What should interest rates be now?
stir = π+ r* + 0.5(π – 2%) + 0.5(y – y*)
I keep referencing an old blog where I broke out the pieces of the Taylor Rule … poorly. This will be the new one that I point to, and I think that this is pretty interesting so far. The media is kind of fetishizing the Taylor Rule because it makes the race more interesting: “Will it be Super Dove Janet Yellen who plays fast and loose with the rules or Super Hawk John Taylor whose decisions are super predictable because they’re all based on a perfect model?”
Am I extra attuned to it recently, or is there a TON of talk about inflation these days? The BOJ doesn’t care about low inflation, the Philly Fed says some inflation goes away because stuff is free online, and Yellen is talking specifically about changing inflation expectations. Weird.
I linked to this piece in the Links post the other day, but I wanted to dive into it a little more thoroughly, as it pertains to the the Fed Chair, Monetary Policy, etc.
I’ll talk a little about my questions regarding internal Fed politics (maybe too much), and then look at former Fed Governor Tarullo’s white paper “Monetary policy without a working theory of inflation”. He offers some really good insight into the policy and projection making practices at the fed.
I’m a sucker for long form interviews where they largely just give the transcript. There’s a lot of good stuff from Boston Fed President Eric Rosengren (nonvoting until 2019) in this NYT piece.
Right off the bat, he hits us with this gem:
“A number of papers at the conference highlighted that some of the economic relationships that are frequently assumed to be stable over time have proven to be not so stable as we have come out of the financial crisis. These structural changes mean that if you tried to have a model that was fairly invariant to these changes, or a process that was invariant to these changes, there would start being big misses in monetary policy.” – Rosengren
It’s early in the process … I’m going to add a few links everyday, and some of them are going to be dated. I’ll get through my back catalog sooner or later.
On Thursday, Average Hourly Earnings “spiked” 2.9% year on year. Is 2.9% a lot?