James Alexander via Historinhas | I was pleased to report some traction in the Market Monetarist campaign to see inflation targets substituted by, or added to, an NGDP growth target. One common pushback I’ve received recently is if the central bank can’t hit a 2% target how can it hit a tougher target? It’s a reasonable question.
Francesco Saraceno | FT Alphaville‘s Matthew Klein goes back to the issue of financial stability and monetary policy. A recent speech of Bank of Canada’s Timothy Lane is the occasion for Klein to reassess monetary policy before the crisis, when policy makers (in particular he refers to Ben Bernanke, but the Fed chair was in good company) dismissed fears of asset price bubbles, thus failing recognize, and to counter, the buildup of the crisis.
They are right. That´s the way the Fed thinks. But it is dangerous and wrong! Insisting on the mistake will likely lead to another recession. Larry Kudlow (HT Lars Christensen) also rants on the Fed´s mistaken view.
James Alexander via Historinhas| The Committee on Economic and Monetary Affairs of the European Parliament recently held a session on NGDP Targeting. The French paper starts with a review of the literature on Inflation Targeting and says things went well until the crisis. A caveat they mention is that since both IT regimes and non-IT regimes did well in bringing down inflation it is really too hard to tell if IT was all that superior.
Countries in the North don’t even want to talk about creating more inflation to help those in the South. Why should we, they say, if they are the debtors? Could they be persuaded that it is in their interests, given that the alternative could be default and the collapse of the eurzone economy and the euro? For the time being, they have allowed the ECB to work on moving away from zero inflation, but not beyond the 2% limit. And even this limit is not expected to be reached until 2017.
BARCLAYS | In our view, achieving the FOMC’s target of 2% PCE inflation may require a substantial undershoot on the unemployment rate ( to 4% if not below ). Should the unemployment rate remain near current levels or should inflation expectations drift lower, the FOMC would be unlikely to hit its inflation target over the foreseeable future.
James Alexander via Historinhas | You have to feel for ECB President Draghi sometimes. He’s trying to steer a huge and dysfunctional ship. His heart is in the right place, but he has far too much faith in the interest rate and credit channel “instruments” for the management of monetary policy. They have prevented further recessions and do seem to have the Euro area on the right track, but it is painfully slow and risky .
The day after Draghi warned about greater than expected weakness in Eurozone inflation data, Spain’s final October inflation number has been published, confirming the -0.7% year-on-year preliminary figure. But despite the fact inflation remains in negative territory, the CPI rose 0.6% month-on-month.
Since the Eurozone’s recovery started two years ago, the number of people in work has grown in all EU member states individually during the last seven quarters. In Q2’15 it expanded by 1.9% on a y-o-y basis.
Benjamin Cole via Historinhas | Motor vehicle sales are booming in the United States, up 10% in the last year, and double since the Great Recession. Thanks to blogger Kevin Erdmann of Idiosyncratic Whisk, we have a better understanding of inflation in the U.S. and the role that ubiquitous local property zoning plays in suffocating supply, and thus boosting price.