Stephen Miran ✓
@SteveMiran
Citizen of the United States of America 🇺🇸
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@SteveMiran @Nouriel @PIrelandEcon The paper says money can safely grow 5% a year — 3% for real growth plus 2% for target inflation. That arithmetic quietly assumes trend velocity stops moving from now on. It never has. If velocity keeps falling at its 2000–2019 pace (roughly 2%
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Once again the link https://t.co/SIbF4dqT4A
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Monetarist analysis would have served the FOMC well after the pandemic, and we hope it gets added to the toolkit longer term.
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4) With money growth approximately neutral at present, an acceleration from here that reopens a positive price gap would make it appropriate to tighten policy.
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This all is intended as a useful cross-check on what other models are saying. There will remain uncertainty over velocity. But this is useful information and should not be discarded, and monetary analysis deserves a place in monetary policy.
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This all is intended as a useful cross-check on what other models are saying. There will remain uncertainty over velocity. But this is useful information and should not be discarded, and monetary analysis deserves a place in monetary policy.
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IOW, the monetary aggregates themselves do not indicate that monetary policy is "too loose" unless you need monetary policy to exert disinflationary pressure offsetting persistent supply shocks. (net supply shocks, not offset by other supply shocks; AI+dereg productivity matter)
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3) Therefore, a call on current appropriate monetary policy will depend on your views of whether the current factors boosting inflation--supply shocks, measurement issues, AI spillovers, whatever--prove persistent or not, and require monetary policy to be restrictive to combat
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It also means that to the extent "monetarist" and "money supply" are synonymous with a "hard money" approach, that approach is currently well positioned to deal with inflation.
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Note that this is consistent with the M2 box from Friday's monetary policy report as well - the Fed observed that growth rates of M2 were pretty normal (and to the extent they resembled those of the 2010s, nothing to worry about). Divisia aggregates agree https://t.co/CUfLUC2S3X
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2) Currently, monetarist analysis does NOT indicate high inflation will be persistent. This suggests monetary policy is not responsible for current high inflation
An explanation for persistent high inflation must come from outside monetary analysis (say, you think oil keeps ↗️)
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Critically, P* is a reduced form model: it's agnostic with respect to the origin of money growth. That growth could be of monetary policy, fiscal, or other origin; it merely indicates money supply's pressures on inflation. It thus embeds fiscal explanations for inflation.
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What does all this mean?
1) Monetary aggregates and P* did a great job forecasting higher inflation, then lower inflation, after the pandemic. Policymakers would have been well served to heed them.
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After the pandemic, monetary aggregates indicated significant latent inflationary pressure which suggested high inflation would be sharp and persistent. After the Fed tightened, they indicated significant disinflationary pressure.
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At present, no matter how we calculate them, price gaps are about zero.
That means, from a monetarist perspective, monetary policy is currently pretty neutral in its effects on inflation.
Note this was NOT the case after the pandemic! https://t.co/Zkj6X3GvaB
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We find gamma = 0.1 in updated data, meaning a 1% price gap will boost quarterly inflation by 10 bps annualized. https://t.co/asPPsLHS6x
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(The model with Divisia also did a nice job after the GFC indicating sustained deflationary pressure even with rates at zero and simple-sum money exploding! - addressing a common criticism of monetarism of wild failure after the GFC) https://t.co/cD8lzmQck7
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Rewrite this as MV* = P*Y* where * denotes long-term. If you make assumptions about potential output (Y*) and use time-series methods to estimate V*, and you know current money supply, you can imply P*.
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The classic approach is then to take the "price gap" - current prices relative to the implied P* and use it to forecast inflation. This embeds a nice new-Keynesian concept: prices don't adjust immediately! If P<P*, there's latent inflationary pressure, and vice versa.
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Next, we employ the P* model on Divisia aggregates to bring us up to the present. The P* model was developed at the behest of Warsh's hero, Alan Greenspan.
It starts from the basic quantity equation, MV=PY, and then uses long-term concepts.
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That makes velocity stabler in Divisia aggregation than simple-sum aggregation, restoring forecast usefulness. See this comparison, for instance.
There's now a literature on using Divisia aggregates for forecasting, finding them very powerful, which we survey. https://t.co/AVMb
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Just as housing receives a larger weight than video games in a price index, checking accounts receive a larger weight in Divisia than Treasury bills. This helps account for financial innovations which change the patterns and uses of money demand.
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In the last decade, there's been a healthy revival of research to rescue monetarism from the instability of velocity. It's centered around Divisia monetary aggregates, named after French economist Francois Divisia.
Divisia differs from simple-sum aggregates through weighting.
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Rather than just add a bunch of types of money together, Divisia approaches weigh them by how moneylike they are, or in economist jargon, their provision of liquidity services. They're combined into an index, like we measure inflation.
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As is well known, velocity fluctuated over time! Thus MV=PY stopped effectively forecasting PY. And then the transition to ample- and abundant-reserves settings with administered rates meant manipulating money supply was no longer even viewed as a transmission mechanism.
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Velocity became unstable because of financial innovations: shifts to newer forms of money which were less transactional and more store-of-value (e.g. MMMFs).
Relative to currency, an increase in MMMF holdings doesn't signal a large increase in transactions and therefore NGDP
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In the paper, we briefly review the rise and fall of monetarism at the Fed. What started as a shrinking role for money supply in analysis turned into total disappearance, even to the point that managing money supply no longer plays a meaningful role in implementation.
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Indeed, there's already some evidence this is happening! Friday's FRB monetary policy report contained a section on M2 growth, with some commentary that growth rates and velocity were in line with pre-pandemic experience https://t.co/nlCTzxupgC
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To be clear, we don't think Warsh wants early-Friedman-style targeting of monetary growth. Nor do we think that's wise!
Rather, we claim: monetary aggregates contain useful information for forecasting inflation, and that information shouldn't be discarded, as previously done
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Indeed, Warsh has been on the record numerous times saying "money matters," "the quantum and velocity of money have important bearing on the price level" and, in part, blaming the egregious inflation errors post-pandemic on the Fed's overlooking money
https://t.co/SIbF4dqT4A
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Im Vergleich zu Konten gleicher Größe
31 Beiträge aus den letzten 90 Tagen, verglichen mit der Größenklasse 10K–100K Follower. liegt bei Reichweite und Interaktion unter vergleichbaren Konten.
Medianaufrufe1 387dieses Konto1 072Median für 10K–100K
Reichweite, %2.56%dieses Konto3.86%Median für 10K–100K
Interaktion, %0.51%dieses Konto1.70%Median für 10K–100K
| Kennzahl | Dieses Konto | Median für 10K–100K | Verhältnis |
|---|---|---|---|
| Medianaufrufe pro Beitrag | 1 387 | 1 072 | 1.29× |
| Reichweite (Aufrufe ÷ Follower) | 2.56% | 3.86% | 0.66× |
| Interaktionsrate | 0.51% | 1.70% | 0.30× |
Weitere Konten dieser Größe → Mit einem anderen Konto vergleichen → Wie diese Vergleichswerte entstehen →
Growth & engagement
How the posts we collected actually performed: views and reaction rate post by post, what the audience did with them, and where the follower count goes.
Views per post
1K13 Jul
1K
979
1K
933
858
1K
983
1K
1.1K
965
2.7K
2.8K
322
Last 14 collected posts, oldest on the left. The scale is logarithmic: one post can outrun the rest a hundred times over.
Engagement rate per post
0.69%13 Jul
0.69%
0.51%
0.96%
0.64%
0.58%
0.60%
0.71%
0.60%
0.28%
0.62%
0.48%
0.49%
0.62%
Reactions — likes, reposts, replies and quotes — divided by views. Median for 10K–100K accounts is 1.70%.
What the audience does
Likes70.1%223 in total
Reposts3.8%12 in total
Replies10.4%33 in total
Quotes1.3%4 in total
Bookmarks14.5%46 in total
Share of every reaction we collected for this account. Replies mean argument, reposts mean endorsement, bookmarks mean the post was worth keeping.
The follower curve appears once this account has two daily snapshots — we take one a day, and this one is on its first.
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