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Lessons from the Kocherlakota Controversy

posted to Rajiv Sethi on Sat 28th Aug 10

In a speech last week the President of the Minneapolis Fed, Narayana Kocherlakota, made the following rather startling claim:Long-run monetary neutrality is an uncontroversial, simple, but nonetheless profound proposition. In particular, it implies that if
On Broken Trades and Bailouts

posted to Rajiv Sethi on Thu 19th Aug 10

Back in 1980, Avraham Beja and Barry Goldman published a theoretical paper in the Journal of Finance that explored the manner in which the composition of trading strategies in an asset market affects the volatility of prices. Their main insight was that if
On Teachable Moments and Non-Conversations

posted to Rajiv Sethi on Wed 18th Aug 10

The latest in the series of consistently interesting dialogues between Glenn Loury and John McWhorter has been posted: Among the themes explored in this conversation is the manner in which a steady stream of "race-related events" are turned in a media frenzy

Algorithmic Trading and Price Volatility

posted to Rajiv Sethi on Fri 7th May 10

Yesterday's dramatic decline and rapid recovery in stock prices may have been triggered by an erroneous trade, but could not have occurred on this scale if it were not for the increasingly widespread use of high frequency algorithmic trading. Algorithmic trading
The Invincible Markets Hypothesis

posted to Rajiv Sethi on Sun 14th Feb 10

There has been a lot of impassioned debate over the efficient markets hypothesis recently, but some of the disagreement has been semantic rather than substantive, based on a failure to distinguish clearly between informational efficiency and allocative efficiency.
Some Further Comments on Nominal Wage Flexibility

posted to Rajiv Sethi on Wed 16th Dec 09

Tyler Cowan thinks that we should cut minimum wage, and links to Bryan Caplan for an explanation. And Caplan thinks that it's all quite elementary:Cutting wages increases the quantity of labor demanded. If labor demand is elastic, total labor income rises

Fed Watch: No Clothes

posted to Economist's View on Tue 31st Aug 10

Tim Duy is "anything but" reassured by Ben Bernanke's recent speech outlining the Fed's possible policy actions, and what it will take to put them into action:No Clothes, by Tim Duy: Unless every able American pitches in, Congress and I cannot do
The Fed should buy pro-cyclical assets, not bonds

posted to Worthwhile Canadian Initiative on Mon 30th Aug 10

Suppose you believe that the US economy needs increased Aggregate Demand, and needs looser monetary policy to accomplish that, and needs asset purchases by the Fed to accomplish that. (I believe those things, but am not going to argue them here). What
Weekend link exchange

posted to Free exchange on Sun 29th Aug 10

TODAY'S recommended economics writing:Have we underestimated Chinese consumption (Michael Pettis)Lessons from the Kocherlakota controversy (Rajiv Sethi)The "bond bubble", and why we should be worried about it (Worthwhile Canadian Initiative)GDP revised down