I’m fine with your self-claimed style of “know-it-all’ism.”
You clearly show some humility when you indicate your confusion on Cochrane’s approach and ask for help in understanding what appear to be contradictions. Sorry to say I won’t be the one to help clarify. You mostly left me in the dust with this post of yours. I majored in chemical engineering with a minor in economics over 50 years ago. I clearly need to brush up on my economics, and more recent terminology and theory. That said, I still enjoy being exposed to and considering the implications of various economic theories and arguments. Looking forward to your future posts.
We haven't had a "recession" cos we've had high immigration for decades -- but we've had a number of PER CAPITA RECESSIONS. But only a few people talk about those.
Thanks for the nuance. It’s your sense that the per capita recessions were monetary policy mistakes? Not that I want to kibitz on Australian monetary policy as I do US. :)
Not sure if I replied to this. I’ve sent you separately Perplexity's views on it (AI)
----
Our Fed-equivalent (Reserve Bank of Australia) has the target for inflation of 2-3%.
We had a credit squeeze recession in the early 1950s when interest rates were jacked up too fast to deal with the inflation after the Korean War led to a huge jump in the price of wool (for army uniforms?) in the days (long gone) when wool was our main export.
In 1990 we had “the recession we had to have” (PM Paul Keating’s infamous words) when interest rates were jacked up too fast to deal with inflation
After the pandemic, interest rates were 0.1% for too long, which led to people taking out massive mortgages, and house prices here became among the most ridiculously unaffordable in the world - as they are still.
But then after the pandemic ended, Ukraine was invaded, and inflation took off worldwide, the RBA raised rates 13 times in 18 months (0.25% each time) - so that many of the younger generation of house buyers were and are struggling financially. Nevertheless, we managed to avoid major recessions in this period, unlike much of the rest of the world.
Tom, this is a free association rather than a comment.
In Australia, our equivalent to the Fed, the Reserve Bank of Australia (RBA), has stated for a couple of years that to get inflation down from its high of 7% to the RBA target range of 2-3% would require unemployment to rise to at least 4.5%. That was the Phillips Curve that was in their heads, based roughly on past experience.
But now, after 13 interest rate rises of 0.25% each time, inflation has been brought down to the target range -- yet unemployment has remained within a narrow range of 3.9% and 4.1% for the past 17 months, and is currently only 4.1%.
That is, the RBA and government budgetary policy together have achieved the difficult 'soft landing' that many countries have not achieved (beat inflation without a sharp rise in unemployment) -- and the RBA has now begun reducing interest rates (two reductions of 0.25%).
My main point: despite its success, the RBA has refused to admit or acknowledge that either the Phillips Curve has shifted, or they were wrong about its parameters all along.*
Yeah. Larry Summers thought the same thing. I’m not sure a Phillips curve exists ex ante. Sure the stickier the prices, the more infation of non-sticky prices is needed to allow sticky price markets to clear, not have unemployment. But this gets discovered as the central bank manipulates inflation.
I’ve noticed from reading Quiggins that folks, he at least, are not happy with RBA notwithstanding that you have not had a recession in a ‘coon’s age. :)
Thomas,
I’m fine with your self-claimed style of “know-it-all’ism.”
You clearly show some humility when you indicate your confusion on Cochrane’s approach and ask for help in understanding what appear to be contradictions. Sorry to say I won’t be the one to help clarify. You mostly left me in the dust with this post of yours. I majored in chemical engineering with a minor in economics over 50 years ago. I clearly need to brush up on my economics, and more recent terminology and theory. That said, I still enjoy being exposed to and considering the implications of various economic theories and arguments. Looking forward to your future posts.
Bill S.
Gotcha beat. My economic degree is >60 years ago. :)
We haven't had a "recession" cos we've had high immigration for decades -- but we've had a number of PER CAPITA RECESSIONS. But only a few people talk about those.
Thanks for the nuance. It’s your sense that the per capita recessions were monetary policy mistakes? Not that I want to kibitz on Australian monetary policy as I do US. :)
Not sure if I replied to this. I’ve sent you separately Perplexity's views on it (AI)
----
Our Fed-equivalent (Reserve Bank of Australia) has the target for inflation of 2-3%.
We had a credit squeeze recession in the early 1950s when interest rates were jacked up too fast to deal with the inflation after the Korean War led to a huge jump in the price of wool (for army uniforms?) in the days (long gone) when wool was our main export.
In 1990 we had “the recession we had to have” (PM Paul Keating’s infamous words) when interest rates were jacked up too fast to deal with inflation
After the pandemic, interest rates were 0.1% for too long, which led to people taking out massive mortgages, and house prices here became among the most ridiculously unaffordable in the world - as they are still.
But then after the pandemic ended, Ukraine was invaded, and inflation took off worldwide, the RBA raised rates 13 times in 18 months (0.25% each time) - so that many of the younger generation of house buyers were and are struggling financially. Nevertheless, we managed to avoid major recessions in this period, unlike much of the rest of the world.
So it’s probably a mixed story….
Tom, this is a free association rather than a comment.
In Australia, our equivalent to the Fed, the Reserve Bank of Australia (RBA), has stated for a couple of years that to get inflation down from its high of 7% to the RBA target range of 2-3% would require unemployment to rise to at least 4.5%. That was the Phillips Curve that was in their heads, based roughly on past experience.
But now, after 13 interest rate rises of 0.25% each time, inflation has been brought down to the target range -- yet unemployment has remained within a narrow range of 3.9% and 4.1% for the past 17 months, and is currently only 4.1%.
That is, the RBA and government budgetary policy together have achieved the difficult 'soft landing' that many countries have not achieved (beat inflation without a sharp rise in unemployment) -- and the RBA has now begun reducing interest rates (two reductions of 0.25%).
My main point: despite its success, the RBA has refused to admit or acknowledge that either the Phillips Curve has shifted, or they were wrong about its parameters all along.*
Yeah. Larry Summers thought the same thing. I’m not sure a Phillips curve exists ex ante. Sure the stickier the prices, the more infation of non-sticky prices is needed to allow sticky price markets to clear, not have unemployment. But this gets discovered as the central bank manipulates inflation.
I’ve noticed from reading Quiggins that folks, he at least, are not happy with RBA notwithstanding that you have not had a recession in a ‘coon’s age. :)