Credit Card-Augmented Divisia

The Center for Financial Stability has published a measure of Divisia money including credit cards. They point out that simple-sum monetary aggregates cannot include credit cards because liabilities cannot be added to assets. Divisia methods, by contrast, focus on the service flow. See the full article for more.


Holston, Laubach and Williams estimate UK natural rate for 2016 was 1.5%

In a paper recently published in the Journal of International Economics, Kathryn Holston (working with Laubach and Williams) have estimates that the natural rate was 1.5% in 2016 (down from 2.6% in 2007 and 2.9% in 1990). Here's the key chart:


Taylor rule calculator: UK rates should be 4%

When I teach introductory classes on monetary economics, I follow Fernando Nechio's simplified version of the Taylor Rule:

Target rate = 1 + 1.5 x Inflation – 1 x Unemployment gap.

It is easy to remember and provides a decent back of the envelope. I've been looking for a decent online applet, and came across a script from Don't Quit Your Day Job. It nicely integrates with current data, allows you to adjust the coefficients, and shows everything on a chart (recent monetary difficulties are clearly expressed by the fact that the Taylor rule never drops below zero).

A recent WSJ article by Michael Derby (h/t Mike Bird) uses a tool from the Atlanta Fed to claim that rates for the US should now be 2.5% - 3% under a Taylor Rule. A very nice aspect of this is the ability to tweak the estimate of the natural rate (conventionally, but arbitrarily, set to 2%). Using a Laubach-Williams model this reduces the Taylor rule to just 0.72%, which is below the current Fed Funds target (see chart).

The classic version of the Taylor Rule (the one I use in my textbook) is as follows:

i=r+PT +a(PPT)+b(YY)

Using that, a current estimate for the UK is 4%:

You can download the spreadsheet here.


Jeff Hummel on central bank's control over interest rates

In a new paper for the Mercatus Center, Jeff Hummel has criticised the common belief that central banks control interest rates. Utilising previous work that casts doubt on the strength of the liquidity effect, the global savings glut, and the impact of interst on reserves, the paper is highly recommended.


Visualising the price swarm

In his 1994 RAE homage to Arthur Marget, John Egger invokes the image of a price "swarm", as opposed to an overall level.

[t]here is no logical reason why a picture of changes in the height of a given "swarm" could not be obtained by simply plotting the individual prices in such a "swarm", and then generalising concerning the movements of the "swarm" on the basis of the picture of the movement of individuak prices thus obtained (1942, p.333)

I'd hoped that the Billion Prices Project would utilise some awesome Gapminder style visualisation tools to bring the swarm to life, but so far I've not seen any attempts. I was looking at the April CPI data though and figured I'd plot the breakdown. The chart below shows the all 12 inflation sub indices from Feb 2016-March 2017 (2015=100). The overall CPI level is shown as a line:

It's a start.