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Text of the page (random words):
relaxed paraphrase or maybe a plagiaphrase couldn t say for sure but i had to go back to my i don t know what this is note and double underline it that was two or three days ago i m back to it now to see what i saw i compared the m a final econ article to the samuelson and solow article that i recently extracted from the joint economic committee report and put on the blog the two are not identical after all i ve taken a few paragraphs of each and highlighted the differences i made the paragraph breaks the same for both to make reading and comparison easier the original paper from 1960 on the left the m a final econ paper on the right iv 2 7 samuelson and solow s approach we have concluded that it is not possible on the basis of a priori reasoning to reject either the demand pull or cost push hypothesis or the variants of the latter such as demand shift we have also argued that the empirical identifications needed to distinguish between these hypotheses may be quite impossible from the experience of macrodata that is available to us and that while use of microdata might throw additional light on the problem even here identification is fraught with difficulties and ambiguities nevertheless there is one area where policy interest and the desire for scientific understanding for its own sake come together if by deliberate policy one engineered a sizable reduction of demand or refused to permit the increase in demand that would be needed to preserve high employment one would have an experiment that could hope to distinguish between the validity of the demand pull and the cost push theory as we would operationally reformulate those theories if a small relaxation of demand were followed by great moderations in the march of wages and other costs so that the social cost of a stable price index turned out to be very small in terms of sacrificed high level employment and output then the demand pull hypothesis would have received its most important confirmation on the other hand if mild demand repression checked cost and price increases not at all or only mildly so that considerable unemployment would have to be engineered before the price level updrift could be prevented then the cost push hypothesis would have received its most important confirmation if the outcome of this experience turned out to be in between these extreme cases as we ourselves would rather expect then an element of validity would have to be conceded to both views and dull as it is to have to embrace eclectic theories scholars who wished to be realistic would have to steel themselves to doing so of course we have been talking glibly of a vast experiment actually such an operation would be fraught with implications for social welfare naturally since they are confident that it would be a success the believers in demand pull ought to welcome such an experiment but equally naturally the believers in cost push would be dead set against such an engineered low pressure economy since they are equally convinced that it will be a dismal failure involving much needless social pain as this model says it is not possible on the basis of a priori reasoning to reject either the demand pull or cost push hypothesis or the variants of the latter such as demand shift ute have also argued that the empirical identifications needed to distinguish between these hypotheses may be quite impossible from the experience of macro data that is available to us and that while use of microdot might throw additional light on the problem even here identification is fraught with difficulties and ambiguities nevertheless there is one area where policy interest and the desire for scientific understanding for its own sake come together if by deliberate policy one engineered a sizable reduction of demand or refused to permit the increase in demand that would be needed to preserve high employment one would have an experiment that could hope to distinguish between the validity of the demand pull and the cost push theory as we would operationally reformulate those theories if a small relaxation of demand were followed by great moderations in the march of wages and other costs so that the social cost of a stable price index turned out to be very small in terms of sacrificed high level employment and output then the demand pull hypothesis would have received its most important confirmation on the other hand if mild demand repression checked cost and price increases not at all or only mildly so that considerable unemployment would have to be engineered before the price level up drift could be prevented then the cost push hypothesis would have received its most important confirmation if the outcome of this experience turned out to be in between these extreme cases as we ourselves would rather expect then an element of validity would have to be conceded to both views and dull as it is to have to embrace eclectic theories scholars who wished to be realistic would have to steel themselves to doing so of course we have been talking glibly of a vast experiment actually such an operation would be fraught with implications for in demand pull ought to welcome such an experiment but equally naturally the believers in cost push would be dead set against such an engineered low pressure economy since they are equally convinced that it will be a dismal failure involving much needless social pain okay to tie this all together i want to point out that samuelson and solow said it is not possible on the basis of a priori reasoning to reject either the demand pull or cost push hypothesis and the m a final econ paper says it and i say it and maybe you also i dunno but paul volcker most definitely did not say it gone was the notion of cost push versus demand pull volcker implicitly accepted that rising inflation was caused by demand pull at november 10 2019 no comments email this blogthis share to x share to facebook share to pinterest labels s s 1960 friday november 8 2019 a key quote from samuelson and solow 1960 the full thought from section iv of samuelson and solow 1960 if by deliberate policy one engineered a sizable reduction of demand or refused to permit the increase in demand that would be needed to preserve high employment one would have an experiment that could hope to distinguish between the validity of the demand pull and the cost push theory as we would operationally reformulate those theories i have to go back and check what they mean by as we would operationally reformulate those theories but paul volcker performed that experiment as chairman of the federal reserve marcus nunes writes on becoming chairman of the fed volker challenged the keynesian orthodoxy which held that the high unemployment high inflation combination of the 1970 s demonstrated that inflation arose from cost push and supply shocks a situation dubbed stagflation to volker the policy adopted by the fomc rests on a simple premise documented by centuries of experience that the inflation process is ultimately related to excessive growth in money and credit this view an overhaul of fed doctrine implicitly accepts that rising inflation is caused by demand pull or excess aggregate demand or nominal spending josh hendrickson concurs relying on public statements and personal diary entries from arthur burns i demonstrate that there is little evidence that the federal reserve was less concerned with inflation during the 1970s rather the view of burns and others was that inflation was largely a cost push phenomenon burns thought that incomes policies were necessary to restore price stability and stated that monetary and fiscal tools are inadequate for dealing with sources of price inflation that are plaguing us now the shift in policy beginning with paul volcker was an explicit attempt to stabilize inflation expectations and this was done deliberately at first through monetary targeting and ultimately through the stabilization of nominal income growth gone were notions of cost push versus demand pull inflation the fed simply assumed accountability as the creator of inflation the fed limited the growth of the quantity of money and limited the growth of nominal income volcker ran the experiment gone was the notion of cost push versus demand pull volcker implicitly accepted that rising inflation was caused by demand pull even before the experiment was over cost push was no longer considered valid theory that was volcker s premise today the cost push idea is taken as some kind of joke or quaint perhaps but definitely wrong in comments on hendrickson s post nick rowe quoted the part about burns thinking inflation was largely a cost push phenomenon and replied people forget and maybe younger people never knew just how common that view was in the 1970 s it was common among economists as well as the general population it was almost the orthodoxy of the time iirc tighter monetary policy would just raise interest rates which would increase costs and make inflation even worse hendrickson agreed with rowe nunes agreed with hendrickson s post and bill woolsey wrote there were really _economists_ who thought that tighter money would raise inflation through a cost push mechanism i got in on the action and responded with a yup to woolsey quoting robert v roosa past vice president of the new york fed and undersecretary for monetary affairs under president john f kennedy roosa from fortune magazine september 1971 and yet another factor has been the undue reliance on restrictive monetary policy to limit demand with the perverse result of making interest rates themselves a major cost push force roosa s kind of thinking has been almost universally dismissed by economists that dismissal is a case where the old ideas ramify into every corner of our minds in the us in 1952 interest costs amounted to 5 67 of gdp a pretty low number sixty years later in 2012 interest costs came to 15 42 of gdp that s a difference of almost ten percent of gdp if our reliance on credit hadn t increased and our interest costs still amounted to 5 67 of gdp prices could have been almost 10 lower than they actually were in 2012 with the difference not involving wages but only interest costs oh by the way in 1952 the effective interest rate in the us was 4 35 in 2012 that rate was 4 36 almost identical that s why i picked the years 1952 and 2012 the interest rate was the same but the interest cost was 160 billion more in 2012 than 1952 why because there was more debt in 2012 a lot more debt at november 08 2019 no comments email this blogthis share to x share to facebook share to pinterest labels s s 1960 wednesday november 6 2019 paul volcker on the tradeoff from the federal reserve s dual mandate the evolution of an idea pdf volcker defended the fed s actions in 1981 testimony to the senate committee on banking housing and urban affairs i am wholly convinced and i think i can speak for the whole board and whole open market committee that recognizing that that objective for unemployment 4 percent cannot be reached in the short run the kinds of policies we are following offer the best prospect of returning the economy in time to a course where we can combine as full employment as we can get with price stability i bring in price stability because we will not be successful in my opinion in pursuing a full employment policy unless we take care of the inflation side of the equation while we are doing it i think that philosophy is actually embodied in the humphrey hawkins act itself i don t think that we have the choice in current circumstances the old tradeoff analysis of buying full employment with a little more inflation we found out that doesn t work and we are in an economic situation in which we can t achieve either of those objectives immediately we have to work toward both of them we have to deal with inflation and the federal reserve has particular responsibilities in that connection at november 06 2019 no comments email this blogthis share to x share to facebook share to pinterest monday november 4 2019 the volcker experiment from a dynamic factor model of the yield curve as a predictor of the economy at the website of the federal reserve board in october 1979 the federal reserve bank adopted new operating procedures shifting their emphasis from targeting the federal funds rate to the quantity of non borrowed bank reserves in order to achieve the desired rates of growth in the monetary aggregates before october 1979 they focused on the federal funds rate in october 1979 under volcker they switched to a focus on the quantity of non borrowed bank reserves they switched that is to a focus on the quantity of money from understanding open market operations pdf by m a akhtar at the st louis fed the formulation of monetary policy has undergone significant shifts over the years in the early 1980s for example the federal reserve placed special emphasis on objectives for the monetary aggregates as policy guides for indicating the state of the economy and for stabilizing the price level since that time however ongoing and far reaching changes in the financial system have reduced the usefulness of the monetary aggregates as policy guides monetary aggregates is a reference to various measures of the quantity of money akhtar says that changes in the financial system reduced the usefulness of the quantity of money as a policy tool changes in the financial system what changes the expansion of credit obviously oh a million other things of course but in brief the end result was the expansion of credit not sure of the timing of the fed s shift away from monetary aggregates wikipedia says in 1984 the federal reserve officially discarded monetarism oh that s footnoted to the huffington post which in my experience is not a reliable source here s krugman and wells from page 896 from their economics text at google books in the late 1970s and early 1980s the federal reserve flirted with monetarism for most of its prior existence the fed had targeted interest rates adjusting its target based on the state of the economy in the late 1970s however the fed adopted a monetary policy rule and began announcing target ranges for several measures of the money supply it also stopped setting targets for interest rates most people interpreted these changes as a strong move toward monetarism in 1982 however the fed turned its back on monetarism since 1982 the fed has pursued a discretionary monetary policy which has led to large swings in the money supply at the end of the 1980s the fed returned to conducting monetary policy by setting target levels for the interest rate other sources reference a somewhat later end date for example this from what was behind the m2 breakdown at the new york fed a deterioration in the link between the m2 monetary aggregate and gdp along with large errors in predicting m2 growth led the board of governors to downgrade the m2 aggregate as a reliable indicator of monetary policy in 1993 and finally wh...