Gavyn Davies has an insightful post where he looks at output gaps and asks the inflation question. He uses Krugman's thoughts at the four-person panel that I posted about earlier and agrees that downward nominal rigidity is a more significant factor than initially believed. Along these lines, he also takes into account Hatzius's inflation model regarding anchored expectations and that there is little risk of a rise until the economy starts approaching a significantly higher level of employment. Davies concludes with, "In the short term, it suggests that any rise in nominal demand, stemming from expansionary policy or a recovery in private spending, is much more likely to be reflected in rising real output than in higher inflation. Demand management policy can be expansionary."
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From the folks at Alphaville through Martin Malone at Mint Partners, here's this bloomberg chart of the yield convergence in the euro-zone between core and periphery. According to him, "this trend will continue: core yields are playing catch-up with both the foreign exchange markets (USD/YEN has moved from 75 to 90 over the past 12 months) and equites, so a core-periphery spread of 150-200bps could be on the cards if and when global growth ticks higher…"
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Krugman has some notes on Japan in a positive way. I think the gist of what is going around is that while Abe's reason's may be misguided and his stimulus could spur more pork spending etc. ultimately what this represents is a break from orthodoxy and a willingness to change direction. It's something to look forward to - as an experiment at least. Here, Krugman argues that Japan distinguishes itself from the rest of the advanced economies due to its persistent deflation and that since it needs to get itself out of this trap, a time of less economic slack might actually be the best situation to try and do so.
In another post, he draws the line on the unemployment-population ratio and shows why there's a huge difference between charting it without the 64 age cut-off. The interesting part is, in typical Krugman fashion, on the lurking vigilantes - that "even if they show up, they won’t drive interest rates up, they’ll drive the dollar down, which is a good thing. In Japan’s case, you can think of what’s happening as a growing belief on the part of investors that Japan will end up inflating away part of its debt. This has led to a currency drop; it has *not* led to an interest rate spike"
And if you want to stay away from the numbers and the charts and read something less-wonkish, here's his column in simpler language where he says that America should be compared to Japan, not Greece and that Abe's willingness to break with orthodoxy and embark on his fiscal stimulus plan has not led to any spike in rates, rather the yen has falled and that's good news for exporters.
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Meanwhile, Noah Smith has a great piece on Abe's intentions and his unintentional Keynesian cover. Is Abe the Great Keynesian Hope? Smith doesn't think so and he argues it well historically. And while he agrees that all these moves since the LDP victory have been to talk down the yen, he also says that with a low unemployment rate, there might not be much slack in the economy (something Krugman agrees with too). So although Japan could do with inflation, it's possible that much of this stimulus might end up as pork.
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From the folks at Alphaville through Martin Malone at Mint Partners, here's this bloomberg chart of the yield convergence in the euro-zone between core and periphery. According to him, "this trend will continue: core yields are playing catch-up with both the foreign exchange markets (USD/YEN has moved from 75 to 90 over the past 12 months) and equites, so a core-periphery spread of 150-200bps could be on the cards if and when global growth ticks higher…"
=========================
Krugman has some notes on Japan in a positive way. I think the gist of what is going around is that while Abe's reason's may be misguided and his stimulus could spur more pork spending etc. ultimately what this represents is a break from orthodoxy and a willingness to change direction. It's something to look forward to - as an experiment at least. Here, Krugman argues that Japan distinguishes itself from the rest of the advanced economies due to its persistent deflation and that since it needs to get itself out of this trap, a time of less economic slack might actually be the best situation to try and do so.
In another post, he draws the line on the unemployment-population ratio and shows why there's a huge difference between charting it without the 64 age cut-off. The interesting part is, in typical Krugman fashion, on the lurking vigilantes - that "even if they show up, they won’t drive interest rates up, they’ll drive the dollar down, which is a good thing. In Japan’s case, you can think of what’s happening as a growing belief on the part of investors that Japan will end up inflating away part of its debt. This has led to a currency drop; it has *not* led to an interest rate spike"
And if you want to stay away from the numbers and the charts and read something less-wonkish, here's his column in simpler language where he says that America should be compared to Japan, not Greece and that Abe's willingness to break with orthodoxy and embark on his fiscal stimulus plan has not led to any spike in rates, rather the yen has falled and that's good news for exporters.
=========================
Meanwhile, Noah Smith has a great piece on Abe's intentions and his unintentional Keynesian cover. Is Abe the Great Keynesian Hope? Smith doesn't think so and he argues it well historically. And while he agrees that all these moves since the LDP victory have been to talk down the yen, he also says that with a low unemployment rate, there might not be much slack in the economy (something Krugman agrees with too). So although Japan could do with inflation, it's possible that much of this stimulus might end up as pork.
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