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Fri, 18 Sep 2015 13:34:38 +0000
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Societies for the History of Economics <[log in to unmask]>
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"inflation derives from the growth of a central bank's money (currency) creation relative to the growth of its demand by the public (individuals, businesses, and banks) to hold."

Central banks use reserves - not currency - for their operations. 

How would they use currency? By dropping it from helicopters? By giving Goldman Sachs bags of currency in return for bonds?  

Held money by the non-bank public is part of the money supply - buy how does holding money (rather than spending it) *directly* cause inflation?    

________________________________________
From: Societies for the History of Economics <[log in to unmask]> on behalf of James Ahiakpor <[log in to unmask]>
Sent: Thursday, September 17, 2015 8:42 PM
To: [log in to unmask]
Subject: Re: [SHOE] Reductio ad absurdum

Oscar Ugarteche wrote:
> The Fed places interest rate ceilings, I believe. In that way it can
> determine lowering rates or raising them. From the year 2000 onwards
> the US has had the longest period of negative real rates induced by
> FED policy. So today's decision was not to raise the ceiling, yet.
> Is this not a way of control?
> Oscar
>

I disagree.  The Fed does *influence* the level of interest rates by its
open market operations or lending policies, especially short-term
rates.  My contention is against the term "control."

BTW, the Fed has been targeting a 2% inflation rate lately.  It hasn't
been successful at achieving that.  No surprise there for me because,
from the  Quantity Theory of Money (a more reliable principle than the
Aggregate Supply-Aggregate Demand = C + I + G +NX model), inflation
derives from the growth of a central bank's money (currency) creation
relative to the growth of its demand by the public (individuals,
businesses, and banks) to hold.  Unless the central bank can accurately
anticipate the growth of money's demand, which is rather hard to do, it
is unlikely to achieve any specific rate of inflation at any point in
time.  Thus, I don't think the Fed would claim to be "controlling" the
real rate of interest: the nominal rate, less the rate of inflation.  It
has enough trouble controlling the nominal rate at a specific number!

James Ahiakpor

> 2015-09-17 16:20 GMT-05:00 Oscar Ugarteche <[log in to unmask]
> <mailto:[log in to unmask]>>:
>
>     The Fed places interest rate ceilings, I believe. In that way it
>     can determine lowering rates or raising them. From the year 2000
>     onwards the US has had the longest period of negative real rates
>     induced by FED policy. So today's decision was not to raise the
>     ceiling, yet.
>     Is this not a way of control?
>     Oscar
>
>
>     2015-09-17 14:25 GMT-05:00 James Ahiakpor
>     <[log in to unmask]
>     <mailto:[log in to unmask]>>:
>
>         Wells, Julian wrote:
>
>             James writes:
>
>             ' the Fed Funds Rate ... varies on a daily or weekly
>             basis.  ....  The word "control" should mean keeping the
>             value at a rate the Fed chooses.'
>
>             He must be disappointed in the way his central heating
>             thermostat performs.
>
>             Julian
>
>
>         I'm quite satisfied with the way my central heating thermostat
>         performs.   I set the cooling system to start when the
>         temperature rises above 78 degrees (while I'm home) in the
>         summer. Otherwise, the temperature is what the weather
>         "dictates."  The Fed Funds rate is a market rate, determined
>         by the supply and demand for credit on the overnight market --
>         trading in repurchase agreements.  The Fed says it targets the
>         rate at between 0.0% and 0.25%.  The rates since the end of
>         December 2008 and end of September 2015 have varied between a
>         high of 0.22%  (February 2009) and a low of 0.07% (end of
>         July, October, December 2011; and end of January and February
>         2014). Since end of July 2014 the rate has risen from 0.09% to
>         0.14% on September 11, 2015 It was 0.13% the previous Friday).
>         Julian wants to call such variations the Fed's *controlling*
>         of rates?
>
>         James Ahiakpor
>
>
>         --
>         James C.W. Ahiakpor, Ph.D.
>         Professor
>         Department of Economics
>         California State University, East Bay
>         Hayward, CA 94542
>         510-885-3137 <tel:510-885-3137>
>         510-885-7175 <tel:510-885-7175> (Fax; Not Private)
>
>
>
>
>     --
>     Dr.Oscar Ugarteche
>     Instituto de Investigaciones Económicas
>     UNAM
>     Oficina I 120
>     Circuito Mario de ls Cueva. s/n
>     Ciudad universitaria, Coyoacán
>     México DF
>     04510
>     Coordinador OBELA
>     www.obela.org <http://www.obela.org/>
>     Cel larga distancia  52155 20255684 cel desde el DF 04455 20255684
>     para ver mis papers y capítulos de libros https://hq.ssrn.com
>     <https://hq.ssrn.com/>
>
>
>
>
> --
> Dr.Oscar Ugarteche
> Instituto de Investigaciones Económicas
> UNAM
> Oficina I 120
> Circuito Mario de ls Cueva. s/n
> Ciudad universitaria, Coyoacán
> México DF
> 04510
> Coordinador OBELA
> www.obela.org <http://www.obela.org/>
> Cel 52155 20255684


--
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542
510-885-3137
510-885-7175 (Fax; Not Private)

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