Great article for catching up on recent debates! I don't pay enough attention to monetary policy as I am hyper focused on labor market, fiscal, and demographic policies... So it was a nice, simple read to catch up with excellent points on the tariffs.
Also, point 4 is incredibly frustrating. People aren't considering the lagged implications in the supply chain. Businesses bought a lot of inventory in anticipation of these tariffs, and as that inventory depletes, prices will increase. The full effects are going to lag behind.
Yup - I think this is a very important note. Since we tend to see prices being sticky, firms themselves don't really know what to do. Will the tariffs stick or will they be retracted? It's a complex business decision.
Separately, I also didn't pay as much attention to monetary policy when I was doing my PhD (found trade and labor a lot more interesting!). But I guess current times forced me to read a lot more about it :D
I think there were whispers that monetary policy existed in our department, but that may be a legend. Our department mainly cared about fiscal policy, labor, and trade.
I'd be interested to hear some information on why the Taylor rule was so far from the Fed rate from 2022-2023, and what reasons the Taylor has for being so high there
The main reason was high inflation. Since the Taylor Rule is agnostic as to why inflation spikes, it just wants to bring it down to target as soon as possible. The Federal Reserve, and quite a bit of economic research, suggested to look past some of the inflation caused by supply disruptions and allow for inflation. The idea was that it would come down once some of the initial causes went away (Covid restrictions disappearing).
Given that inflation did fall relatively rapidly with interest rates well below what the Taylor Rule suggested, it does appear some of these factors were not permanent, implying that looking past the inflation was most likely the correct decision.
Great article for catching up on recent debates! I don't pay enough attention to monetary policy as I am hyper focused on labor market, fiscal, and demographic policies... So it was a nice, simple read to catch up with excellent points on the tariffs.
Also, point 4 is incredibly frustrating. People aren't considering the lagged implications in the supply chain. Businesses bought a lot of inventory in anticipation of these tariffs, and as that inventory depletes, prices will increase. The full effects are going to lag behind.
Yup - I think this is a very important note. Since we tend to see prices being sticky, firms themselves don't really know what to do. Will the tariffs stick or will they be retracted? It's a complex business decision.
Separately, I also didn't pay as much attention to monetary policy when I was doing my PhD (found trade and labor a lot more interesting!). But I guess current times forced me to read a lot more about it :D
Ha, I hear you! I think my comment was subconsciously built on Acemoglu's network papers, which I am familiar with. I actually found a brand new interesting paper on this: https://www.econstor.eu/bitstream/10419/320138/1/cesifo1_wp11917.pdf
I think there were whispers that monetary policy existed in our department, but that may be a legend. Our department mainly cared about fiscal policy, labor, and trade.
I'd be interested to hear some information on why the Taylor rule was so far from the Fed rate from 2022-2023, and what reasons the Taylor has for being so high there
The main reason was high inflation. Since the Taylor Rule is agnostic as to why inflation spikes, it just wants to bring it down to target as soon as possible. The Federal Reserve, and quite a bit of economic research, suggested to look past some of the inflation caused by supply disruptions and allow for inflation. The idea was that it would come down once some of the initial causes went away (Covid restrictions disappearing).
Given that inflation did fall relatively rapidly with interest rates well below what the Taylor Rule suggested, it does appear some of these factors were not permanent, implying that looking past the inflation was most likely the correct decision.
this is very good and i’ve finally understood the point you were making on wages!
I’m glad the Fed is an independent entity. The Trump / Powell hard hats interview on live TV was an SNL skit.
Thanks for compiling interesting information on topics that matter.
Federal Reserve has literally been WRONG about Everything. What are u talking about?