1 00:00:10,960 --> 00:00:14,400 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:14,520 --> 00:00:19,479 Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't Joe? You know 3 00:00:19,520 --> 00:00:24,440 Speaker 1: what question we keep asking lately, especially probably something about 4 00:00:25,239 --> 00:00:29,040 Speaker 1: you know, monetary policy and fiscal policy of the zero 5 00:00:29,080 --> 00:00:31,600 Speaker 1: lower bound, whether it all works anymore, and whether we 6 00:00:31,680 --> 00:00:36,640 Speaker 1: have to rethink literally everything every would have thought for decades. Yeah, 7 00:00:36,960 --> 00:00:39,560 Speaker 1: I think that's right, But I was thinking more specifically, 8 00:00:40,360 --> 00:00:45,960 Speaker 1: we keep asking policymakers if they actually understand inflation, and 9 00:00:46,040 --> 00:00:49,360 Speaker 1: I think that's something we asked Neil Kashkari very recently, 10 00:00:49,520 --> 00:00:53,080 Speaker 1: and we asked a Vito our Constantio before that. And 11 00:00:54,320 --> 00:00:58,560 Speaker 1: I'm not entirely convinced that we do understand inflation, Like clearly, 12 00:00:58,600 --> 00:01:01,480 Speaker 1: the fact that we've been missing the target for many, 13 00:01:01,480 --> 00:01:04,399 Speaker 1: many years suggests that there is something that we are missing. 14 00:01:04,840 --> 00:01:06,640 Speaker 1: I mean, it really is one of the sort of 15 00:01:06,720 --> 00:01:11,279 Speaker 1: most profound questions. Um, And it was we chatted several 16 00:01:11,280 --> 00:01:14,720 Speaker 1: weeks ago with the ECB vice president, a former e 17 00:01:14,800 --> 00:01:18,160 Speaker 1: c V vice president, Vitor Constantio, and you know, it's like, 18 00:01:18,240 --> 00:01:21,240 Speaker 1: here's someone high up in a central bank. The central 19 00:01:21,240 --> 00:01:25,679 Speaker 1: bank's mandate is to either target or control inflation and 20 00:01:25,800 --> 00:01:29,920 Speaker 1: yet there's a lot of doubt whether anyone actually has 21 00:01:30,000 --> 00:01:33,440 Speaker 1: a sort of robust theory of what causes it. And 22 00:01:33,520 --> 00:01:37,080 Speaker 1: it's like a pretty pretty profound thing given how much, 23 00:01:37,920 --> 00:01:41,280 Speaker 1: given how much is weighing on this uh, this measure 24 00:01:41,360 --> 00:01:45,840 Speaker 1: or this constant? Yeah, absolutely, And I gotta say, the 25 00:01:45,840 --> 00:01:51,840 Speaker 1: way policymakers think about inflation, there are a couple things 26 00:01:51,920 --> 00:01:56,080 Speaker 1: or factors that come up a lot in their intellectual 27 00:01:56,120 --> 00:02:01,240 Speaker 1: framework for thinking about this. And that is or are 28 00:02:01,320 --> 00:02:05,400 Speaker 1: that is our that is our it's our star. Sorry 29 00:02:05,400 --> 00:02:08,280 Speaker 1: I'm not making any sense, but those things are known 30 00:02:08,360 --> 00:02:11,280 Speaker 1: as the stars. Do you do you know what I mean, Joe, 31 00:02:11,960 --> 00:02:14,239 Speaker 1: I do? But why do you like describe them? Because 32 00:02:14,240 --> 00:02:17,120 Speaker 1: I bet you'll like describe the stars better? This this 33 00:02:17,200 --> 00:02:22,040 Speaker 1: idea that central bankers, policymakers have, this idea of stars. 34 00:02:22,360 --> 00:02:23,760 Speaker 1: I'm kind of I I get it, But why do 35 00:02:23,880 --> 00:02:26,280 Speaker 1: you like sort of tell people what they are? Let 36 00:02:26,320 --> 00:02:28,480 Speaker 1: me just say first of all that probably the best 37 00:02:28,480 --> 00:02:32,679 Speaker 1: known star is our star, or the neutral rate of interest, 38 00:02:32,840 --> 00:02:37,000 Speaker 1: which is the place where monetary policy isn't easy or tight, 39 00:02:37,160 --> 00:02:39,239 Speaker 1: it's just neutral. So the clue is in the name. 40 00:02:39,560 --> 00:02:44,480 Speaker 1: But the stars in general are kind of they kind 41 00:02:44,520 --> 00:02:48,400 Speaker 1: of describe the longer term, steady state of the economy. 42 00:02:48,480 --> 00:02:51,720 Speaker 1: So there are things like the natural rate of unemployment, uh, 43 00:02:51,919 --> 00:02:54,680 Speaker 1: the neutral rate of interest, which I mentioned, the level 44 00:02:54,720 --> 00:02:59,240 Speaker 1: of potential output, the growth rate of potential output, as 45 00:02:59,280 --> 00:03:02,760 Speaker 1: well as the central banks inflation target. And they're called 46 00:03:02,840 --> 00:03:06,799 Speaker 1: stars because all of the variables are shown as a 47 00:03:06,800 --> 00:03:10,160 Speaker 1: lowercase letter and a little star next to it. So 48 00:03:10,200 --> 00:03:14,080 Speaker 1: our star, y star, g Star, things like that, and 49 00:03:15,160 --> 00:03:18,799 Speaker 1: they've sort of come into prominence in recent years. So 50 00:03:18,919 --> 00:03:22,240 Speaker 1: Jerome Pale at his first speech at Jackson Hole when 51 00:03:22,320 --> 00:03:26,120 Speaker 1: he became FED chairman, gave the whole talk that was 52 00:03:26,160 --> 00:03:30,799 Speaker 1: basically just about the our star. And I think the 53 00:03:30,840 --> 00:03:33,240 Speaker 1: best way to think about them is probably that the 54 00:03:33,280 --> 00:03:38,080 Speaker 1: stars are pieces of the missing inflation puzzle that we've 55 00:03:38,080 --> 00:03:41,240 Speaker 1: been talking about. So if inflation isn't showing up like 56 00:03:41,320 --> 00:03:44,720 Speaker 1: central banks think that it should, then it's possible that 57 00:03:44,840 --> 00:03:47,880 Speaker 1: there's more slack in the economy than appreciated, or it's 58 00:03:47,920 --> 00:03:51,880 Speaker 1: possible that monetary policy isn't actually as accommodative as central 59 00:03:51,920 --> 00:03:55,160 Speaker 1: banks I think it is. And that's where the stars 60 00:03:55,200 --> 00:03:58,040 Speaker 1: come in. Like our our assumptions of the stars of 61 00:03:58,080 --> 00:04:01,760 Speaker 1: the natural state of the economy, the long term natural 62 00:04:01,800 --> 00:04:06,120 Speaker 1: state of the economy. Are those correct? Right? I mean that, 63 00:04:06,280 --> 00:04:08,960 Speaker 1: by the way, people should really go read that Jackson 64 00:04:09,080 --> 00:04:13,160 Speaker 1: Hole speech from Paul from because I think it was 65 00:04:13,280 --> 00:04:15,720 Speaker 1: very great. It was really good. It's sort of anticipated 66 00:04:15,720 --> 00:04:19,880 Speaker 1: a lot of the discussions that have ensued since then. Um, 67 00:04:20,040 --> 00:04:24,359 Speaker 1: this idea that tightness or heat in the markets doesn't 68 00:04:24,360 --> 00:04:26,840 Speaker 1: necessarily show up an inflation like it once did, but 69 00:04:26,920 --> 00:04:31,520 Speaker 1: showed up more in financial markets financial instability. And then 70 00:04:31,640 --> 00:04:34,640 Speaker 1: But I think this whole concept of stars, um, you know, 71 00:04:34,680 --> 00:04:37,479 Speaker 1: there's sort of two big questions in my mind when 72 00:04:37,480 --> 00:04:41,159 Speaker 1: we when people talk about them. Is one is how 73 00:04:41,200 --> 00:04:43,120 Speaker 1: do we know what they are with any sort of 74 00:04:43,279 --> 00:04:46,720 Speaker 1: useful precision? Like no one knows exactly what the perfect 75 00:04:47,279 --> 00:04:49,320 Speaker 1: rate of interest is at any given moment, but can 76 00:04:49,360 --> 00:04:51,719 Speaker 1: we get close enough at any given moment for the 77 00:04:51,839 --> 00:04:56,320 Speaker 1: to be useful guide? And two, are these useful concepts 78 00:04:56,360 --> 00:04:59,560 Speaker 1: at all? I mean, they're inherently sort of unknowable, They're 79 00:04:59,560 --> 00:05:03,520 Speaker 1: inherently sort of abstract. But is are the stars a 80 00:05:03,720 --> 00:05:08,320 Speaker 1: useful um, you know, guide for policy period or should 81 00:05:08,320 --> 00:05:11,280 Speaker 1: we even be thinking in terms of stars? Both of 82 00:05:11,279 --> 00:05:14,840 Speaker 1: those questions I think have a lot of relevancy and 83 00:05:15,279 --> 00:05:20,640 Speaker 1: urgency these days. Absolutely, UM agree with you on both 84 00:05:20,640 --> 00:05:23,240 Speaker 1: those points. So today I'm really excited to say we 85 00:05:23,279 --> 00:05:27,440 Speaker 1: are going to dig into the stars in detail, and 86 00:05:27,800 --> 00:05:32,239 Speaker 1: we have someone who's sort of adopted Jerome Pale's Jackson 87 00:05:32,279 --> 00:05:35,080 Speaker 1: Hole speech as the jumping off point for a really 88 00:05:35,200 --> 00:05:38,960 Speaker 1: in depth examination and estimation of the stars. We're going 89 00:05:39,040 --> 00:05:42,839 Speaker 1: to be talking to Peter Williams. He's a research analyst 90 00:05:42,920 --> 00:05:45,880 Speaker 1: over at the International Monetary Fund, and he wrote a 91 00:05:45,920 --> 00:05:50,600 Speaker 1: paper this summer called Reading the Stars, so you know, 92 00:05:50,960 --> 00:05:54,120 Speaker 1: a good title for decoding all these different stars and 93 00:05:54,320 --> 00:05:57,479 Speaker 1: natural rates and things like that. Peter, thank you so 94 00:05:57,560 --> 00:06:00,320 Speaker 1: much for coming on all thoughts, I thank you so 95 00:06:00,400 --> 00:06:02,680 Speaker 1: much for having me. Really appreciate the opportunity to be 96 00:06:02,720 --> 00:06:04,920 Speaker 1: on the podcast. And I guess I just want to 97 00:06:04,960 --> 00:06:07,599 Speaker 1: sort of start off by saying that all the views 98 00:06:07,880 --> 00:06:11,240 Speaker 1: I articulate today are solely my own, UM, not the 99 00:06:11,279 --> 00:06:15,000 Speaker 1: I m f S executive board, its management, UM, or 100 00:06:15,040 --> 00:06:18,839 Speaker 1: the institution as a whole. They're just my personal views. Okay, 101 00:06:19,240 --> 00:06:21,680 Speaker 1: you've done the disclaimer, so excellent. We can dive into 102 00:06:21,720 --> 00:06:24,599 Speaker 1: the paper. UM. So, I guess my first question is 103 00:06:24,960 --> 00:06:27,480 Speaker 1: Joe sort of hinted at this in the intro. But 104 00:06:27,640 --> 00:06:32,799 Speaker 1: how do you even go about estimating things like the stars, 105 00:06:32,839 --> 00:06:35,480 Speaker 1: because to me, they just seem they seem like such 106 00:06:35,880 --> 00:06:39,960 Speaker 1: big and vast variables that can change quite easily. I 107 00:06:40,240 --> 00:06:43,880 Speaker 1: don't even know how you begin to to try to 108 00:06:44,279 --> 00:06:46,479 Speaker 1: guess what they actually are. So can you give us 109 00:06:46,520 --> 00:06:50,880 Speaker 1: a description of how people traditionally go about it? Yeah, So, 110 00:06:51,000 --> 00:06:53,320 Speaker 1: a lot of the more kind of traditional method especially 111 00:06:53,360 --> 00:06:56,400 Speaker 1: sort of before the crisis, you know, they usually had 112 00:06:56,440 --> 00:06:58,440 Speaker 1: what we're kind of i would say, fairly simple models. 113 00:06:58,480 --> 00:07:00,480 Speaker 1: Oftentimes they just kind of looked like the is uh 114 00:07:00,600 --> 00:07:03,159 Speaker 1: you call them just moving averages of the data. So 115 00:07:03,240 --> 00:07:05,520 Speaker 1: you know, your your estimate of the long run rate 116 00:07:05,560 --> 00:07:07,880 Speaker 1: of unemployment might just kind of look like a slowly 117 00:07:07,880 --> 00:07:09,840 Speaker 1: moving trend that kind of fluctuates up a little bit 118 00:07:09,880 --> 00:07:11,400 Speaker 1: in bad times and goes down a little bit in 119 00:07:11,400 --> 00:07:15,120 Speaker 1: good times. But to a large extent, you know, the 120 00:07:15,160 --> 00:07:19,160 Speaker 1: problem of economics, especially in the seventies and eighties, was 121 00:07:19,200 --> 00:07:23,040 Speaker 1: one of inflation um so autumn sort of really nitty gritty, 122 00:07:23,080 --> 00:07:25,000 Speaker 1: kind of like details about you know, what's the perfect 123 00:07:25,080 --> 00:07:27,680 Speaker 1: rate of unemployment where it's the perfect of growth. We're 124 00:07:27,720 --> 00:07:30,160 Speaker 1: kind of just subsumed by trying to get inflation down 125 00:07:30,200 --> 00:07:32,160 Speaker 1: to a much more lower and stable level. And like 126 00:07:32,480 --> 00:07:34,600 Speaker 1: when you have interest rates at ten percent or twelve percent, 127 00:07:34,640 --> 00:07:37,200 Speaker 1: inflations at eight or nine, you know, some of the 128 00:07:37,200 --> 00:07:39,320 Speaker 1: little tiny variations don't matter as much on the real 129 00:07:39,320 --> 00:07:40,840 Speaker 1: side because you have you have sort of a bigger 130 00:07:40,880 --> 00:07:45,280 Speaker 1: problem from a monetary policy perspective in inflation. There's some 131 00:07:45,400 --> 00:07:48,560 Speaker 1: interesting debates that we've been discussing them a lot on 132 00:07:48,760 --> 00:07:54,040 Speaker 1: the podcast um about whether these are useful concepts period 133 00:07:54,080 --> 00:07:56,080 Speaker 1: at all. But before we get into any of these 134 00:07:56,200 --> 00:07:59,880 Speaker 1: questions or really dive into some of the more technical 135 00:08:00,120 --> 00:08:04,120 Speaker 1: questions about estimating them in real time, what's the history 136 00:08:04,160 --> 00:08:08,240 Speaker 1: of the stars? Like where did this idea that there 137 00:08:08,440 --> 00:08:12,960 Speaker 1: is some natural rate of interest out there or natural 138 00:08:13,040 --> 00:08:15,960 Speaker 1: rate of inflation or anything like that out there that 139 00:08:17,080 --> 00:08:19,680 Speaker 1: is worth pursuing, is worth understanding. Where where did that 140 00:08:19,720 --> 00:08:22,440 Speaker 1: come from? So I mean that the sort of like 141 00:08:22,480 --> 00:08:24,720 Speaker 1: first real usage of like especially our star is kind 142 00:08:24,720 --> 00:08:27,280 Speaker 1: of the one of the longest history, and that goes 143 00:08:27,320 --> 00:08:30,080 Speaker 1: back to like Nutwick Cell, who's really a name I've 144 00:08:30,120 --> 00:08:32,280 Speaker 1: only ever read in textbooks referencing him as kind of 145 00:08:32,320 --> 00:08:35,199 Speaker 1: the first creator of the idea of the neutral rate 146 00:08:35,200 --> 00:08:37,840 Speaker 1: of interest. So that you know, very long ago in 147 00:08:37,840 --> 00:08:39,600 Speaker 1: sort of economic history, and it's sort of you know, 148 00:08:39,640 --> 00:08:42,560 Speaker 1: then the original idea of the stars, especially our star, 149 00:08:42,960 --> 00:08:45,439 Speaker 1: the most prominent one, which is this is the rate 150 00:08:45,440 --> 00:08:48,800 Speaker 1: of interest, which if over a long horizon, kind of acciliorates. 151 00:08:48,920 --> 00:08:50,720 Speaker 1: You know, at first it was like a coilibrate savings 152 00:08:50,720 --> 00:08:54,079 Speaker 1: and investment, but you know, companies and people invest in 153 00:08:54,120 --> 00:08:56,600 Speaker 1: save at different interest rates in the policy rates. You know, 154 00:08:56,640 --> 00:08:58,559 Speaker 1: over time it kind of became more and more policy 155 00:08:58,600 --> 00:09:01,319 Speaker 1: focused and sort of less this kind of generic whole 156 00:09:01,320 --> 00:09:03,520 Speaker 1: economy interest rate, and that you know that evolution has 157 00:09:03,559 --> 00:09:06,240 Speaker 1: been happening. You could really stay starting in the fifties 158 00:09:06,240 --> 00:09:08,839 Speaker 1: with as economics became a bit more quantitative, and then 159 00:09:08,880 --> 00:09:10,720 Speaker 1: it's kind of continued ever since, where like the models 160 00:09:10,760 --> 00:09:14,200 Speaker 1: have become more in depth and rigorous, they've added more variables, 161 00:09:14,240 --> 00:09:16,080 Speaker 1: more data. But also at the same time, you know, 162 00:09:16,080 --> 00:09:18,920 Speaker 1: there's sort of like underlying issues about like do these 163 00:09:18,960 --> 00:09:21,960 Speaker 1: things really exist, how precisely measured are they? Are we 164 00:09:22,040 --> 00:09:24,720 Speaker 1: dealing with data that has lots of regime shifts. Those 165 00:09:24,720 --> 00:09:26,800 Speaker 1: problems don't go away in economics, that doesn't make sort 166 00:09:26,840 --> 00:09:30,360 Speaker 1: of you know, any policymaker I understand sometimes the frustration 167 00:09:30,440 --> 00:09:32,120 Speaker 1: you might feel as the policy make like where should 168 00:09:32,120 --> 00:09:34,240 Speaker 1: we be going and the answers we think, right now 169 00:09:34,280 --> 00:09:37,280 Speaker 1: the answer is here, but the world may change, we 170 00:09:37,320 --> 00:09:39,920 Speaker 1: may have different problems in five years. You know. It's 171 00:09:39,960 --> 00:09:42,280 Speaker 1: it's never a very simple solution as to where we 172 00:09:42,320 --> 00:09:47,040 Speaker 1: should go. So speaking of that evolution, I mean you 173 00:09:47,080 --> 00:09:50,200 Speaker 1: mentioned in your paper that part of the inspiration for 174 00:09:50,320 --> 00:09:54,559 Speaker 1: it was Pal's Jackson whole speech um mostly about our 175 00:09:54,640 --> 00:09:58,559 Speaker 1: star back in why why do you think our star 176 00:09:59,760 --> 00:10:03,760 Speaker 1: has sort of like experience this new popularity or why 177 00:10:03,800 --> 00:10:07,360 Speaker 1: do you think it's become of interest to policymakers especially 178 00:10:07,440 --> 00:10:11,080 Speaker 1: at the fun Well, I wouldn't say it wasn't of 179 00:10:11,120 --> 00:10:13,600 Speaker 1: interest kind of before the crisis, but right, I mean 180 00:10:13,960 --> 00:10:17,679 Speaker 1: more interest relatively. Right, it wasn't of interest because the 181 00:10:17,920 --> 00:10:20,079 Speaker 1: concept wasn't particularly interesting because if you look at you know, 182 00:10:20,200 --> 00:10:24,079 Speaker 1: estimates from call it the beginning of the financial crisis, 183 00:10:24,679 --> 00:10:26,640 Speaker 1: they data doesn't really move a whole lot. The estimate 184 00:10:26,720 --> 00:10:28,280 Speaker 1: you know of our Star might go from like two 185 00:10:28,280 --> 00:10:30,320 Speaker 1: and a half to three and then goes back down. 186 00:10:30,440 --> 00:10:32,640 Speaker 1: It goes back up a little bit, but it's you know, 187 00:10:32,640 --> 00:10:34,560 Speaker 1: in a lot of ways, like the Great Moderation really 188 00:10:34,600 --> 00:10:36,240 Speaker 1: is a true kind of feature of the data, like 189 00:10:36,320 --> 00:10:39,200 Speaker 1: everything is pretty nice and stable. That's sort of like 190 00:10:39,240 --> 00:10:42,880 Speaker 1: this kind of top of economy, very macro view from 191 00:10:42,920 --> 00:10:46,520 Speaker 1: you know, kind of when inflation falls early until the 192 00:10:46,520 --> 00:10:49,120 Speaker 1: financial crisis. Obviously there's lots of interesting things happening inside 193 00:10:49,120 --> 00:10:52,120 Speaker 1: the economy and these sectoral changes, but we just look 194 00:10:52,120 --> 00:10:54,040 Speaker 1: at the top down. It's like, okay, you know, our 195 00:10:54,080 --> 00:10:55,599 Speaker 1: stars kind of just jugging on because there wasn't a 196 00:10:55,600 --> 00:10:57,319 Speaker 1: whole lot to talk about, and this sort of classic 197 00:10:57,320 --> 00:11:01,280 Speaker 1: assumption that our stars just two which John Taylor put 198 00:11:01,280 --> 00:11:05,520 Speaker 1: in his kind of Taylor rule in very famous paper 199 00:11:05,559 --> 00:11:08,920 Speaker 1: that sort of guides all large chunk of monetary policy research, 200 00:11:08,960 --> 00:11:12,079 Speaker 1: since he just kind of says to you know, he 201 00:11:12,160 --> 00:11:14,000 Speaker 1: like has an intuition about it, but it's basically he 202 00:11:14,000 --> 00:11:15,720 Speaker 1: just kind of says two percent because it feels right, 203 00:11:16,080 --> 00:11:18,160 Speaker 1: and that sort of is the anchor for most everybody's 204 00:11:18,240 --> 00:11:23,600 Speaker 1: estimates until really for most forecasters and policymakers estimates until 205 00:11:23,600 --> 00:11:27,840 Speaker 1: about twelve or is when you see this big evol 206 00:11:27,880 --> 00:11:29,760 Speaker 1: we should have while we really need to be think 207 00:11:29,800 --> 00:11:32,000 Speaker 1: where we are. This isn't just like a simple shock 208 00:11:32,040 --> 00:11:34,199 Speaker 1: from the financial crisis, like all of the data seems 209 00:11:34,240 --> 00:11:36,320 Speaker 1: to have changed. All these stars seem to have changed. 210 00:11:36,440 --> 00:11:38,800 Speaker 1: You know, the world is really this wasn't just a 211 00:11:38,840 --> 00:11:40,839 Speaker 1: simple business cycle that hit us, but something a bit 212 00:11:40,840 --> 00:12:00,880 Speaker 1: more kind of long lasting and structural. So basically, we 213 00:12:00,960 --> 00:12:04,920 Speaker 1: had these relationships in the economy that seemed fairly stable, 214 00:12:05,640 --> 00:12:11,240 Speaker 1: relationships between unemployment and inflation. We had monetary policy that 215 00:12:11,360 --> 00:12:14,600 Speaker 1: seemed to do the job is expected, where the Fed 216 00:12:14,800 --> 00:12:17,880 Speaker 1: might lower rates and then generates some activity and maybe 217 00:12:17,920 --> 00:12:21,600 Speaker 1: some inflation than high grades and then uh, you know, 218 00:12:21,679 --> 00:12:26,240 Speaker 1: slow the economy and maybe slow inflation. And essentially it's 219 00:12:26,360 --> 00:12:30,439 Speaker 1: the post crisis period in which these relationships seemed to 220 00:12:30,480 --> 00:12:35,400 Speaker 1: break down, in which unemployment plunging didn't seem to induce 221 00:12:35,520 --> 00:12:41,120 Speaker 1: arise and inflation and extremely law accommodative monetary policy by 222 00:12:41,160 --> 00:12:44,640 Speaker 1: historical standards didn't seem to do much easier. That is, 223 00:12:44,760 --> 00:12:51,600 Speaker 1: essentially reignited this debate about where and what the where 224 00:12:51,640 --> 00:12:55,440 Speaker 1: and what our starts. Yeah, I'd say that seems right. 225 00:12:55,480 --> 00:12:57,719 Speaker 1: I think. You know, initially, right after the crisis, you 226 00:12:57,760 --> 00:13:00,480 Speaker 1: look at sort of like private sector forecasts, sort of 227 00:13:00,480 --> 00:13:02,720 Speaker 1: the f O m c s like Teal book forecast 228 00:13:02,800 --> 00:13:04,600 Speaker 1: from the staff. You know, you sort of see that 229 00:13:04,600 --> 00:13:06,800 Speaker 1: everybody kind of thinks, you know, after three or four years, 230 00:13:06,840 --> 00:13:09,719 Speaker 1: we'll kind of be back to normal. Um. Obviously, we 231 00:13:09,760 --> 00:13:11,560 Speaker 1: don't get back to normal sort of in our in 232 00:13:11,559 --> 00:13:14,200 Speaker 1: our papers view until maybe teen or nineteen. You know, 233 00:13:14,200 --> 00:13:17,400 Speaker 1: it's a very long and drawn out recovery, um. And 234 00:13:17,440 --> 00:13:18,920 Speaker 1: not just on sort of the growth side, which I 235 00:13:18,920 --> 00:13:20,959 Speaker 1: think is easier for people to kind of think about, 236 00:13:21,000 --> 00:13:23,439 Speaker 1: but also you know, the unemployment rate you know, was 237 00:13:23,520 --> 00:13:26,640 Speaker 1: quite high after the crisis, but it also falls you know, 238 00:13:26,760 --> 00:13:29,120 Speaker 1: quite slowly, and so we have you know, this situation 239 00:13:29,160 --> 00:13:31,760 Speaker 1: says okay that you know, why is the unemployment rate 240 00:13:31,800 --> 00:13:34,160 Speaker 1: falling so slowly? Why is growth not rebounding and the 241 00:13:34,200 --> 00:13:36,560 Speaker 1: way we thought it might, and you know there are 242 00:13:36,559 --> 00:13:39,280 Speaker 1: other compounding, confounding factors. Is you know, I think every 243 00:13:39,320 --> 00:13:41,800 Speaker 1: economist is sort of continuously reminded when trying to actually 244 00:13:41,800 --> 00:13:43,720 Speaker 1: do work with data. You know, it's easy to make 245 00:13:43,760 --> 00:13:46,400 Speaker 1: models that sort of describe the mechanics pretty simply, but 246 00:13:46,480 --> 00:13:49,400 Speaker 1: the frustrating realities that you know we have. You know, 247 00:13:49,400 --> 00:13:51,280 Speaker 1: in a model like this, we sort of have the 248 00:13:51,280 --> 00:13:53,240 Speaker 1: neutral rate and sort of the policy rate are the 249 00:13:53,320 --> 00:13:55,760 Speaker 1: kind of these two variables that say, okay, whatever the 250 00:13:55,760 --> 00:13:57,440 Speaker 1: gap between these is we call like the stance of 251 00:13:57,480 --> 00:14:00,319 Speaker 1: monetary policy that will sort of accelerate growth or it 252 00:14:00,360 --> 00:14:03,079 Speaker 1: will decelerate growth. But you know, in reality, you've got 253 00:14:03,080 --> 00:14:07,240 Speaker 1: fiscal policy, you've got overseas developments, you have financial condition shocks, 254 00:14:07,280 --> 00:14:09,439 Speaker 1: you have all these other other confounding variables that make 255 00:14:09,480 --> 00:14:11,559 Speaker 1: it pretty hard to get a read through into exactly 256 00:14:11,600 --> 00:14:14,199 Speaker 1: what the stance of policy really is once we kind 257 00:14:14,200 --> 00:14:17,079 Speaker 1: of control for all these other things that I mean, frankly, 258 00:14:17,440 --> 00:14:18,640 Speaker 1: you know, if we had a perfect world, then we 259 00:14:18,640 --> 00:14:20,520 Speaker 1: can model everything just the way we wanted it to. 260 00:14:20,920 --> 00:14:23,760 Speaker 1: We could take that into account. But you know, sadly, 261 00:14:23,800 --> 00:14:26,480 Speaker 1: economic data is not usually particularly informative and the way 262 00:14:26,520 --> 00:14:28,320 Speaker 1: we would like it to be, and it's everything moves 263 00:14:28,360 --> 00:14:30,800 Speaker 1: in the same you know, everything is always shifting. All 264 00:14:30,880 --> 00:14:33,640 Speaker 1: the data is moving around, usually in very correlated ways. 265 00:14:33,640 --> 00:14:36,440 Speaker 1: So it's, uh, you know, it's a challenging set of 266 00:14:36,440 --> 00:14:39,200 Speaker 1: statistical problems in addition to being a challenging kind of 267 00:14:39,200 --> 00:14:43,200 Speaker 1: definitional and conceptual issue as well. Could you talk a 268 00:14:43,240 --> 00:14:46,080 Speaker 1: little bit more about your model then, and how you 269 00:14:46,200 --> 00:14:50,200 Speaker 1: sort of um accounted for those difficulties and what your 270 00:14:50,240 --> 00:14:56,440 Speaker 1: model does differently to traditional estimates of the Stars. I 271 00:14:56,480 --> 00:15:01,160 Speaker 1: read Chair Powell's Jackson Jackson Whole Speed a whole bunch 272 00:15:01,160 --> 00:15:02,360 Speaker 1: of times right when it came out and was just 273 00:15:02,440 --> 00:15:03,800 Speaker 1: kind of steering up. It's like, well, we've been having 274 00:15:03,840 --> 00:15:07,200 Speaker 1: these exact same debates. He outlines, Um, you know, growth 275 00:15:07,200 --> 00:15:09,440 Speaker 1: has been well, the unemployment rate is now by that point, 276 00:15:09,480 --> 00:15:11,720 Speaker 1: gotten to be very low levels, but inflation doesn't always 277 00:15:11,720 --> 00:15:14,280 Speaker 1: seem to be there a whole lot, and we're just 278 00:15:14,280 --> 00:15:16,760 Speaker 1: trying to think, okay, what is you know, we conceptually 279 00:15:17,360 --> 00:15:19,480 Speaker 1: as institutions, we kind of want to have these guides, 280 00:15:19,560 --> 00:15:22,160 Speaker 1: these sort of guiding variables. They help us. They help 281 00:15:22,200 --> 00:15:24,720 Speaker 1: us in forecasting, they help us understand the economy right now, 282 00:15:25,520 --> 00:15:26,920 Speaker 1: you know, they help us think about sort of longer 283 00:15:27,000 --> 00:15:29,840 Speaker 1: run structural and framework issues. So you could have you 284 00:15:29,920 --> 00:15:31,800 Speaker 1: kind of need them as sort of organizing thoughts and 285 00:15:31,800 --> 00:15:33,760 Speaker 1: principles as an economist, at least in sort of like 286 00:15:33,840 --> 00:15:38,280 Speaker 1: classical like classic sort of policy making institution style ECONO. 287 00:15:38,600 --> 00:15:40,440 Speaker 1: If your heterodox, you can kind of dispense with them 288 00:15:40,440 --> 00:15:42,320 Speaker 1: and maybe things become a bit simple in some ways. 289 00:15:42,360 --> 00:15:45,920 Speaker 1: But you know, inside inside the big institutions, you like them. 290 00:15:46,000 --> 00:15:48,640 Speaker 1: And so what we decided to do sort of taking share. 291 00:15:48,680 --> 00:15:51,880 Speaker 1: Powell's prompt was, what's first of all, we know that 292 00:15:51,960 --> 00:15:54,480 Speaker 1: sort of of the stars, we know that one of 293 00:15:54,520 --> 00:15:56,200 Speaker 1: them is kind of fixed. The FED has told us 294 00:15:56,440 --> 00:15:58,920 Speaker 1: we want inflation to over the long run be two percent, 295 00:15:59,040 --> 00:16:02,040 Speaker 1: and they've they've tweaked definition recently, you know, going from 296 00:16:02,040 --> 00:16:05,200 Speaker 1: sort of symmetric to two with instead now they're as 297 00:16:05,200 --> 00:16:07,480 Speaker 1: sort of an average two percent. But you know, I 298 00:16:07,480 --> 00:16:10,040 Speaker 1: don't think that makes a particularly large difference in terms 299 00:16:10,040 --> 00:16:12,080 Speaker 1: of the model perspective. You know, it may lead to 300 00:16:12,160 --> 00:16:14,200 Speaker 1: changes in policy going forward, but you know from a 301 00:16:14,240 --> 00:16:17,560 Speaker 1: modeling perspective, you can handle them pretty similarly. So, you know, 302 00:16:17,720 --> 00:16:21,000 Speaker 1: pie star, the long run inflation target is two percent, 303 00:16:21,760 --> 00:16:23,000 Speaker 1: and so you can sort of treat that as an 304 00:16:23,040 --> 00:16:25,960 Speaker 1: organizing principle around the rest of the rest of the economy. 305 00:16:26,000 --> 00:16:28,520 Speaker 1: And you say, when inflation is at two percent, we 306 00:16:28,520 --> 00:16:31,320 Speaker 1: would expect everything else to be at equilibrium. So we 307 00:16:31,360 --> 00:16:33,880 Speaker 1: can sort of fix all these other kind of equilibrium 308 00:16:33,880 --> 00:16:38,000 Speaker 1: conditions we call them an economics around that kind of 309 00:16:38,040 --> 00:16:41,680 Speaker 1: primary identity. And then you sort of add in some ways, 310 00:16:41,680 --> 00:16:43,440 Speaker 1: like okay, what are the other things that drive inflation? 311 00:16:43,440 --> 00:16:45,680 Speaker 1: Because if we describe inflation, well, now having sort of 312 00:16:45,720 --> 00:16:49,720 Speaker 1: fixed this relationship between sort of two percent equilibrium. If 313 00:16:49,720 --> 00:16:52,480 Speaker 1: we describe inflation, well, maybe then we can describe the 314 00:16:52,480 --> 00:16:54,720 Speaker 1: rest of the economy a bit better and more realistically 315 00:16:54,720 --> 00:16:57,560 Speaker 1: as well. So you started, you know, we added in, um, 316 00:16:58,880 --> 00:17:01,200 Speaker 1: it's just you ve Torta about this in his podcast 317 00:17:01,240 --> 00:17:03,720 Speaker 1: as well. You know, it's originally the Phillips curve. The 318 00:17:03,720 --> 00:17:06,680 Speaker 1: relationship between it's called the output gap for the unemployment 319 00:17:06,760 --> 00:17:09,480 Speaker 1: rate and inflation was like, you know, it was very obvious. 320 00:17:10,080 --> 00:17:13,760 Speaker 1: Sadly it's not so obvious anymore, making you know, economist 321 00:17:13,840 --> 00:17:16,400 Speaker 1: life much more difficult, but also allowing us to write 322 00:17:16,400 --> 00:17:19,000 Speaker 1: papers about it. So I suppose there's a certain personal park, 323 00:17:19,800 --> 00:17:23,080 Speaker 1: and so we sort of add in you know, oil prices, 324 00:17:23,080 --> 00:17:25,320 Speaker 1: we add in some other we call them supply shocks, 325 00:17:25,320 --> 00:17:27,400 Speaker 1: and economics we can think of it us like these 326 00:17:27,440 --> 00:17:29,280 Speaker 1: things that affect inflation and kind of the short run, 327 00:17:29,320 --> 00:17:31,560 Speaker 1: but we don't necessarily expect they'll have very long run 328 00:17:31,600 --> 00:17:35,040 Speaker 1: effects on the rest of the economy. So like short 329 00:17:35,119 --> 00:17:38,440 Speaker 1: term changes in productivity growth also tend to affect inflation 330 00:17:38,440 --> 00:17:41,240 Speaker 1: a little bit. Oil prices, import prices, these sorts of 331 00:17:41,240 --> 00:17:44,639 Speaker 1: things that we say, we've described inflation pretty well now 332 00:17:44,720 --> 00:17:46,159 Speaker 1: le's look about the rest of the economy, and so 333 00:17:46,240 --> 00:17:48,200 Speaker 1: to sort of pin down sort of the real side 334 00:17:48,200 --> 00:17:51,520 Speaker 1: of the economy, you can start adding in other variables 335 00:17:51,680 --> 00:17:53,639 Speaker 1: sort of anchor everything else. So you know, we have 336 00:17:53,720 --> 00:17:56,600 Speaker 1: GDP very common um and they also sort of use 337 00:17:56,640 --> 00:17:59,480 Speaker 1: gross domestic income, which is conceptually very similar to GDP, 338 00:17:59,600 --> 00:18:01,680 Speaker 1: just measures on the income side of the production side. 339 00:18:02,200 --> 00:18:04,240 Speaker 1: And you can add in labor market variables. The most 340 00:18:04,280 --> 00:18:06,600 Speaker 1: important one is obviously kind of the headline unemployment rate, 341 00:18:06,600 --> 00:18:08,720 Speaker 1: but you can add in others because the relationships tend 342 00:18:08,720 --> 00:18:10,520 Speaker 1: to be pretty similar. But you know, sometimes to get 343 00:18:10,560 --> 00:18:12,639 Speaker 1: just a bit more confidence and estimates by adding in 344 00:18:12,680 --> 00:18:14,960 Speaker 1: more data, the trade off is that you added you 345 00:18:14,960 --> 00:18:16,879 Speaker 1: make the model more complicated. So it's a it's a 346 00:18:16,880 --> 00:18:20,439 Speaker 1: difficult balancing act trying to create a paper like this 347 00:18:20,600 --> 00:18:22,800 Speaker 1: that a model like this that sort of goes through 348 00:18:23,720 --> 00:18:26,520 Speaker 1: you have enough data to describe everything precisely, but not 349 00:18:26,680 --> 00:18:28,480 Speaker 1: such a big model that you're suffering from sort of 350 00:18:28,480 --> 00:18:31,760 Speaker 1: classic overfitting problems. It's you know, if if we can 351 00:18:31,800 --> 00:18:34,120 Speaker 1: get another twenty years of data without any structural changes 352 00:18:34,160 --> 00:18:35,480 Speaker 1: in the economy, that would be great, and my model 353 00:18:35,480 --> 00:18:37,840 Speaker 1: would be estimated a bit more precisely, but I don't 354 00:18:37,920 --> 00:18:40,200 Speaker 1: think that's going to happen. Just knowing the way of 355 00:18:40,240 --> 00:18:42,920 Speaker 1: the last twenty years have gone, it seems unlikely that 356 00:18:42,960 --> 00:18:47,960 Speaker 1: you'll get this nice kind of perfect um economistrician's dream scenario. 357 00:18:49,359 --> 00:18:54,280 Speaker 1: You know, you described this process of unemployment, maybe some productivity. 358 00:18:54,760 --> 00:18:57,639 Speaker 1: Heterodox eco types should say, Look, this whole thing is 359 00:18:57,680 --> 00:19:00,400 Speaker 1: like nonsense. There is no such thing is our star. 360 00:19:00,560 --> 00:19:03,280 Speaker 1: There's not going to be some rate of interest that 361 00:19:03,359 --> 00:19:08,000 Speaker 1: sort of magically brings the economy into balance. And you know, 362 00:19:08,040 --> 00:19:10,520 Speaker 1: the pursuit of it is a waste of time. And 363 00:19:10,600 --> 00:19:13,600 Speaker 1: of course you could have a lot of fantasy equations 364 00:19:13,960 --> 00:19:18,200 Speaker 1: with Greek letters that somehow make it look like you've 365 00:19:18,280 --> 00:19:21,280 Speaker 1: mathematically derived this thing. But you know, it's all as 366 00:19:21,320 --> 00:19:23,879 Speaker 1: you say, and you as you acknowledge. You know, if 367 00:19:23,920 --> 00:19:26,399 Speaker 1: you do too much, you're you risk overfitting it and 368 00:19:26,480 --> 00:19:30,560 Speaker 1: not actually getting any data. Just step back and sort of, 369 00:19:30,880 --> 00:19:36,000 Speaker 1: in your view, defend the premise of this search for 370 00:19:36,280 --> 00:19:38,600 Speaker 1: a sort of mythical number that if we were to 371 00:19:38,640 --> 00:19:40,040 Speaker 1: find it, and if we were to know it, and 372 00:19:40,040 --> 00:19:43,360 Speaker 1: if we were to have the formula, would roughly bring 373 00:19:43,400 --> 00:19:48,160 Speaker 1: the economy into balance. Actually, yeah, that's quite a tough one. Sorry. 374 00:19:48,480 --> 00:19:50,840 Speaker 1: You know, I understand someworm of the heterodox perspective because 375 00:19:50,960 --> 00:19:53,320 Speaker 1: it does seem like sort of classical econ and struggled 376 00:19:53,359 --> 00:19:56,760 Speaker 1: a lot and last, especially since the crisis. But I 377 00:19:56,800 --> 00:20:00,160 Speaker 1: think a lot of it is that some except both 378 00:20:00,200 --> 00:20:02,720 Speaker 1: as a policymakers, you know, you want to have a 379 00:20:02,800 --> 00:20:05,439 Speaker 1: sense of how much you're actually affecting the economy at 380 00:20:05,440 --> 00:20:07,920 Speaker 1: any given point, Right, So this notion of like where 381 00:20:07,960 --> 00:20:10,880 Speaker 1: the neutral rate is, so I could get a good 382 00:20:10,880 --> 00:20:13,080 Speaker 1: analogy might be sort of driving if you can't see 383 00:20:13,080 --> 00:20:15,520 Speaker 1: the ppidometer in your car, you have some other indicators, 384 00:20:15,720 --> 00:20:17,359 Speaker 1: but you don't really know how fast you're going and 385 00:20:17,359 --> 00:20:19,280 Speaker 1: if you're actually appropriate for the space around you. So 386 00:20:19,320 --> 00:20:21,040 Speaker 1: sort of we can think about the neutral rate and 387 00:20:21,080 --> 00:20:23,920 Speaker 1: these stars. It's sort of helping give us a bit 388 00:20:23,920 --> 00:20:26,439 Speaker 1: more context for where we are relative to where we 389 00:20:26,600 --> 00:20:28,160 Speaker 1: you know, kind of should be based on the rest 390 00:20:28,160 --> 00:20:31,480 Speaker 1: of the economy. Where are our make belief spidometer list car, 391 00:20:32,320 --> 00:20:34,439 Speaker 1: and so it helps us make sure we're going at 392 00:20:34,440 --> 00:20:36,880 Speaker 1: the appropriate level and we're not overstimulating the economy, because 393 00:20:36,880 --> 00:20:38,760 Speaker 1: the problem is that if you over stimulate the economy 394 00:20:39,200 --> 00:20:41,160 Speaker 1: and you give it, you know, way too much support 395 00:20:41,600 --> 00:20:43,440 Speaker 1: not been a problem since we hit the zero over bound, 396 00:20:43,440 --> 00:20:46,040 Speaker 1: but historically, you know, eventually you would get in a 397 00:20:46,040 --> 00:20:48,479 Speaker 1: situation where you've overheated the economy. Things are sort of 398 00:20:48,600 --> 00:20:50,840 Speaker 1: booming too much and you've kind of created this investment 399 00:20:50,880 --> 00:20:54,080 Speaker 1: boom or whatever boom, and then you know, booms pop 400 00:20:54,240 --> 00:20:57,239 Speaker 1: and recessions are you know, to be avoided. And you know, 401 00:20:57,359 --> 00:21:01,000 Speaker 1: I think everyone in economics would say it's easier to 402 00:21:01,040 --> 00:21:02,920 Speaker 1: sort of be a bit more forward looking and kind 403 00:21:02,920 --> 00:21:05,320 Speaker 1: of think about where you are and you can go 404 00:21:05,359 --> 00:21:07,600 Speaker 1: from there and to create more of an optimal path, 405 00:21:07,640 --> 00:21:10,080 Speaker 1: whereas if you try and just always be reactive and 406 00:21:10,119 --> 00:21:13,159 Speaker 1: backward looking, you know, it's much harder to kind of 407 00:21:13,200 --> 00:21:15,080 Speaker 1: really get a sense and sort of avoid some of 408 00:21:15,080 --> 00:21:17,920 Speaker 1: these predictable issues. And I think it's interesting example actually 409 00:21:17,960 --> 00:21:20,840 Speaker 1: is that you know, not exactly the neutral rate, but 410 00:21:20,840 --> 00:21:22,439 Speaker 1: the FED is sort of applied these same sort of 411 00:21:22,440 --> 00:21:24,919 Speaker 1: principles in other ways. Obviously they still get to the 412 00:21:24,920 --> 00:21:26,960 Speaker 1: neutral rate for the sort of setting the FED funds rate, 413 00:21:27,560 --> 00:21:29,880 Speaker 1: but on regulatory policy you see sort of similar things. 414 00:21:29,920 --> 00:21:32,600 Speaker 1: You know, they the stress testing exercises are actually I 415 00:21:32,600 --> 00:21:35,199 Speaker 1: think they're not applying the neutral rate concept, but it's 416 00:21:35,240 --> 00:21:37,440 Speaker 1: sort of the same way we want to have safety 417 00:21:37,440 --> 00:21:40,439 Speaker 1: guide posts sort of around the economy. We're not just 418 00:21:40,440 --> 00:21:42,560 Speaker 1: sort of, you know, we sort of moved on and 419 00:21:42,640 --> 00:21:45,840 Speaker 1: changed a bit sort of the underlying paradigms. On the 420 00:21:45,880 --> 00:21:48,320 Speaker 1: regulatory side, I think that actually helps compensate for some 421 00:21:48,359 --> 00:21:51,520 Speaker 1: of perhaps the weaknesses of the neutral rate, just because 422 00:21:51,520 --> 00:21:53,200 Speaker 1: the neutral rate is so low now that it's hard 423 00:21:53,200 --> 00:21:56,360 Speaker 1: for you know, regulatory policy to maybe support as much. 424 00:21:56,400 --> 00:21:58,159 Speaker 1: But then you can say, if we keep the financial 425 00:21:58,200 --> 00:22:01,359 Speaker 1: system pretty safe, one positive of that is and it 426 00:22:01,400 --> 00:22:04,679 Speaker 1: makes recessions probably less likely and less likely to be 427 00:22:04,680 --> 00:22:07,000 Speaker 1: particularly bad. So you can sort of use other policy 428 00:22:07,040 --> 00:22:09,200 Speaker 1: tools to kind of help make up for this kind 429 00:22:09,200 --> 00:22:11,720 Speaker 1: of lack of policy support through the kind of the 430 00:22:11,720 --> 00:22:14,439 Speaker 1: classic interest rate channel. They might phrase it a bit differently, 431 00:22:14,480 --> 00:22:16,080 Speaker 1: but I think that you can see that in some 432 00:22:16,160 --> 00:22:19,400 Speaker 1: other policy reform agendas that have kind of come along board, 433 00:22:19,480 --> 00:22:23,600 Speaker 1: especially since COVID hit m HM. So I wanted to 434 00:22:23,640 --> 00:22:26,040 Speaker 1: ask you a little bit more about that. So one 435 00:22:26,040 --> 00:22:29,160 Speaker 1: of the things from your paper is that your estimate 436 00:22:29,320 --> 00:22:32,080 Speaker 1: of our star of the neutral rate of interest is 437 00:22:32,200 --> 00:22:37,040 Speaker 1: basically lower than I think almost everyone else is um 438 00:22:37,080 --> 00:22:42,359 Speaker 1: in academia, were you surprised at that finding. And I guess, 439 00:22:42,400 --> 00:22:47,119 Speaker 1: secondly to the financial stability point, Um, what did your 440 00:22:47,119 --> 00:22:51,199 Speaker 1: paper actually tell us about the previous financial crisis and 441 00:22:51,240 --> 00:22:57,040 Speaker 1: what our star looks like, you know, building up to two? Okay, 442 00:22:57,080 --> 00:22:59,440 Speaker 1: so i'll think called the first one of those. So yeah, 443 00:22:59,480 --> 00:23:02,000 Speaker 1: when each kind of first run the model and we 444 00:23:02,040 --> 00:23:04,359 Speaker 1: see the outputs come out, I was a little surprised 445 00:23:04,359 --> 00:23:06,320 Speaker 1: by the r star estimate. I'll agree with you. Um, 446 00:23:06,359 --> 00:23:09,520 Speaker 1: you know, I think it's the lowest I've seen, at 447 00:23:09,600 --> 00:23:12,560 Speaker 1: least for the US, you know, from I think anywhere. Um, 448 00:23:12,600 --> 00:23:14,359 Speaker 1: But I think it makes sense because sort of what 449 00:23:14,440 --> 00:23:17,680 Speaker 1: ends up determining our star is the output gap or 450 00:23:18,040 --> 00:23:20,359 Speaker 1: like we call it, like slack the business like all 451 00:23:20,400 --> 00:23:24,280 Speaker 1: the output gap. After the financial crisis, the output gap 452 00:23:24,359 --> 00:23:27,840 Speaker 1: was very very negative, but also recovered very very slowly, 453 00:23:28,440 --> 00:23:30,399 Speaker 1: And so because it was recovering a lot more slowly 454 00:23:30,440 --> 00:23:33,280 Speaker 1: than sort of the model kind of naively would expect otherwise, 455 00:23:33,320 --> 00:23:35,800 Speaker 1: it suggests the policy was a lot less supportive than 456 00:23:35,800 --> 00:23:38,520 Speaker 1: it normally would have been, which you know, when you 457 00:23:38,520 --> 00:23:40,840 Speaker 1: sort of work out the math, if policy is less supportive, 458 00:23:40,880 --> 00:23:43,080 Speaker 1: that means your neutral rate is actually lower than you 459 00:23:43,160 --> 00:23:44,960 Speaker 1: might have expected, and you know, we make some other 460 00:23:44,960 --> 00:23:47,920 Speaker 1: mechanical peaks in our model that may affect our views 461 00:23:47,920 --> 00:23:49,439 Speaker 1: of the neutral RTA, but a little bit like we 462 00:23:49,440 --> 00:23:52,840 Speaker 1: include what's called the shadow rate, which sort of tries 463 00:23:52,880 --> 00:23:56,080 Speaker 1: to incorporate the stance of monetary policy via que when 464 00:23:56,080 --> 00:23:58,320 Speaker 1: you're at Fuzier lower about. So the shadow rate could 465 00:23:58,320 --> 00:24:00,159 Speaker 1: affect our estimates a little bit from all these of 466 00:24:00,240 --> 00:24:03,520 Speaker 1: Q programs and forward guidance. But in the end, you know, 467 00:24:03,600 --> 00:24:07,399 Speaker 1: it was a very long, very difficult recovery after a 468 00:24:07,480 --> 00:24:10,240 Speaker 1: very large shock, and I think it seems kind of 469 00:24:10,320 --> 00:24:13,439 Speaker 1: natural to imagine that policy was less supportive than we 470 00:24:13,440 --> 00:24:16,960 Speaker 1: thought at the time, you know, just because it took 471 00:24:17,000 --> 00:24:18,480 Speaker 1: so much longer to get back to normal than we 472 00:24:18,480 --> 00:24:21,560 Speaker 1: publish when we thought it should have taken. And so 473 00:24:21,680 --> 00:24:23,199 Speaker 1: going back to the kind of the story of the 474 00:24:23,240 --> 00:24:25,439 Speaker 1: crisis that flows out of that sort of you know, 475 00:24:25,480 --> 00:24:27,760 Speaker 1: the way we have defined everything in our paper, you know, 476 00:24:27,800 --> 00:24:30,160 Speaker 1: it's it's all about sort of the inflation target longer 477 00:24:30,240 --> 00:24:35,640 Speaker 1: inflation expectations um because we sort of divorced the inflation 478 00:24:35,680 --> 00:24:39,119 Speaker 1: targeting mandate from kind of the financial stability one. You know, 479 00:24:39,160 --> 00:24:41,639 Speaker 1: the paper does give I think a look at the 480 00:24:41,680 --> 00:24:44,120 Speaker 1: period right before the global financial crisis. That's a little 481 00:24:44,160 --> 00:24:47,119 Speaker 1: different from most others. So we see, you know, right 482 00:24:47,160 --> 00:24:49,440 Speaker 1: before the crisis, we actually don't think there's a positive 483 00:24:49,520 --> 00:24:51,840 Speaker 1: kind of outblut gap. We think the economy was you know, 484 00:24:51,840 --> 00:24:54,760 Speaker 1: pretty close to normal ish conditions. But what was happening 485 00:24:54,840 --> 00:24:57,359 Speaker 1: underneath was we've had you know, okay growth in the 486 00:24:57,400 --> 00:24:59,760 Speaker 1: mid two thousand's not spectacle or by the standards of 487 00:24:59,760 --> 00:25:01,080 Speaker 1: the night needs, but it was okay. But what it 488 00:25:01,119 --> 00:25:03,119 Speaker 1: actually happened is that sort of the stars were all 489 00:25:03,200 --> 00:25:07,520 Speaker 1: kind of deteriorating about, like potential growth was falling, and 490 00:25:07,600 --> 00:25:10,399 Speaker 1: so it looks like what happened prior to that, you know, 491 00:25:10,680 --> 00:25:12,199 Speaker 1: in the lead up to the crisis was basically we 492 00:25:12,200 --> 00:25:14,720 Speaker 1: had a lot of credit fuel growth, which is sort 493 00:25:14,720 --> 00:25:18,480 Speaker 1: of supporting overall growth, but it wasn't really leading to 494 00:25:18,480 --> 00:25:20,639 Speaker 1: any sort of positive benefits on the supply side of 495 00:25:20,640 --> 00:25:22,879 Speaker 1: the economy. So you have what is effectively this like 496 00:25:23,200 --> 00:25:26,920 Speaker 1: credit boom, which kind of deteriorates sort of long run growth, 497 00:25:27,000 --> 00:25:30,440 Speaker 1: It affects the other sort of potential estimates, and then 498 00:25:30,480 --> 00:25:32,400 Speaker 1: we you know, sort of the credit cycle blows up 499 00:25:32,520 --> 00:25:34,240 Speaker 1: and it kind of just gotten back to an okay 500 00:25:34,240 --> 00:25:36,119 Speaker 1: state of the economy, and it was interesting when we 501 00:25:36,119 --> 00:25:39,240 Speaker 1: saw those estimates. In one sense, it was surprising because 502 00:25:39,280 --> 00:25:41,000 Speaker 1: you think the economy was like overheating. We just had 503 00:25:41,000 --> 00:25:43,560 Speaker 1: a big bubble that popped. Obviously the real stit of 504 00:25:43,560 --> 00:25:45,920 Speaker 1: the economy should have been overheated too, But really it's 505 00:25:45,960 --> 00:25:48,880 Speaker 1: the financial system was full of excess. But I think, 506 00:25:48,880 --> 00:25:50,200 Speaker 1: you know, if you go back and sort of look 507 00:25:50,240 --> 00:25:52,600 Speaker 1: at people's kind of lived experiences in the mid two thousand's, 508 00:25:52,760 --> 00:25:55,719 Speaker 1: you know, the economy wasn't really that great for you know, 509 00:25:55,760 --> 00:25:58,280 Speaker 1: many or most people, you know, So I think it's 510 00:25:58,280 --> 00:25:59,919 Speaker 1: actually one of the interesting parts to me about this 511 00:26:00,000 --> 00:26:02,199 Speaker 1: paper is that we were the anchor on the inflation target, 512 00:26:02,240 --> 00:26:04,160 Speaker 1: which I think for a lot of people that that's 513 00:26:04,240 --> 00:26:06,440 Speaker 1: very hawkish. I mean, you must not really care about people, 514 00:26:07,000 --> 00:26:09,000 Speaker 1: you know, it's very kind of austere way of looking 515 00:26:09,040 --> 00:26:11,240 Speaker 1: at the world. But the results we get by doing 516 00:26:11,240 --> 00:26:14,600 Speaker 1: that are actually you know, suggestive of I think, you know, 517 00:26:15,480 --> 00:26:17,000 Speaker 1: we actually made a lot of mistakes in the last 518 00:26:17,000 --> 00:26:20,760 Speaker 1: twenty years, and so as a result, you know, we 519 00:26:20,760 --> 00:26:23,600 Speaker 1: were kind of thinking about and seeing the world through 520 00:26:23,640 --> 00:26:25,440 Speaker 1: the kind of this overly hawkish lens because the actually 521 00:26:25,440 --> 00:26:28,120 Speaker 1: weren't thinking about inflation hard enough, like we weren't really 522 00:26:28,119 --> 00:26:32,000 Speaker 1: meeting our inflations inflation in the end date lessons to 523 00:26:32,080 --> 00:26:50,920 Speaker 1: learn This seems to be, you know, we we recently 524 00:26:51,280 --> 00:26:54,560 Speaker 1: had an episode with Minneapolis Fed persident Neil cash Curry, 525 00:26:54,600 --> 00:26:56,600 Speaker 1: and I guess that's sort of implicit in the new 526 00:26:57,280 --> 00:27:00,760 Speaker 1: BED framework. But this seemed us to be the sort 527 00:27:00,800 --> 00:27:04,840 Speaker 1: of um, sort of counterintuitive conclusion that a lot of 528 00:27:04,920 --> 00:27:09,040 Speaker 1: people are arriving at, which is that whereas at one 529 00:27:09,119 --> 00:27:13,800 Speaker 1: point a sort of inflation first perspective may have led 530 00:27:13,840 --> 00:27:18,560 Speaker 1: people down a sort of more hawkish policy path that 531 00:27:18,680 --> 00:27:22,080 Speaker 1: over the last several years, actually taking the inflation mandate 532 00:27:22,119 --> 00:27:25,800 Speaker 1: seriously and taking seriously the idea of hitting the goal 533 00:27:26,880 --> 00:27:29,760 Speaker 1: is the path towards would in theory have led to 534 00:27:30,400 --> 00:27:34,040 Speaker 1: more devish policy, more accommodative either or more accommodative approach. 535 00:27:35,359 --> 00:27:37,159 Speaker 1: I think that's right. I think, you know. Another part 536 00:27:37,200 --> 00:27:39,400 Speaker 1: of it, to the paper kind of suggests is that 537 00:27:39,600 --> 00:27:41,560 Speaker 1: right after the crisis, you know, we had this big 538 00:27:41,600 --> 00:27:43,480 Speaker 1: shock and nobody there was a lot of debate about 539 00:27:43,480 --> 00:27:46,480 Speaker 1: where we really were the business cycle and if the 540 00:27:46,480 --> 00:27:49,280 Speaker 1: stars had changed, and if you've kind of been a 541 00:27:49,280 --> 00:27:51,360 Speaker 1: little bit actually per personally, if you've been a bit 542 00:27:51,400 --> 00:27:54,080 Speaker 1: more model dependent, which is another sort of perhaps anathema 543 00:27:54,200 --> 00:27:55,719 Speaker 1: to a lot of heterodox people. But if you've been 544 00:27:55,720 --> 00:27:59,440 Speaker 1: more model dependent, the models actually are all very uniformly 545 00:27:59,440 --> 00:28:01,919 Speaker 1: revised down. The estimates of our star and potential growth, 546 00:28:02,240 --> 00:28:05,520 Speaker 1: you know, basically two Q one, all of these things 547 00:28:05,520 --> 00:28:08,000 Speaker 1: fall pretty dramatically. The kind of the irony is that 548 00:28:08,040 --> 00:28:10,040 Speaker 1: a lot of the intuitions we'd all developed, and not 549 00:28:10,119 --> 00:28:11,719 Speaker 1: we I was in college, that's done, but a lot 550 00:28:11,720 --> 00:28:14,080 Speaker 1: of intuitions that have been developed over the previous ten 551 00:28:14,160 --> 00:28:18,119 Speaker 1: or twenty years ended up actually betraying forecasters and policymakers 552 00:28:19,040 --> 00:28:21,280 Speaker 1: precisely because they were sort of looking back at a 553 00:28:21,320 --> 00:28:23,119 Speaker 1: period that it was structurally different from the one they 554 00:28:23,119 --> 00:28:24,800 Speaker 1: were now in. But it was hard to recognize it 555 00:28:24,840 --> 00:28:26,840 Speaker 1: unless you just said, we've got two quarters of data, 556 00:28:27,200 --> 00:28:30,159 Speaker 1: I'm gonna trust the model, which you know, you know 557 00:28:30,280 --> 00:28:32,800 Speaker 1: it's hard to do, but I think it's actually one 558 00:28:32,840 --> 00:28:34,600 Speaker 1: of these interesting insights as well. It's not just that 559 00:28:34,680 --> 00:28:37,160 Speaker 1: the inflation mandate became a dobsh thing after so long 560 00:28:37,200 --> 00:28:40,080 Speaker 1: of being hawkish, but then also a lot of models 561 00:28:40,120 --> 00:28:43,280 Speaker 1: that people perhaps had expected to the similar results from 562 00:28:43,280 --> 00:28:45,600 Speaker 1: all of a sudden became the model out but suggested 563 00:28:45,600 --> 00:28:47,720 Speaker 1: we need to really double Dovish policy as well, and 564 00:28:47,720 --> 00:28:51,680 Speaker 1: then sort of policymakers and forecasts forecasters catch up to 565 00:28:51,760 --> 00:28:56,160 Speaker 1: that by called fifteen giver takes. It's an interesting that 566 00:28:56,200 --> 00:28:58,280 Speaker 1: it happens in sort of both sort of them all side, 567 00:28:58,320 --> 00:29:01,520 Speaker 1: but also on the inflation side. So I had a 568 00:29:01,600 --> 00:29:04,920 Speaker 1: sort of geeky question. But one of the things that's 569 00:29:04,960 --> 00:29:07,960 Speaker 1: come up this summer, especially as we sort of watch 570 00:29:08,320 --> 00:29:11,880 Speaker 1: the coronavirus crisis unfold and its impact on the economy, 571 00:29:12,160 --> 00:29:16,080 Speaker 1: is everyone is laser focused on data, and people are 572 00:29:16,120 --> 00:29:19,480 Speaker 1: watching all sorts of different types of data to kind 573 00:29:19,520 --> 00:29:23,080 Speaker 1: of gauge the health of the consumer. I was wondering 574 00:29:23,120 --> 00:29:29,360 Speaker 1: in your model, you're trying essentially to estimate SLACK in 575 00:29:29,480 --> 00:29:34,080 Speaker 1: real time. Could you do that with alternative data? And 576 00:29:34,160 --> 00:29:36,880 Speaker 1: you know, what would that actually look like and how 577 00:29:37,000 --> 00:29:39,960 Speaker 1: much do you think it might change the outcome? You know, 578 00:29:40,000 --> 00:29:41,680 Speaker 1: it's the interesting part about the kind of the COVID 579 00:29:41,800 --> 00:29:45,440 Speaker 1: shock as it hits. It's obviously it's like historically unprecedentably 580 00:29:45,520 --> 00:29:48,880 Speaker 1: bad GDP print in Q two, but if you actually 581 00:29:48,920 --> 00:29:50,800 Speaker 1: kind of look about sort of the normal relationships between 582 00:29:50,840 --> 00:29:53,920 Speaker 1: GDP and unemployment. The unemployment hit is probably much worse 583 00:29:54,080 --> 00:29:57,000 Speaker 1: as sort of an outlier since than as the GDP 584 00:29:57,120 --> 00:30:00,000 Speaker 1: one UM. So it's kind of it's an interesting point 585 00:30:00,160 --> 00:30:01,760 Speaker 1: because it looks like a lot of these kind of 586 00:30:01,800 --> 00:30:05,280 Speaker 1: normal relationships, I don't want to say breakdown during COVID, 587 00:30:05,600 --> 00:30:08,240 Speaker 1: but they certainly become a lot noisier. Um. So it's 588 00:30:08,240 --> 00:30:11,120 Speaker 1: like alternative data has been very helpful, you know, for 589 00:30:11,200 --> 00:30:13,160 Speaker 1: us trying to do forecast and trying to understand where 590 00:30:13,160 --> 00:30:15,840 Speaker 1: the economy is a given moment. You know, Formally incorporating 591 00:30:15,920 --> 00:30:18,120 Speaker 1: that sort of alternative data into what is already a 592 00:30:18,160 --> 00:30:21,720 Speaker 1: pretty big and complicated model becomes more challenging because a 593 00:30:21,720 --> 00:30:23,720 Speaker 1: lot of the problem with these alternative data sets, and 594 00:30:23,760 --> 00:30:25,920 Speaker 1: I think it's true in the financial industry, it's true, 595 00:30:25,960 --> 00:30:28,080 Speaker 1: and lots of parts of economics too, is you know, 596 00:30:28,320 --> 00:30:30,880 Speaker 1: they don't really have very long time histories, and so 597 00:30:30,880 --> 00:30:32,680 Speaker 1: you can sort of try and constrain them to look 598 00:30:32,680 --> 00:30:35,840 Speaker 1: like the series, you know, but you also just made 599 00:30:35,880 --> 00:30:37,200 Speaker 1: up getting to a point where like you're trying to 600 00:30:37,200 --> 00:30:38,600 Speaker 1: add in these new series, but you only have like 601 00:30:38,640 --> 00:30:40,680 Speaker 1: six months of data or you know, like a year 602 00:30:40,680 --> 00:30:44,600 Speaker 1: of data. It's always publicly available and it becomes quite challenge. 603 00:30:44,640 --> 00:30:46,480 Speaker 1: We've been trying to you know, think about that in 604 00:30:46,640 --> 00:30:48,920 Speaker 1: terms of you know, you know, sort of monthly GDP 605 00:30:49,080 --> 00:30:50,880 Speaker 1: estimates and other things that we can sort of use 606 00:30:50,960 --> 00:30:54,840 Speaker 1: to help your sort of now casts right now. Um, 607 00:30:54,880 --> 00:30:57,920 Speaker 1: but it isn't necessarily obvious that adding in all these 608 00:30:57,960 --> 00:31:01,360 Speaker 1: alternative data indicators is necessary really good from a formal sense, 609 00:31:01,520 --> 00:31:04,600 Speaker 1: so much as you have a model, you have all 610 00:31:04,640 --> 00:31:07,520 Speaker 1: this new, interesting, novel data, and you should gut check 611 00:31:07,560 --> 00:31:10,000 Speaker 1: the models outputs on all of this other stuff you 612 00:31:10,040 --> 00:31:12,520 Speaker 1: can look at, but maybe formally incorporating it because of 613 00:31:12,680 --> 00:31:15,440 Speaker 1: you know, statistical stuies and everything else is a bit 614 00:31:15,440 --> 00:31:18,320 Speaker 1: more of a challenge. I think that's probably a place 615 00:31:18,360 --> 00:31:21,560 Speaker 1: where most sort of economists and policy makers been right out. 616 00:31:21,640 --> 00:31:24,560 Speaker 1: This data is very useful, novel, really interesting to play 617 00:31:24,560 --> 00:31:27,880 Speaker 1: around with, very helpful and understanding who in the economy 618 00:31:27,920 --> 00:31:31,560 Speaker 1: has been affected by COVID, But it doesn't necessarily you know, 619 00:31:31,600 --> 00:31:34,240 Speaker 1: have a a lot of bearing on a formal modeling sense, 620 00:31:34,440 --> 00:31:37,200 Speaker 1: just because the data is new and novel, and you know, 621 00:31:37,520 --> 00:31:39,880 Speaker 1: in general you kind of like longer data sets. It's 622 00:31:39,960 --> 00:31:42,920 Speaker 1: it's a bit of a it's been a very tricky 623 00:31:43,880 --> 00:31:46,160 Speaker 1: you know, try challenge trying to map between the two 624 00:31:46,200 --> 00:31:48,400 Speaker 1: sort of novel data and more like kind of classic 625 00:31:48,520 --> 00:31:52,920 Speaker 1: macro variables. I wanna go back to you know, you're 626 00:31:52,920 --> 00:31:56,400 Speaker 1: talking about the sort of generational divides and this is 627 00:31:56,480 --> 00:31:58,320 Speaker 1: this is the recurring theme. It was in the power 628 00:31:58,440 --> 00:32:02,880 Speaker 1: of speeches, this idea of you know, we see pay 629 00:32:02,920 --> 00:32:07,520 Speaker 1: more attention to financial conditions. Um uh, the sort of 630 00:32:07,560 --> 00:32:11,080 Speaker 1: way if we focus on inflation that would have at 631 00:32:11,120 --> 00:32:14,720 Speaker 1: one point that might have inclined policy makers to take 632 00:32:14,720 --> 00:32:18,000 Speaker 1: a more hawkish path, now more devish one. But I 633 00:32:18,160 --> 00:32:20,640 Speaker 1: still don't think I have a sense of like what change, 634 00:32:21,200 --> 00:32:24,400 Speaker 1: Like why what is the theory by which some of 635 00:32:24,440 --> 00:32:29,719 Speaker 1: these sort of like old workhorse approaches suddenly didn't seem 636 00:32:29,760 --> 00:32:34,600 Speaker 1: to work anymore? That's something fundamental about the economy? Ah, 637 00:32:34,800 --> 00:32:40,160 Speaker 1: is there something different? So I think the answer is yes, 638 00:32:40,200 --> 00:32:42,840 Speaker 1: I don't necessarily have as developed an answer for what 639 00:32:43,240 --> 00:32:44,640 Speaker 1: the things that I mean. I can tell you the 640 00:32:44,640 --> 00:32:46,600 Speaker 1: stars that change, but not like the real sort of 641 00:32:46,720 --> 00:32:50,800 Speaker 1: fundamental underlying driving things that changed. You know, It's an 642 00:32:50,840 --> 00:32:54,160 Speaker 1: interesting problem in economics because if you sort of take 643 00:32:54,160 --> 00:32:56,320 Speaker 1: off like the classic sort of equations and you go 644 00:32:56,360 --> 00:32:59,280 Speaker 1: back and estimate them like the sixties and seventies, a 645 00:32:59,280 --> 00:33:02,000 Speaker 1: lot of times you get very good relationships, Like the 646 00:33:02,000 --> 00:33:05,200 Speaker 1: parameters are pretty different from zero, they're very statistically significant, 647 00:33:05,240 --> 00:33:07,840 Speaker 1: and like if you just roll those estimates forward, they 648 00:33:07,880 --> 00:33:11,160 Speaker 1: just become progressively less significant over time. Um, this you know, 649 00:33:11,160 --> 00:33:14,280 Speaker 1: effects our ability to actually make models, but it also 650 00:33:14,320 --> 00:33:16,200 Speaker 1: affects your ability to sort of know that what the 651 00:33:16,240 --> 00:33:18,040 Speaker 1: model is saying is useful. So that's one reason in 652 00:33:18,080 --> 00:33:19,959 Speaker 1: our paper we just add a lot more data than 653 00:33:20,000 --> 00:33:22,280 Speaker 1: most other modeling approaches, because we figure if we have 654 00:33:22,280 --> 00:33:24,640 Speaker 1: like more data, things are easy to pin down. And 655 00:33:24,840 --> 00:33:27,400 Speaker 1: really speaking, I think part of it is that maybe, 656 00:33:27,680 --> 00:33:30,880 Speaker 1: you know, the economy is more forward looking. There's perhaps 657 00:33:30,920 --> 00:33:33,600 Speaker 1: some of it is that there's more you know, higher 658 00:33:33,640 --> 00:33:38,360 Speaker 1: debtloads so everyone can pays more interest interest rates. You know, 659 00:33:38,400 --> 00:33:41,560 Speaker 1: it's it's not necessarily obvious to me what these sort 660 00:33:41,560 --> 00:33:43,360 Speaker 1: of like underlying changes really have been. That it sort 661 00:33:43,400 --> 00:33:46,240 Speaker 1: of makes it's like all the coefficients and all these models, 662 00:33:46,240 --> 00:33:48,120 Speaker 1: it kind of looks like everything just been squashed towards 663 00:33:48,160 --> 00:33:50,600 Speaker 1: having no effect. Like they don't have no effect anymore, 664 00:33:50,840 --> 00:33:52,760 Speaker 1: but they have much smaller effects than they used to. 665 00:33:54,200 --> 00:33:56,240 Speaker 1: You know, it's we don't have a good answer, Joe. 666 00:33:56,400 --> 00:33:58,360 Speaker 1: I mean it's I think if if somebody had a 667 00:33:58,560 --> 00:34:01,080 Speaker 1: particularly good answer for what's sort of driven this change 668 00:34:01,080 --> 00:34:05,480 Speaker 1: over time, that person deserves a much higher sort of 669 00:34:05,480 --> 00:34:07,400 Speaker 1: like pay grade and probably a noble prize. But at 670 00:34:07,400 --> 00:34:10,120 Speaker 1: the moment it's kind of the big open area that econ. 671 00:34:10,320 --> 00:34:12,120 Speaker 1: I don't really see particularly good answers. You know, you 672 00:34:12,120 --> 00:34:14,959 Speaker 1: can do all sorts of like fancy statistical techniques maybe 673 00:34:14,960 --> 00:34:16,719 Speaker 1: like well, actually the coefficients that we do, like these 674 00:34:16,760 --> 00:34:18,839 Speaker 1: seven other things kind of recovering are about the same, 675 00:34:18,880 --> 00:34:21,719 Speaker 1: but it's not quite as satisfying as like saying the 676 00:34:21,719 --> 00:34:23,560 Speaker 1: effect is the same. And so maybe it's just that, 677 00:34:23,800 --> 00:34:26,640 Speaker 1: you know, the the past thoris have changed and it's 678 00:34:26,840 --> 00:34:29,600 Speaker 1: you know, we don't really have particularly good theories of 679 00:34:29,640 --> 00:34:33,000 Speaker 1: expectation formation or sort of how people relate, you know, 680 00:34:33,000 --> 00:34:35,759 Speaker 1: how people's expectations if their behavior and given moment and 681 00:34:35,800 --> 00:34:38,400 Speaker 1: sort of you know, maybe people are more forward looking 682 00:34:38,400 --> 00:34:40,759 Speaker 1: now and that means the models kind of have more 683 00:34:40,800 --> 00:34:42,920 Speaker 1: squashed effects because all of the sort of channels we 684 00:34:43,000 --> 00:34:45,719 Speaker 1: used to think of as like direct behavioral effects are 685 00:34:45,719 --> 00:34:51,440 Speaker 1: now expectations issues. It's hard to say. So I have 686 00:34:51,480 --> 00:34:55,520 Speaker 1: a related question, but you know, if if our store 687 00:34:55,920 --> 00:34:58,840 Speaker 1: is really lower or lower than a lot of people 688 00:34:59,160 --> 00:35:03,960 Speaker 1: have anticipated in recent years, what what are the economic 689 00:35:04,040 --> 00:35:10,480 Speaker 1: conditions that would actually force our star up. So classically 690 00:35:10,560 --> 00:35:12,360 Speaker 1: you would have said an increase in the rate of 691 00:35:12,360 --> 00:35:14,960 Speaker 1: potential growth was sort of one of the main drivers 692 00:35:15,080 --> 00:35:17,719 Speaker 1: of the neutral rate of interest. I'm a little less 693 00:35:17,719 --> 00:35:21,080 Speaker 1: sure about that read on the data. Um you know, 694 00:35:21,120 --> 00:35:23,839 Speaker 1: since the christ even since two thousand, potential growth has 695 00:35:23,880 --> 00:35:26,040 Speaker 1: fallen some our star has fallen by a lot more, 696 00:35:26,040 --> 00:35:27,680 Speaker 1: which would have means that, like the other factors that 697 00:35:27,719 --> 00:35:30,080 Speaker 1: have driven our star the last twenty years kind of dominated, 698 00:35:31,200 --> 00:35:33,480 Speaker 1: you know, part of it maybe just that demographic you know, 699 00:35:33,800 --> 00:35:35,960 Speaker 1: you can't really get around demographic features in the short 700 00:35:36,280 --> 00:35:38,520 Speaker 1: only sort of like relevant policy making horizon, and so 701 00:35:38,560 --> 00:35:41,080 Speaker 1: part of it just maybe with an aging economy and 702 00:35:41,160 --> 00:35:45,440 Speaker 1: sort of higher quote like higher net financial assets that 703 00:35:45,520 --> 00:35:47,560 Speaker 1: leads to lower interest rates because people are like there's 704 00:35:47,600 --> 00:35:50,840 Speaker 1: more saving. Effectively, um inequality could also have an effect 705 00:35:50,840 --> 00:35:53,440 Speaker 1: there as well. That's sort of like a classic kind 706 00:35:53,440 --> 00:35:56,560 Speaker 1: of more not a classic response these it's more than 707 00:35:56,760 --> 00:35:58,960 Speaker 1: a novel response that has become very popular. I think 708 00:35:58,960 --> 00:36:01,640 Speaker 1: that's sort of like in or sort of unequal states 709 00:36:01,680 --> 00:36:04,360 Speaker 1: of the world. You know, rich people spend less of 710 00:36:04,400 --> 00:36:06,959 Speaker 1: their money, therefore they save more, So interest rates fault 711 00:36:06,960 --> 00:36:09,600 Speaker 1: because there's more saving and relatively less investment. That's maybe 712 00:36:09,640 --> 00:36:11,880 Speaker 1: part of it. So you know, perhaps a decrease in 713 00:36:11,880 --> 00:36:14,799 Speaker 1: inequality would raise our star. Um, there's some other more 714 00:36:14,840 --> 00:36:18,000 Speaker 1: interesting theory instead of just that both like our star 715 00:36:18,120 --> 00:36:19,960 Speaker 1: and like the equity risk premium or sort of other 716 00:36:20,000 --> 00:36:21,960 Speaker 1: measures of risk in the economy are kind of connected. 717 00:36:22,000 --> 00:36:25,680 Speaker 1: So like because we've had following rates of potential growth, 718 00:36:25,680 --> 00:36:27,720 Speaker 1: but it seems like the economy has become more risky 719 00:36:27,760 --> 00:36:30,680 Speaker 1: at the same time. That sort of decreased our star, 720 00:36:30,719 --> 00:36:33,319 Speaker 1: but it's kind of raised the equity risk premium. Maybe 721 00:36:33,320 --> 00:36:35,680 Speaker 1: the equity risk channel might be challenged a bit in 722 00:36:35,800 --> 00:36:37,719 Speaker 1: sort of post COVID shock right now. But I think 723 00:36:37,719 --> 00:36:39,600 Speaker 1: generally that those sorts of theories as well, that sort 724 00:36:39,600 --> 00:36:42,960 Speaker 1: of risk behavior and people's risk preferences have both effects 725 00:36:43,040 --> 00:36:45,719 Speaker 1: on our star and the equity risk premium. Kind of 726 00:36:45,760 --> 00:36:48,240 Speaker 1: nice because they sort of tie in, you know, asset 727 00:36:48,280 --> 00:36:51,200 Speaker 1: markets policy and GDP growth and sort of like the 728 00:36:51,200 --> 00:36:55,200 Speaker 1: classic real economy. But it's you know, I'm not sure 729 00:36:55,200 --> 00:36:57,640 Speaker 1: that you could give me a policy that it would 730 00:36:57,640 --> 00:36:59,920 Speaker 1: tell me with a certainty, I would say, yes, that 731 00:37:00,000 --> 00:37:02,160 Speaker 1: will raise our star. It's kind of the honest answers. 732 00:37:02,200 --> 00:37:03,400 Speaker 1: I think a lot of it has to just be, 733 00:37:04,600 --> 00:37:07,400 Speaker 1: you know, hoping for sut a structural reform, even the 734 00:37:07,480 --> 00:37:10,640 Speaker 1: US economies doing relatively welcome to go a lot of 735 00:37:10,640 --> 00:37:12,719 Speaker 1: its other peers. But you know, we can always think 736 00:37:12,719 --> 00:37:14,520 Speaker 1: we can all think of sort of plenty of structural 737 00:37:14,520 --> 00:37:16,239 Speaker 1: issues in the US that could use a bit more 738 00:37:16,480 --> 00:37:19,480 Speaker 1: support or policy changes that might help growth, and he 739 00:37:19,520 --> 00:37:21,439 Speaker 1: sort of help that everything that helps growth will also 740 00:37:21,520 --> 00:37:24,160 Speaker 1: sort of bring up interest rates as well, but it's 741 00:37:24,160 --> 00:37:27,879 Speaker 1: not guaranteed. I want to ask another question that's sort 742 00:37:27,880 --> 00:37:30,920 Speaker 1: of what I would characterize is the sort of heterodox 743 00:37:31,040 --> 00:37:33,720 Speaker 1: critique of all this. And so I sort of already 744 00:37:33,880 --> 00:37:38,040 Speaker 1: you know, already talked about are these staries even worth finding? 745 00:37:38,080 --> 00:37:40,560 Speaker 1: But there's another thing that I think maybe even deeper 746 00:37:40,680 --> 00:37:43,480 Speaker 1: sort of proceeds that logic, which is that a lot 747 00:37:43,520 --> 00:37:47,319 Speaker 1: of heterodox economists would say that within this sort of 748 00:37:47,400 --> 00:37:53,719 Speaker 1: more traditional mainstream approach, that there are certain embedded ideologies 749 00:37:54,200 --> 00:37:57,600 Speaker 1: that you know, you look at a paper, and I 750 00:37:57,640 --> 00:37:59,520 Speaker 1: looked at your paper, but you know, it's all a 751 00:38:00,280 --> 00:38:03,440 Speaker 1: sort of a lot of papers that's like, Okay, you 752 00:38:03,480 --> 00:38:05,719 Speaker 1: have your abstract in the beginning and which I could 753 00:38:05,760 --> 00:38:08,040 Speaker 1: read things in plain English, and then a bunch of 754 00:38:08,040 --> 00:38:10,520 Speaker 1: equations that I gloss over because I don't understand that, 755 00:38:10,600 --> 00:38:13,640 Speaker 1: and then I like read the conclusion and their argument 756 00:38:14,080 --> 00:38:17,840 Speaker 1: might be, or would be, that within those equations that 757 00:38:17,920 --> 00:38:20,000 Speaker 1: what appears to be science or what appears to be 758 00:38:20,080 --> 00:38:24,600 Speaker 1: math is a certain ideology about a being anti too 759 00:38:24,680 --> 00:38:30,640 Speaker 1: much government spending and anti distorting the economy ideology that 760 00:38:31,040 --> 00:38:34,200 Speaker 1: there is such thing as too much employment and that 761 00:38:34,239 --> 00:38:38,080 Speaker 1: there is such thing as too much uh this implicit 762 00:38:38,120 --> 00:38:40,600 Speaker 1: idea that maybe it's dangerous if there's if we get 763 00:38:40,600 --> 00:38:43,880 Speaker 1: too much full employment and so forth. And I'm curious, 764 00:38:43,920 --> 00:38:45,600 Speaker 1: like what you make of that because I never have 765 00:38:45,680 --> 00:38:49,279 Speaker 1: done academic uh econ. I just learned about it from 766 00:38:49,280 --> 00:38:52,480 Speaker 1: talking to folks like you. But in your view, what 767 00:38:52,560 --> 00:38:55,120 Speaker 1: do you make of that critique that there is sort 768 00:38:55,120 --> 00:38:59,800 Speaker 1: of a sort of anti government spending, anti labor um 769 00:38:59,840 --> 00:39:02,759 Speaker 1: i I geology embedded in this, which then translates into 770 00:39:02,760 --> 00:39:05,919 Speaker 1: actual policies of raising the interest rate too soon even 771 00:39:05,920 --> 00:39:09,600 Speaker 1: though we're not at full employment, or raising interest rates 772 00:39:09,640 --> 00:39:12,080 Speaker 1: in response to stimulus to sort of blunt the effect 773 00:39:12,080 --> 00:39:15,719 Speaker 1: of uh fiscal policy, and that basically what appears to 774 00:39:15,760 --> 00:39:20,359 Speaker 1: be science and math is really uh sort of politics. Yeah, 775 00:39:20,360 --> 00:39:23,799 Speaker 1: I'm a little skeptical of the it's all actually, you know, 776 00:39:23,800 --> 00:39:26,440 Speaker 1: economists have the sort of deep seated kind of conservative 777 00:39:26,480 --> 00:39:29,239 Speaker 1: bias kind of view of the world. I mean, I 778 00:39:29,280 --> 00:39:32,240 Speaker 1: am one, and I don't necessarily think of myself particularly conservatives. 779 00:39:32,280 --> 00:39:34,880 Speaker 1: I think that's there's that, But also I think more generally, 780 00:39:35,680 --> 00:39:37,440 Speaker 1: when I was sort of approaching this paper, and I 781 00:39:37,480 --> 00:39:39,680 Speaker 1: think we're all like I think a lot of heterodox 782 00:39:39,800 --> 00:39:42,960 Speaker 1: people think about maybe sort of like the classic theories 783 00:39:43,160 --> 00:39:45,440 Speaker 1: of the like the sixties and seventies, with like perfect 784 00:39:45,440 --> 00:39:48,120 Speaker 1: markets everything is in equilibrium all the time. And I 785 00:39:48,239 --> 00:39:51,360 Speaker 1: sort of still assume that everything that's been written since 786 00:39:51,800 --> 00:39:53,800 Speaker 1: by like people in the mainstream still sort of flows 787 00:39:53,800 --> 00:39:55,839 Speaker 1: from that same sort of set of set of assumptions. 788 00:39:55,880 --> 00:39:57,000 Speaker 1: But I think, you know, when you look around it 789 00:39:57,960 --> 00:39:59,919 Speaker 1: kind of cutting edge e con intoat of any field, 790 00:40:00,000 --> 00:40:02,160 Speaker 1: it's almost you know, whether it's you know, macro, it 791 00:40:02,280 --> 00:40:04,920 Speaker 1: is like subset of micro it doesn't really make those 792 00:40:04,920 --> 00:40:06,680 Speaker 1: sorts of assumptions anymore. A lot of times it's like 793 00:40:06,719 --> 00:40:09,480 Speaker 1: asking very very detailed and specific questions, you know, how 794 00:40:09,520 --> 00:40:12,759 Speaker 1: do we get the best policy interventions, you know, given 795 00:40:12,800 --> 00:40:15,080 Speaker 1: that there are constraints to real resources, or you know, 796 00:40:15,160 --> 00:40:18,040 Speaker 1: perhaps yes, perhaps even assuming that there are constraints to 797 00:40:18,040 --> 00:40:21,080 Speaker 1: the government's ability to spend um. Heterodoxic people might do 798 00:40:21,120 --> 00:40:24,200 Speaker 1: that as like, you know, a very dramatic take. But 799 00:40:24,640 --> 00:40:26,279 Speaker 1: you know, in one sense, I kind of understand the 800 00:40:26,560 --> 00:40:29,680 Speaker 1: mechanical logics and them m T argument, but well probably 801 00:40:29,920 --> 00:40:32,200 Speaker 1: you know, I don't think there's really conservative bias. And 802 00:40:32,280 --> 00:40:35,440 Speaker 1: when I look at this paper, I see ptistical relationships 803 00:40:35,440 --> 00:40:38,400 Speaker 1: between data and like a point of two percent inflation 804 00:40:38,440 --> 00:40:39,719 Speaker 1: that the FETT has kind of tould us it wants 805 00:40:39,760 --> 00:40:41,200 Speaker 1: to hit over the long run, and then everything else 806 00:40:41,280 --> 00:40:43,799 Speaker 1: kind of revolves around. So you know, if there's a deep, 807 00:40:44,400 --> 00:40:48,360 Speaker 1: you know, intellectual bias inside of us, you know, it's uh, 808 00:40:48,719 --> 00:40:50,959 Speaker 1: you know, my my coauthins and I weren't particularly aware 809 00:40:50,960 --> 00:40:53,440 Speaker 1: of it. Maybe it's still there, but it doesn't really 810 00:40:53,440 --> 00:40:55,279 Speaker 1: sprend me as right. I think, you know, the errors 811 00:40:55,320 --> 00:40:59,040 Speaker 1: that were made before the crisis and regulatory policy or 812 00:40:59,080 --> 00:41:02,720 Speaker 1: after the crisis in terms of understanding how monetary policy involved, 813 00:41:02,760 --> 00:41:05,440 Speaker 1: like you know, a lot of it's just inertial behavior. 814 00:41:05,560 --> 00:41:08,120 Speaker 1: We you know, we read something, we think it's great, persuasive, 815 00:41:08,320 --> 00:41:11,239 Speaker 1: we sort of anchor to it. Our behavior sort of 816 00:41:11,280 --> 00:41:13,640 Speaker 1: adapts pretty slowly under normal times, and maybe after a 817 00:41:13,680 --> 00:41:16,400 Speaker 1: big shock it adapts a little bit faster, but it's still, 818 00:41:17,000 --> 00:41:19,200 Speaker 1: you know, our own sort of built up wisdom is there. 819 00:41:19,280 --> 00:41:21,560 Speaker 1: And I guess, you know, maybe that is an aspect 820 00:41:21,600 --> 00:41:24,400 Speaker 1: that they're critiquing. But the problem is that, in the end, 821 00:41:24,560 --> 00:41:27,520 Speaker 1: you know, policy making decisions are made by relatively small 822 00:41:27,560 --> 00:41:30,560 Speaker 1: groups of people, and you know, if they were just 823 00:41:30,600 --> 00:41:33,520 Speaker 1: continuously bombarded by seven hundred different papers trying to explain 824 00:41:33,560 --> 00:41:36,800 Speaker 1: everything in the world with an infinite number of approaches, 825 00:41:37,000 --> 00:41:39,279 Speaker 1: you can never make a decision. And so I think 826 00:41:39,440 --> 00:41:43,719 Speaker 1: the policymakers kind of need is under you know, reasonably 827 00:41:43,920 --> 00:41:47,319 Speaker 1: built and developed papers that are approached, modeling approaches that 828 00:41:47,440 --> 00:41:50,120 Speaker 1: are taken to account conditions in the real world, make 829 00:41:50,200 --> 00:41:53,160 Speaker 1: reasonable set of assumptions about the real world, and then 830 00:41:53,160 --> 00:41:55,360 Speaker 1: hopefully we do get policy outcomes. But I think, you know, 831 00:41:55,440 --> 00:41:57,440 Speaker 1: the notion that there's kind of like a dark force 832 00:41:57,520 --> 00:42:00,799 Speaker 1: driving everything, maybe it's self interested to sort of think that, 833 00:42:00,880 --> 00:42:03,400 Speaker 1: But you know, I've always been a little skeptic just 834 00:42:03,560 --> 00:42:05,839 Speaker 1: on that note. I mean We've been talking a lot 835 00:42:05,920 --> 00:42:09,520 Speaker 1: on all thoughts about this idea of a handoff from 836 00:42:09,600 --> 00:42:15,520 Speaker 1: monetary policy to fiscal policy. Is the suggestion from the 837 00:42:15,680 --> 00:42:18,960 Speaker 1: stars discussion um and and the idea that you know, 838 00:42:19,520 --> 00:42:22,080 Speaker 1: if we get the stars right, we can actually calibrate 839 00:42:22,120 --> 00:42:27,000 Speaker 1: monetary policy correctly. Is the implication that monetary policy, you know, 840 00:42:27,280 --> 00:42:35,680 Speaker 1: isn't um completely useless and can actually generate growth and inflation. Well, 841 00:42:35,920 --> 00:42:39,800 Speaker 1: I remain fully confident that monetary policy will continuously generate 842 00:42:39,840 --> 00:42:43,880 Speaker 1: complaints by almost everyone across the IDEO. But now I 843 00:42:43,880 --> 00:42:46,280 Speaker 1: think that's you know, going forward. I think the FEDS 844 00:42:46,320 --> 00:42:49,600 Speaker 1: Framework reviews sort of suggests an approach which is consistent 845 00:42:49,640 --> 00:42:52,200 Speaker 1: with you know, these sorts of model based testaments. And 846 00:42:52,239 --> 00:42:53,960 Speaker 1: I think you know a lot of people see action 847 00:42:54,239 --> 00:42:56,839 Speaker 1: as being useful, and you know, the FED, I'm sure 848 00:42:56,840 --> 00:42:59,319 Speaker 1: it's having some internal debates about you know, what more 849 00:42:59,320 --> 00:43:01,920 Speaker 1: policy actions they could do. What are the rest policy actions, 850 00:43:01,960 --> 00:43:04,239 Speaker 1: the best policy actions kind of just sitting there and 851 00:43:04,280 --> 00:43:06,759 Speaker 1: you know, letting their new approach and take time, but 852 00:43:06,800 --> 00:43:10,040 Speaker 1: like lower for longer the interest rate policies, which of 853 00:43:10,160 --> 00:43:12,680 Speaker 1: our paper, thanks you can have been natural conclusion of 854 00:43:12,719 --> 00:43:15,360 Speaker 1: a lot of this like that is still a policy stands. 855 00:43:15,360 --> 00:43:18,479 Speaker 1: It's not maybe not necessarily one that people love, given 856 00:43:18,520 --> 00:43:21,200 Speaker 1: the nature of it is slow, inertial, and non dramatic. 857 00:43:21,680 --> 00:43:22,920 Speaker 1: But that's sort of what comes out of the model 858 00:43:22,920 --> 00:43:25,200 Speaker 1: is that if you have to zero lower bound, we think, 859 00:43:25,280 --> 00:43:27,479 Speaker 1: you know, negative interest rates are like usible in the US, 860 00:43:28,440 --> 00:43:30,799 Speaker 1: then the best policy stances to be as supportive as 861 00:43:30,800 --> 00:43:34,040 Speaker 1: you can be. We're kind of as long as you know, 862 00:43:34,160 --> 00:43:36,600 Speaker 1: until inflation is sustainably at two per cent or you know, 863 00:43:36,640 --> 00:43:38,200 Speaker 1: slightly over it, so you can sort of maintain the 864 00:43:38,200 --> 00:43:40,880 Speaker 1: two percent average. You know, it's not like a policy 865 00:43:40,920 --> 00:43:43,239 Speaker 1: regime that I think people get excited about because it 866 00:43:43,239 --> 00:43:45,360 Speaker 1: means the policy is going to be quite low, like 867 00:43:45,600 --> 00:43:49,320 Speaker 1: inertial and stable. But I think that's the policy regime 868 00:43:49,360 --> 00:43:52,440 Speaker 1: which is helpful and meet you know, using the interest 869 00:43:52,520 --> 00:43:55,120 Speaker 1: rate policy instrument as the way to try and achieve 870 00:43:55,160 --> 00:43:58,200 Speaker 1: two percent inflation and maximum employment. You know, that seems 871 00:43:58,200 --> 00:44:00,279 Speaker 1: pretty reasonable and it just kind of ties back into 872 00:44:00,360 --> 00:44:02,960 Speaker 1: your question minute you go on the heterodox side, Joe, 873 00:44:03,680 --> 00:44:05,400 Speaker 1: if we think there's like some amount of like transitional 874 00:44:05,480 --> 00:44:07,960 Speaker 1: unemployment or an even a point like a three point 875 00:44:08,040 --> 00:44:10,800 Speaker 1: nine percent or four percent and a long run unemployment target, 876 00:44:11,600 --> 00:44:14,520 Speaker 1: it's only slightly above like the frictional unemployment, Like that's 877 00:44:14,520 --> 00:44:17,880 Speaker 1: pretty close to maximum employment. And so I think it's 878 00:44:17,920 --> 00:44:20,120 Speaker 1: like it's interesting that some of those heterodox fritiques that 879 00:44:20,160 --> 00:44:23,319 Speaker 1: it would have been made about. You know, economists, you're 880 00:44:23,400 --> 00:44:26,080 Speaker 1: always trying to sort of h one higher employment to 881 00:44:26,160 --> 00:44:28,920 Speaker 1: keep inflation stable, like you know, four percent unemployment is 882 00:44:29,120 --> 00:44:31,560 Speaker 1: very few people being unemployed on anything more than sort 883 00:44:31,560 --> 00:44:37,520 Speaker 1: of a very transitional basis. Peter, Uh, that was really 884 00:44:37,560 --> 00:44:41,680 Speaker 1: really amazing. Um, thank you so much for simultaneously going 885 00:44:41,800 --> 00:44:45,360 Speaker 1: into you know, great academic depth but also making everything 886 00:44:45,360 --> 00:44:48,600 Speaker 1: really understandable. Thanks so much, and thank you for defending 887 00:44:48,640 --> 00:44:54,239 Speaker 1: the entire economics profession. Someone had to come on lots 888 00:44:54,239 --> 00:44:56,799 Speaker 1: and do it. Joe, all right, that was great for Peter, 889 00:44:56,880 --> 00:45:20,840 Speaker 1: Thank you so much. Thank you all so, Joe. I 890 00:45:20,840 --> 00:45:23,000 Speaker 1: I really enjoyed that discussion. I'm trying to think of 891 00:45:23,040 --> 00:45:26,440 Speaker 1: a way to sum it all up because it was 892 00:45:26,480 --> 00:45:29,399 Speaker 1: such a wide ranging discussion. But I think the sort 893 00:45:29,440 --> 00:45:32,560 Speaker 1: of last note that we left it on this idea 894 00:45:32,680 --> 00:45:37,799 Speaker 1: that maybe monetary policy is hasn't been completely neutered. It's 895 00:45:37,880 --> 00:45:42,120 Speaker 1: just we've we've gotten some basic assumptions incorrect, like part 896 00:45:42,160 --> 00:45:47,440 Speaker 1: of me finds that notion quite optimistic and quite hopeful, 897 00:45:48,040 --> 00:45:51,000 Speaker 1: maybe because I'm pessimistic about the prospect of governments, you know, 898 00:45:51,040 --> 00:45:54,120 Speaker 1: really getting their act together and enacting fiscal stimulus. So 899 00:45:54,480 --> 00:45:56,879 Speaker 1: I want to see monetary policy help out a little bit. 900 00:45:57,320 --> 00:46:00,399 Speaker 1: You know, Tracy, are you skeptical that governments will get 901 00:46:00,480 --> 00:46:03,600 Speaker 1: their act together or you like skeptical that government is 902 00:46:03,600 --> 00:46:06,560 Speaker 1: getting their act together is a good thing? Uh? Both, 903 00:46:06,800 --> 00:46:11,839 Speaker 1: I would say I'm double skeptical, I know, but it's true, right, like, 904 00:46:12,080 --> 00:46:14,600 Speaker 1: even if people could agree to do something, the chances 905 00:46:14,640 --> 00:46:20,439 Speaker 1: of them doing something that's well designed, um, I think 906 00:46:20,440 --> 00:46:24,919 Speaker 1: are pretty low. But anyway, our star Peter was great 907 00:46:24,960 --> 00:46:28,319 Speaker 1: and it was certainly refreshing because you know, it's like, uh, 908 00:46:28,800 --> 00:46:30,560 Speaker 1: we have so we talked to a lot of people 909 00:46:30,600 --> 00:46:33,560 Speaker 1: that bash this stuff pretty much all the time, and 910 00:46:33,600 --> 00:46:36,120 Speaker 1: we've had like a sort of like stream of sort 911 00:46:36,120 --> 00:46:41,360 Speaker 1: of heterodox in some way or another thinkers and so 912 00:46:41,760 --> 00:46:43,959 Speaker 1: but look, you know, it's like, hey, we have the Fed, 913 00:46:44,040 --> 00:46:46,200 Speaker 1: we have the central banks, they have their mandate, they 914 00:46:46,200 --> 00:46:49,680 Speaker 1: have their jobs. There are economics departments around the world, 915 00:46:50,280 --> 00:46:54,680 Speaker 1: And I thought Peter sort of made a very compelling 916 00:46:54,760 --> 00:46:57,759 Speaker 1: defense of like how the you know the approach that 917 00:46:57,840 --> 00:47:00,960 Speaker 1: a lot of these economists and central banks are taking 918 00:47:01,000 --> 00:47:04,399 Speaker 1: and essentially how they can be salvage because I think 919 00:47:04,400 --> 00:47:07,000 Speaker 1: what he's going for, yeah, I think that's exactly right. 920 00:47:07,040 --> 00:47:09,840 Speaker 1: But also I think he put it quite well in 921 00:47:09,880 --> 00:47:13,000 Speaker 1: the sense that you need some sort of guiding principle 922 00:47:13,160 --> 00:47:16,440 Speaker 1: in order to make monetary policy decisions, and it feels 923 00:47:16,560 --> 00:47:20,280 Speaker 1: like variables like the stars are kind of the best 924 00:47:20,400 --> 00:47:22,840 Speaker 1: you're going to come up with, and so it becomes 925 00:47:22,920 --> 00:47:26,200 Speaker 1: essential to really study those and write papers like this 926 00:47:26,320 --> 00:47:29,680 Speaker 1: and make sure that you're fully understanding them. I agree, 927 00:47:29,760 --> 00:47:33,040 Speaker 1: and I think that like whether we talk about monetary 928 00:47:33,160 --> 00:47:38,520 Speaker 1: policy uh sort of centric stabilization or fiscal policy centric stabilization, 929 00:47:38,920 --> 00:47:42,279 Speaker 1: that problem will never go away the idea of like, Okay, 930 00:47:42,320 --> 00:47:44,920 Speaker 1: whatever you're going to do, what are the variables that 931 00:47:44,960 --> 00:47:46,680 Speaker 1: you're going to use. So it's like, you know, you 932 00:47:46,680 --> 00:47:48,880 Speaker 1: could say, like all right, let's have you know, fiscal 933 00:47:48,920 --> 00:47:53,279 Speaker 1: stimulus be our primary engine, but that doesn't really get 934 00:47:53,320 --> 00:47:56,520 Speaker 1: you away from the problem of the sort of determining like, oh, 935 00:47:56,600 --> 00:47:59,759 Speaker 1: is inflation actually becoming a problem now? Is there's no 936 00:48:00,120 --> 00:48:02,719 Speaker 1: is that this temporary? Does everyone who wants a job 937 00:48:02,760 --> 00:48:06,480 Speaker 1: have one? And so forth. So there's almost sort of 938 00:48:06,600 --> 00:48:11,520 Speaker 1: no getting away from these questions regardless of the policy regime. Yeah, 939 00:48:11,560 --> 00:48:13,880 Speaker 1: I think that's exactly right. And full employment kind of 940 00:48:13,920 --> 00:48:17,440 Speaker 1: seems like the obvious one to focus on here, Like, 941 00:48:17,520 --> 00:48:20,680 Speaker 1: if you are designing fiscal policies or some sort of 942 00:48:20,760 --> 00:48:24,920 Speaker 1: job guarantee program or universal basic income or something like that, 943 00:48:25,000 --> 00:48:28,080 Speaker 1: and you're trying to get to a place of full employment, 944 00:48:28,120 --> 00:48:30,880 Speaker 1: you better have a good idea of what that place 945 00:48:30,920 --> 00:48:33,239 Speaker 1: actually is and what it looks like. So, yeah, the 946 00:48:33,360 --> 00:48:36,960 Speaker 1: questions aren't going away, even if we do get that 947 00:48:37,200 --> 00:48:40,799 Speaker 1: long awaited handoff from monetary policy the fiscal Yeah, that's 948 00:48:40,800 --> 00:48:47,080 Speaker 1: exactly all right. Um, should we leave it there? Okay? 949 00:48:47,120 --> 00:48:49,840 Speaker 1: This has been another episode of the add Thoughts podcast 950 00:48:49,960 --> 00:48:52,719 Speaker 1: on Tracy Alloway. You can follow me on Twitter at 951 00:48:52,760 --> 00:48:55,560 Speaker 1: Tracy Alloway and I'm Joe Why Isn't All? You can 952 00:48:55,680 --> 00:48:59,080 Speaker 1: follow me on Twitter at the Stalwart. Follow our producer 953 00:48:59,160 --> 00:49:03,160 Speaker 1: Laura Carlston. She's at Laura M. Carlson. Follow the Bloomberg 954 00:49:03,200 --> 00:49:07,239 Speaker 1: head of podcast, Francesca Levie at Francesco Today, and check 955 00:49:07,280 --> 00:49:10,040 Speaker 1: out all of our podcasts at Bloomberg under the handle 956 00:49:10,520 --> 00:49:12,320 Speaker 1: at podcast. Thanks for listening.