- 28 Apr 2021 18:19
#15169795
It'd help if people could cite actual MMT literature, video etc. Too much seems to be based on second-hand misrepresentation.
Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...
Moderator: PoFo Economics & Capitalism Mods
wat0n wrote:Indeed, shifts in aggregate demand affect prices but the multiplier alone doesn't give you enough information about the slope of the aggregate supply curve.
In practice, it's way more useful to monitor inflation expectations because prices will often be determined by contracts, and these will be signed by agents making assumptions about future inflation.
SueDeNîmes wrote:Do you mean, for example, a public spending cut might reduce aggregate supply more than aggregate demand and thus be inflationary?
SueDeNîmes wrote:Well I'm skeptical about that but, if so, inflation expectations are a leading indicator of the multiplier for changes in public spending, which is fine.
wat0n wrote:No, I mean that the fiscal multiplier doesn't give us - on its own - all that much information about the slope of the aggregate supply curve.
It's a leading indicator of future inflation. Just think about it: Would you negotiate a contract that makes you lose money after inflation?
SueDeNîmes wrote:Then surely it gives sufficient to information to determine that spending cuts will tend to be disinflationary?
SueDeNîmes wrote:No but so what?
wat0n wrote:No, for the same reason really.
The parameter you want would be something along a fiscal spending passthrough on inflation.
So it means you may actually want to keep those expectations subdued if you are the Fed.
It's a more useful indicator because of how mechanically correlates with inflation, and it's observable in different ways (you can get explicit expectations from surveys, implicit ones from the spread in the nominal and inflation-adjusted treasury yields).
SueDeNîmes wrote:What does "a fiscal spending passthrough on inflation" mean?
SueDeNîmes wrote:In which case spending cuts would subdue those expectations.
wat0n wrote:How much do prices change when fiscal spending is increased by 1%?
Not necessarily, not if people don't believe the cuts will be permanent for instance.
Managing expectations is way harder than it seems.
SueDeNîmes wrote:Depends how much slack there is in the economy (among other things). I'm none the wiser about "a fiscal spending passthrough on inflation"..
SueDeNîmes wrote:Which you might expect if govt routinely causes high inflation by spending. But no one's suggesting anything of the kind.
SueDeNîmes wrote:And it's not even clear what difference they make : https://www.investorschronicle.co.uk/ch ... ectations/
wat0n wrote:Indeed, it depends on many other factors too.
It depends on how fiscal policy is usually conducted. Latin American countries work differently from how the US does.
Would you cite from it? It has a paywall.
Investors Chronicle wrote:
Irrelevant expectations
In theory, high inflation expectations are a problem. In reality, not so much.
Next week, the Bank of England will publish its latest survey of the public’s inflation expectations. This could show that people expect above-target inflation simply because inflation has been high recently. In theory, this points to inflation staying high. This is because ever since Milton Friedman’s famous lecture to the American Economic Association in 1968, economists have believed that inflation expectations help determine actual inflation. As Kevin Hoover explained: “As workers come to anticipate higher rates of price inflation, they supply less labour and insist on increases in wages that keep up with inflation.”
But is this true? The Bank of England’s survey of inflation expectations has been going since 1999, so we can use it to test this claim. If it’s correct, we’d expect to see a positive correlation between inflation expectations and wage growth in the following 12 months. So do we?
No. Quite the opposite. Since the Bank’s survey began there has actually been a strong negative correlation (of 0.59) between households’ inflation expectations and subsequent wage growth. Low inflation expectations in the early 2000s led to high wage growth, but high inflation expectations in 2008 and 2011 led to low wage growth. This negative correlation exists even if we control for other determinants of wage growth such as unemployment or productivity growth – although it becomes statistically insignificant if we control for both of these. What we have is not so much an expectations-augmented Phillips curve as an expectations-diminished one.
That’s not what Hitler found in 1939-1945. :) Hi[…]
Weird of you to post this, you always argued that[…]
No, this was definitely not true for the first th[…]