I believe there exists an equilibrium relationship between three variables: the position of the Gas pedal; the Speed of the car; the position of the speedometer Needle. I have verified this relationship empirically. I have a crude theory of how cars work that can explain this relationship. But any automotive engineer would laugh at my […]

This is for David Andofatto, in response to his recent post (and for anyone else who might be interested). If the central bank raises the nominal interest rate, what happens to actual and expected inflation depends on why people think the Bank did it. The representative agent cannot be assumed to know he is the […]

"My model can identify the edge of a bottomless ZLB cliff. To the north of the edge of that cliff, there can be an equilibrium rate of inflation. To the south of the edge of that cliff, there cannot be an equilibrium rate of inflation, because the cliff is bottomless. Therefore inflation will not go […]

[Update: Steve Williamson says in comments the lack of communication started much earlier. If that's right, then I think my theory fails empirically in this case.] If you are in a position of power and responsibility you need advisers. The main job of your advisers is to stop you saying something stupid in public. You […]

[Update: short version. It is not stupid to use rules of thumb. Rules of thumb can be rational. It is stupid to use rules of thumb that don't work well in the world you live in; and never change those rules of thumb if the world changes. And in the olden days, before rational expectations, […]

Most people who say "interest rates should be set by the market and not by government-owned central banks" are confused. But not all who say that are confused. People who want the government to get out of the money business altogether, and de-nationalise money and central banking, are not confused. They might be right or […]