Saturday, December 24, 2016

Your theory is wrong Krugman

Krugman: Look, we had a more or less standard model of macroeconomics when interest rates are near zero — IS-LM ** in some form. This model said and says that (a) monetary policy is ineffective under these conditions (b) fiscal multipliers are positive and large — in particular, fiscal contraction is strongly contractionary. And these predictions have been borne out! Huge monetary expansion didn’t raise inflation; extreme austerity was strongly correlated with severe economic downturns.In other words, policy had exactly the effects it was “supposed to.”Now, policymakers chose not to believe this. They chose to believe that monetary policy could do the job absent fiscal support, because for several reasons they refused to use fiscal policy to promote jobs; they chose to believe in the confidence fairy to justify attacks on the welfare state, because that’s what they wanted to do. And yes, some economists gave them cover.

This chart, Paul, a quick view tells u you will not measure positive multiplier.  Your aggregate measure cannot handle the clear eight year cycle, happening on election cycles. The spectra is peaked at eight years, and there is a longer term spectra at 40 years.  Hence, theorem in probability says your measurement error is saddlebacked and you Euler condition is for shit.

Wait, you correlation is not causation! I am saying your null hypothesis still stands.

The one part of your theory stands, policy makers do not believe you.  They have good cause, hey run up the debt and all they see is another recession. See them? There tyhey are, the ugliest thing facing policy makers, and it comes at the end of each presidential term, and twice in the beginning (counting 2017)

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