inflation. But measuring inflation involves some of the same things. Should interest costs be included? They are, indirectly. If I get a lease on a car in 2026, and interest rates are higher than in 2025, the lease payments will be higher (even if it is not lease-to-own), because the company's costs are higher.  So you can just look at lease payment levels. But these are different for 2026 lease starter and 2026 leasers who started leasing in 2025. Which do we use for car *owners*?
+*Summers's paper is trying to explain consumer sentiment, not measure inflation. But measuring inflation involves some of the same things. Should interest costs be included? They are, indirectly. If I get a lease on a car in 2026, and interest rates are higher than in 2025, the lease payments will be higher (even if it is not lease-to-own), because the company's costs are higher.  So you can just look at lease payment levels. But these are different for 2026 lease starter and 2026 leasers who started leasing in 2025. Which do we use for car *owners*?  The same thing applies to using equivalent rentals for houses.
-    The same thing applies to using equivalent rentals for houses.
 ==Miscellaneous==

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 ==Miscellaneous==
 *[https://johnhcochrane.blogspot.com/2021/12/inflation-speculation.html#more John Cochrane on 2020-2021 inflation]:
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 ==Brazil==
 *[https://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil Using the Inflation-Adjusted Units instead of the currency], to change expectations.
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 *[https://johnhcochrane.blogspot.com/2021/12/inflation-speculation.html#more John Cochrane on 2020-2021 inflation]:
 {{Quotation| A monetarist might object that this event  was (finally) proof of  MV equals PY.  Helicopter yes, but helicopter money, not helicopter bonds. M2 rose  $5.5 trillion,  the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.
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 To the economy, a pandemic is like a blizzard. If you send people a lot of money when the snow is falling, you do not get activity in the snowdrifts, but you will get inflation once the snow has cleared. }}
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 *[https://johnhcochrane.blogspot.com/2021/12/the-ghost-of-christmas-inflation.html?spref=tw Cochrane, later in December]:
 {{Quotation|
-Milton Friedman once said that if you want inflation, you can just drop money from helicopters. That is basically what the US government has done. But this US inflation is ultimately fiscal, not monetary. People do not have an excess of money relative to bonds; rather, people have extra savings and extra apparent wealth to spend. Had the government borrowed the entire $5 trillion to write the same checks, we likely would have the same inflation.}}
+Milton Friedman once said that if you want inflation, you can just drop money from helicopters. That is basically what the US government has done. But this US inflation is ultimately fiscal, not monetary. People do not have an excess of money relative to bonds; rather, people have extra savings and extra apparent wealth to spend. Had the government borrowed the entire $5 trillion to write the same checks, we likely would have the same inflation...
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 *[https://johnhcochrane.blogspot.com/2021/12/inflation-speculation.html#more John Cochrane on 2020-2021 inflation]:
-{{Quotation| A monetarist might object that this event  was (finally) proof of  MV equals PY}}  Helicopter yes, but helicopter money, not helicopter bonds. M2 rose  $5.5 trillion,  the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.
+{{Quotation| A monetarist might object that this event  was (finally) proof of  MV equals PY.  Helicopter yes, but helicopter money, not helicopter bonds. M2 rose  $5.5 trillion,  the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.
 Why did this stimulus cause inflation, and that of 2008, or the deficits  from 2008 to 2020, did not do so? Federal debt held by the public doubled from 2008 to 2012, as inflation went nowhere. (Figure 5.6.) From the fiscal theory point of view, the key feature is that people do not believe this debt will be paid back. (In principle discount rates or real interest rates could be different, but in this case they are nearly the same.) So why, this time, did people see the increase in debt and not infer higher future surpluses, while previously they did? Several speculations suggest themselves.

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 *[https://johnhcochrane.blogspot.com/2021/12/inflation-speculation.html#more John Cochrane on 2020-2021 inflation]:
-{{Quotation| A monetarist might object that this event  was (finally) proof of}} MV=PY.  Helicopter yes, but helicopter money, not helicopter bonds. M2 rose  $5.5 trillion,  the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.
+{{Quotation| A monetarist might object that this event  was (finally) proof of}} {{Quotation| MV=PY.  Helicopter yes, but helicopter money, not helicopter bonds. M2 rose  $5.5 trillion,  the rest is irrelevant.  But we can ask all the questions of Section 14.1 about helicopter drops: Suppose the M2 expansion had been entirely produced by purchasing existing Treasury securities, with no deficits. Would this really have had the same effect? Are people starting to spend their M2 because they don't like the composition of their portfolios, which have too much M2, paying 0.01% (Chase), and not enough one-year treasurys paying 0.1%?  Or are they simply spending extra ``wealth?'' Suppose the Federal Reserve had refused to go along, and the Treasury had sent people Treasury bills directly. Would that not have stoked the same inflation?  The fiscal expansion, the wealth effect, is the natural interpretation of this episode.
 Why did this stimulus cause inflation, and that of 2008, or the deficits  from 2008 to 2020, did not do so? Federal debt held by the public doubled from 2008 to 2012, as inflation went nowhere. (Figure 5.6.) From the fiscal theory point of view, the key feature is that people do not believe this debt will be paid back. (In principle discount rates or real interest rates could be different, but in this case they are nearly the same.) So why, this time, did people see the increase in debt and not infer higher future surpluses, while previously they did? Several speculations suggest themselves.
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 Third, the Covid-19 economic environment was clearly different. The pandemic and lockdown shock is fundamentally different from a banking crisis and recession shock of 2008. GDP and employment fell faster and further than ever before, and then rebounded most of the way, also faster than ever before. From a macroeconomic point of view,  the Covid-19 recession resembles an extended snow day rather than a traditional recession. One might call that a ``supply shock,'' as the productive capacity of the economy is temporarily reduced, but demand falls as well, for the same reasons that people don't rush out to buy in a snow day either. (I write ``from a macroeconomic point of view.'' A million people died in the U.S., an ongoing public-health disaster. Many people suffered lost jobs and businesses.) Roughly speaking the economy was operating at its reduced ``supply'' capacity all along, not needing extra ``demand.''  Providing that ``demand'' could reasonably spill more quickly to inflation.}}
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