links for 2010-08-26
Mark-My-Beliefs to Market Time

Robert Waldmann on Weimar Economics

Hoisted from Comments: RJW writes:

I'm not a fan of new monetary economics, but it isn't isomorphic to cargo cults. In new monetary models there are typically two steady state equilibria one in which money is valuable and one in which it is worthless. I am not really expert so I wrote "typically" to mean "always (as far as I know)" A new Monetary economist would believe that a Fed policy of keeping the nominal interest rate below the natural real rate would lead to one of two steady states -- one with prices falling and the other with dollar prices meaningless (or infinite) as no one is interested in dollars. It is clear that the policy of setting the discount rate to 0.25 % forever would lead to the second.... This isn't just theory. From 1918 through most of 1923 the Reichsbank kept the discount rate quite low (3.5% IIRC) and satisfied banks demand for money at that discount rate. The result was not deflation.