[lbo-talk] Does QE2 work?

Eubulides paraconsistent at comcast.net
Wed Nov 3 19:10:20 PDT 2010


On 11/03/2010 04:35 PM, Jordan Hayes wrote:


> I think the current crop of folks believes the dollar at this point is
> the least of their worries. If they can bring back the economy, the
> dollar will correct itself. In the mean time anyone who wants to buy
> foreign goods will feel the pinch.
>
> /jordan

=================

Well, they've been half-thinking about inflation channels in the form of oil price shocks. The deeper worry is that the lunatics are still engaged in marginalist nonsense, replete with production functions yada yada. See the lunacy in sections 2.4, 3 and 4.

<http://www.federalreserve.gov/pubs/ifdp/2010/1009/default.htm>

Oil Shocks and the Zero Bound on Nominal Interest Rates Martin Bodenstein, Luca Guerrieri, and Christopher Gust 2010-1009 (September 2010)

Abstract: Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion.



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