Finance Basic To Advance Level Knowledge

The Mercatus Center is running a colloquium on the low interest rate environment  and its implications for the economy. The colloquium runs twelve days and each day a new essay will be published. Since this is leading up to the holidays, some are calling it the "twelve days of interest". Today the colloquium ran my essay in which I make the case that the 10-year treasury interest rate will return to the range of 4.0 to 4.5 percent. This definitely goes against the conventional view that the natural interest rate or "r-star" has permanently fallen and will keep treasury yields depressed. This view is evident, for example, in the FOMC's summary of economic projections (SEP) where members expect the long-run value of the federal funds rate to land near 3 percent. So why my contrarian claim? My answer, as laid out in the piece, is that much of decline in the 10-year real interest rate is due to a temporary decline in the natural interest rate. In my view, ...

My latest Macro Musings Podcast is with JP Koning. JP is an economist who works in the Canadian financial industry and is a walking encyclopedia on the institutional details of central banks and money. He runs a fantastic blog called Moneyness --a must read for anyone serious about understanding money and its history. JP joined me to talk about some of the more interesting institutional arrangements for central banks and money today. We began our conversation by talking about central banks of Switzerland, Japan, South Africa, Belgium, and Greece. They are unique in that they have stocks that are traded on the stock market . As JP notes, however, these stocks function more like a perpetual bond than an actual stock. Another fascinating central bank story is that the Bank of England in that it used to allow personal checking. It no longer does this, but it demonstrates that the current restrictions on access to central bank balance sheets has not always been in place....

My latest Macro Musings podcast is with Mark Calabria of the Cato Institute. We discussed his time doing financial regulation and Fed policy as a senior staffer on the U.S. Senate Committee on Banking, Housing, and Urban Affairs. We also spent some time discussing his new paper on applying behavioral economics to Fed policy. This was a fascinating conversation throughout. You can listen to the podcast on Soundcloud, iTunes, or your favorite podcast app. You can also listen via the embedded player above. And remember to subscribe since more shows are coming. Related Links Mark Calabria's Home Page Mark Calabria's Twitter Account Mark Calabria's New Paper

My latest Macro Musings podcast is with Roger Farmer. Roger is a Professor of Economics at UCLA. He joined me to discuss his latest book, Prosperity for All: How to Prevent Financial Crises .  This was a very fascinating conversation. Roger makes the case that modern macroeconomics as it is formally practiced has gone down the wrong path with the New Keynesian paradigm. He considers it a degenerative research agenda for several reasons. First, it is premised on the natural rate hypothesis (NRH) which he sees as incorrect. He uses the analogy of a child hitting a rocking horse to describe the NRH. The child hitting the horse will cause it to rock, but eventually it will come to rest. Likewise an economy buffeted by shocks will cause fluctuations but eventually the economy will return to its full employment level. Roger sees this view as fundamentally wrong Roger contends a more accurate analogy would be a rudderless boat blown by various winds to new locations and stayi...

Back in September I was part of the Monetary Policy Rules for a Post-Crisis World conference. It was jointly hosted by the Mercatus Center and the Cato Institute. There were many interesting presentations from folks like David Laidler, Perry Merhling, Robert Hetzel, Miles Kimball, Peter Ireland, John Taylor, and Scott Sumner. The panel moderators--Ylan Q. Mui, Ryan Avent, Cardiff Garcia, and Greg Ip--were great too! I wanted to share the working paper I presented at the conference. It was titled The Fed's Dirty Little Secret and now is posted online. This paper had its origins in an earlier blog post  of mine. It was fun taking an idea sketched out on this blog and turning into a paper. Below is the paper's abstract: Despite the Federal Reserve’s use of QE programs, the U.S. economy experienced one of the weakest recoveries on record following the Great Recession. Not only was real growth disappointingly low, but even nominal growth over which monetary policy has more ...

  My latest Macro Musings podcast is with Mark Koyama . Mark is an assistant professor of economics at George Mason University where he specializes in economic history, the roles institutions play in economics, and how culture and economics interact. Mark recently has recently written on the macroeconomics of ancient Rome and he joined me to talk about it. This was a super fascinating conversation where we cover the history of Rome, the extent and depth of markets in ancient Rome, and the long-run growth prospects of Rome. We also discuss the the extent to which credit and financial markets were developed in Rome, including the well-documented financial panic of 33 AD that affected various part of the empire.  Part of our conversation was motivated by Peter Temin's book The Roman Market Economy . Apparently, some ancient historians have had a hard time accepting the premise of a market economy in Rome. Peter Temin book pushes back against this view drawing u...