Monday, August 6, 2018

New podcast out on my housing research

Here I am talking with David Beckworth about my housing research.


  1. I enjoyed the podcast and will definitely read the book. Congrats.

    I still take major issue with a few things:
    -The Fed primarily tightened in 2006+ because inflation was above target, not to "teach speculators a lesson." As late as 2008 inflation was WELL above target.

    -You will argue that inflation was over target due to a supply constraint. However, if a supply constraint is permanent (as closed access housing appears to be), the Fed needs to treat that as such. It is the Fed's job to cool the economy when we bump up against its productive capacity (and vice versa).

    -I really don't think we want the Fed surveying the list of major spending categories and trying to determine where temporary supply constraints and/or surpluses exist. This is nearly impossible to figure out. I could easily see today's Fed concluding that shale oil is a one-time supply surplus and that inflation is therefore understated and thus necessitating tighter policy. Strikes me as a great way for the Fed to let various biases creep in and to get the future spectacularly wrong.

    1. Thanks.
      On your points:
      1) the important thing about 2006 is that they see declining real investment as a positive. I don't think the CB should ever take that position, especially when a lack of real investment was a problem.
      2) it is later in 2007 and 2008 when you see talk about disciplining the market and making sure speculators don't get bailed out. It's in the transcripts and all over the literature. I'm not really pointing out something unknown. I'm just noting that this new framework of understanding highlights how wrong it is.
      3) I don't want the Fed doing those things either. I prefer NGDP targeting. But rent inflation, as measured, created false signals that had nothing to do with cash spending. And even without that issue, the problem of hitting inflation targets during supply shocks is a well known problem with inflation targeting.

    2. 1) Agree. But keep in mind they are trying to cool the economy. Investment is almost always going to decline as the economy cools. It's not the fall in investment they are OK with, it's the cooling of an economy that is operating above its productive capacity. The Fed's tools are (too?) blunt.

      2) Well, i agree in the sense that we don't want markets telling the Fed what to do. Markets can get wildly over/under valued without that necessarily signalling anything important economically. Inflation was above target, inflation expectations were at or above target, and all economic projections were strong. You don't act to save any particular asset holder.

      3) NGDP targeting is politically infeasible. Give me a few years of 0% real growth and 4-5% inflation and i'll give you a Fed that is about to lose its independence. Inflation often hurts the weakest among us, and i don't think society would tolerate that. The fairly minor theoretical gains over inflation targeting do not warrant the risk in my opinion.