Follow up na včerajšnji zapis o tem, kako Ken Rogoff poskuša ex post upravičiti politiko varčevanja britanske vlade. Paul Krugman na podlagi Romerjevega modela odprtega gospodarstva (IS-MP kot modificiran IS-LM model) dokazuje, da so argumenti Rogoffa povsem zgrešeni. Predlagam, da preberete cel zapis (in grafično predstavitev), spodaj je le nekaj kratkih povzetkov ključnih ugotovitev.

My point is that what sounds like a straightforward claim – that loss of foreign confidence causes a contractionary rise in interest rates – just doesn’t come out of anything like a standard model. If you want to claim that it will happen nonetheless, show me the model!

Now, you might argue that IS-MP is a model of the short-term interest rate, and we’re talking about long-term rates here. But long rates are largely determined by expected future short rates, so this argument doesn’t make sense unless you have some story about why short rates should rise somewhere along the way.

Furthermore, as Wren-Lewis says, even if there is somehow a squeeze on long-term bonds, why can’t the central bank just buy them up? Yes, this is “printing money” – but when you’re in a liquidity trap, that doesn’t matter. (Alternatively, you can take a consolidated view of the government and central bank balance sheets, in which case what we’re effectively doing is refinancing at the zero short-term rate.)

I know that many people find this line of argument, in which a loss of investor confidence is if anything expansionary, deeply counterintuitive. But macro, and especially liquidity trap macro, tends to be like that. So don’t give me your gut feelings; give me a coherent story about who does what, i.e. a model. I eagerly await a response.

Vir:  Paul Krugman, New York Times