tag:blogger.com,1999:blog-1740670447258719504.post8424463461441336815..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: The fundamental question for whether the market can fix itself: "can it be arbitraged?"Evanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-1740670447258719504.post-15294094513932014412011-05-03T09:41:20.803-04:002011-05-03T09:41:20.803-04:00Ya - sorry to everyone - blogger has been acting w...Ya - sorry to everyone - blogger has been acting weird for the last couple weeks.<br /><br />Let me know if you think you posted but lost it too, because some are identified as spam and if that's the problem I am able to rescue those.<br /><br />Thanks guys - I'm very much a novice trying to get a sense of how to think about these things, and I appreciate all the thoughts. Not every novice/student is lucky enough to get this kind of feedback and I'm grateful - I'm digesting all this now.Danielhttps://www.blogger.com/profile/17192667997950934790noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-28341656348161467172011-05-03T08:47:05.174-04:002011-05-03T08:47:05.174-04:00Warning to anyone else trying to comment here: cop...Warning to anyone else trying to comment here: copy your comment onto the clipboard first, because Google tends to eat it on the first attempt.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-10769357694460152662011-05-03T08:45:40.690-04:002011-05-03T08:45:40.690-04:00Daniel: "To start with, though, I am somewhat...Daniel: "To start with, though, I am somewhat confused about why [Nick] says that hte loanable funds theory says interest rates clear the goods market and liquidity preference theory says they clear the loanable funds market. I would have thought loanable funds theory says the interest rate clears the loanable funds market and liquidity preference says it clears the demand for and supply of liquidity - the decision whether to hold cash or not. I'm not sure what the goods market has to do with it (is this an intertemporal goods market point?), but I'm not sure that matters all that much."<br /><br />That's a good confusion to have. Nobody (including me) is clear on this. But it does matter; it matters a lot.<br /><br />The price of apples is set in the apple market. The price of apples adjusts (if it's not sticky) to equilibrate the demand and supply of apples.<br /><br />Loanable funds says that r adjusts to equilibrate desired I and S. Throw in a bit of National Income Accounting (closed economy, no government), and I=S can be re-written as C+I=Y. Ergo, r adjusts to equilibrate the output market. Which doesn't make sense, because r is (the reciprocal of) the price of bonds, and we pay for output with money, not bonds.<br /><br />Liquidity preference says that r adjusts to equilibrate the demand and supply of money. Which doesn't make sense, because there is no (single) market where the demand for money meets the supply of money. Plus, just as the price of apples is set in the apple market, the price of bonds (1/r) should be set in the bond market.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-10056077299118823152011-05-02T18:04:04.658-04:002011-05-02T18:04:04.658-04:00Daniel:
I take a similar view to Nick in that gen...Daniel:<br /><br />I take a similar view to Nick in that general gluts can only arise because of an excess demand for money. A spike in demand for safe assets can only do the same if that demand spills over to money, since money is a safe asset too. <br /><br />Here is why I think this way. Money is the only asset on every other market--goods, services, other financial assets--and thus a disruption to money via a money demand shock will disrupt all these other markets directly if prices are sticky. And sticky they are. <br /><br />Other safe assets like tbills are not on every other market--they are on their own market. If there were a sudden surge in demand for tbills it could cause a glut if there are not enough safe non-money assets. At such a point, people would turn to money which would cause a disruption to all the other markets.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.com