Thursday, May 17, 2018

When guv is broke, we thin the herd

There is ongoing debate over the welfare implications of the unorthodox measures adopted by central banks in the wake of the Global Crisis. Using US data, this column explores the implications of monetary policy for income and wealth inequality. Unexpected monetary expansions are found to increase inequality between high- and low-skilled workers. In terms of stabilising the economy, strict inflation targeting is found to be the most successful policy.
Guv bailouts make us suddenly unequal, But we become unequal in a funny way, smart folks detect the imbalance before hand and huden the money before the bailout.  Dumb folks  listen to kanosians who tell them all is OK.

The asymmetric information problem partly resolves in the sandbox. We allow free entry and exit such that the traders notice, early, the insiders cashing in.

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