Tuesday, September 18, 2012

I need to read this tomorrow

(not time today, unfortunately)

Keynes and Hayek regions in uncertainty-liquidity trade persistence space, each with momentum and reversion (which, because they're adjacent to each other, I assume makes for some kind of saddlepath dynamic).

The conclusion: "To return to the price of sovereign bonds: if we are in the Keynesian region, Mr. Draghi may be right to intervene since prices are far away from fundamentals compared to consensus estimates. However, if we are in the Hayekian region the consensus estimates are farther away from fundamentals than prices, and intervention is not warranted on the grounds of prices being out of line with fundamentals."

Sounds an awful lot like the bottom line of my Critical Review article, except they're talking about bond prices and I'm talking about rates. Whether you can apply ABCT to evaluation of fiscal or monetary stimulus depends critically on where the interest rate is relative to the natural rate.

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