Archive for May 8th, 2019

Nominal GDP Targeting as “Optimal Monetary Policy for the Masses”

May 8, 2019

St Louis Fed President James Bullard in this speech says NGDP targeting is an optimal mon pol for the masses.  The speech is based on this co-written paper.

In this blogpost, he explains the essence of the paper. The current models are silent on how mon pol leads to distribution and inequality:

Since the financial crisis, the topic of income inequality has become more important in monetary policymaking circles. In particular, monetary policy has been criticized as redistributing income to various parts of the population.

Along with income inequality among households, consumption inequality and financial wealth inequality are important considerations. Wealth inequality tends to be higher than income inequality, which tends to be higher than consumption inequality.

Many models used to assess the aggregate implications of monetary policy assume a representative agent. That is, a single household is meant to represent the distribution of households, and that household could be the median or average along some characteristic, for instance.

By construction, these models are silent on the redistribution effects of monetary policy. Instead, our model includes substantial heterogeneity (or differences) among households in terms of consumption, income and financial wealth and allows us to study the distributional effects of monetary policy.

In their paper, they work around addressing inequality:

The model in our paper is an extension of the model in a paper with Aarti Singh.2 In these models, private credit markets play an important role in reallocating uneven income across the life cycle so that people can consume smoothly. As a practical matter, we can think of privately issued debt as similar to mortgage-backed securities.

However, there is a problem with the credit markets—households borrow in nominal (rather than real) terms and pay a nominal interest rate, neither of which depends on the state of the economy. This imperfection in the credit market is referred to as “non-state contingent nominal contracting.” This is an issue because optimal allocations of resources require contracts to be tied to the realization of aggregate productivity shocks.

Monetary policy fixes this problem in the credit markets by adjusting the aggregate price level in response to aggregate productivity shocks, which makes the nominal contracts real and state-contingent. The optimal monetary policy in these models is something very close to nominal GDP targeting because it calls for countercyclical price-level movements. To keep nominal GDP on its targeted path, the monetary policymaker would follow a policy rule whereby inflation would be relatively high when growth is low and it would be relatively low when growth is high.

In our recently released paper, the new aspect is the substantial heterogeneity among households. The amount of consumption, income and wealth inequality generated by our model is close to that in U.S. data, as measured using Gini coefficients. Nevertheless, in this environment, the optimal monetary policy—nominal GDP targeting—fixes credit markets for all agents.



How Black Death shaped European cities

May 8, 2019

Researchers Rémi Jedwab, Noel Johnson and Mark Koyama in this piece:

Local Oligarches capturing media in Central and Eastern Europe….

May 8, 2019

Marius Dragomir Director of the Center for Media, Data, and Society at Central European University in this hard hitting piece:

The increased involvement of oligarchs and large financial groups in the media, coupled with unrelenting attacks by governments, has suffocated independent reporting across the region and driven foreign media operators to flee. Over the last decade, 11 of the 17 most prominent foreign media owners in Central and Eastern Europe have left the region, owing to rising political pressure and declining revenue.

In February, the Swedish-owned broadcast conglomerate MTG sold Nova Broadcasting, Bulgaria’s leading commercial television operator, to two local entrepreneurs with investments in maritime shipping, pharmaceuticals, and football clubs. The sale marked MTG’s exit from the country. A cluster of financial groups from Slovakia and the Czech Republic is eying Markíza TV, Slovakia’s most popular television channel.

As a result of these trends, media freedom in Central and Eastern Europe arguably is at its lowest level in the three decades since the region’s communist dictatorships were toppled. And it is likely to deteriorate further, as the region’s oligarchs continue to fill the ownership void left behind by foreign media operators.

At this rate, Hungary’s government soon will not need to ask a foreign government to stifle media criticism. Orbán will just have his cronies handle it.

The more things change, the more they remain the same…

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