[Pen-l] Clueless ethnic Indian Fed economist of the day

[raghu]

First there was Kartik Athreya:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100006729/time-to-shut-down-the-us-federal-reserve/

Now, here is Narayana Kocherlakota. I have no idea how to make sense
of the following excerpt from a speech by this guy who is now the
President of the Minneapolis Fed (and soon to be FOMC member??).
http://www.minneapolisfed.org/news_events/pres/speech_display.cfm?id=4525
------------------------------------------------snip
Long-run monetary neutrality is an uncontroversial, simple, but
nonetheless profound proposition. In particular, it implies that if
the FOMC maintains the fed funds rate at its current level of 0-25
basis points for too long, both anticipated and actual inflation have
to become negative. Why? It’s simple arithmetic. Let’s say that the
real rate of return on safe investments is 1 percent and we need to
add an amount of anticipated inflation that will result in a fed funds
rate of 0.25 percent. The only way to get that is to add a negative
number—in this case, –0.75 percent.

To sum up, over the long run, a low fed funds rate must lead to
consistent—but low—levels of deflation.





-raghu.
_______________________________________________
pen-l mailing list
pen-l@lists.csuchico.edu
https://lists.csuchico.edu/mailman/listinfo/pen-l