If I may, how about a (somewhat rhetorical) question in response to your question... Is there a direct connection between the main short rate (FedFunds, in this case) and the jobless rate?Quote from darkhorse:
The Magical World of Charles Evans
Why would a Federal Reserve official assume any direct connection between buying bonds and lowering the jobless rate?
Is there any sort of logic or rationale whatsoever behind this view? Can someone, anyone, make a credible case for the chain of logic that Evans assumes - the if / then assertion that "if" the Fed buys more bonds, "then" unemployment will fall?
Read full piece here
Ah, my friend, what sort of a macro shag are you if you don't know and luv the infamous Taylor Rule? Especially if Taylor gets picked by Romney to replace Benjy...Quote from darkhorse:
If there is, I'm not familiar...
Quote from Martinghoul:
Ah, my friend, what sort of a macro shag are you if you don't know and luv the infamous Taylor Rule? Especially if Taylor gets picked by Romney to replace Benjy...
The Taylor Rule-like frameworks have been the basis for all the rate machinations and QE is just treated as the extension of rate policy by other means.
Well, to be sure, there's probably some reasonable empirical grounds to believe that the Taylor Rule is a reasonable model (with the emphasis on model). Many central banks across the world (BoE, BoC, RBNZ, etc) use these approaches. Like all models, these aren't perfect, but then what in life is?Quote from darkhorse:
Ah, right. I assumed you meant an actual real-world cause and effect connection, as opposed to an overly simplified bullshit theory that nicely sums up the failings of artificially rigid neoclassical economics... if Evans' rebuttal boils down to "because this is what the textbook says to do," then he is just as big a buffoon as I thought.
Quote from Martinghoul:
Well, to be sure, there's probably some reasonable empirical grounds to believe that the Taylor Rule is a reasonable model (with the emphasis on model). Many central banks across the world (BoE, BoC, RBNZ, etc) use these approaches. Like all models, these aren't perfect, but then what in life is?
The empirical grounds are, basically, a bunch of regressions performed over periods of non-zero interest rates.Quote from darkhorse:
Right, so what exactly are those empirical grounds? What is the boots on the ground explanation?
That is what I'm trying to figure out... my strong suspicion, growing close to certainty now, is that the assumptions of whatever model is being used (to justify Evans' thinking) are ham-fisted at best, wholly inappropriate at worst... an appeal to tradition and academic authority that takes the place of actual sound reasoning... we already know via very convincing argument by Ray Dalio, for example, that standard policy applied for a normal cyclical downturn is either ineffective or possibly even counterproductive in a deleveraging.