might i add

"as if "is all these expectations models are

no one thinks thiese are likenesses only analogues
lets not reify these brutes

no one needs to act like
these models
reflect anything like how prices are really made
out there in the real market places of earth

expectations models ended the silly mechanistic models
that had to build price making out of prior price making
in a way that failed to reflect
anticipation
i recall the old hog corn cobweb

so indeed they were a step forward in modeling

but the implicit homgeneity
of the underlying agents i
never meant aggregation of many units
had been modeled in any way other then a drastic simplification
to study certain properties of agents how anticipate
and with a bet or conviction

blah blah

sims with many heterogenious decision models in the various agents "heads"
gets unmanageable fast
so did weather modeling of course
-----------------------

so big deal
lags matter of course

and agents have expectations
of course

but the tin soldiers on the table
are not a real army

---------------------------
agents (for profit firms mostly)
set prices and pay wages
and they do both
in many different ways
and on very narrow markets

their product line

their job requirements

-----------------------------
20 years behind the agent price making desk
(till it was shot out from under me )
and
i can't ever recall
setting a price
based on the general inflation rate
my expectations of the interest rate

but i can recall passing thru costs
and not passing em
thru
or only partly passing em thru
i can recall wory about credit availability
after seeing a slow down in demand
and cutting prices

frankly i think the expectaions models
if they "work"
only "work"
because the standard of "fit" is so loose
or better so non exacting

like in those skits where the sales man sez
to the gull in the preposterously over sized suit
"sure sure .. fits ya like a glove pal "

Posted by: paine | Mar 3, 2007 12:53:18 PM

mark's credo:

"If I thought the Fed would do better by relaxing its weight on the inflation term
in its reaction function,
I would push hard for such a change."

".. But there's good reason
on both the theoretical and empirical fronts
to believe
that doing so would constitute
a return to pre-1980s policy
and cause a deterioration
in the economy's performance"

why not set a target rate of unemployment ??

no one sez that you can't use best policy to arrive at it and stay as close to it
as shocks allow

i'm leeery of these bank shots

we need to control inflation now

so we can have steady higher employment later

especially when the employment rate is what seems to trigger the policy rate turns
far more then embedded sluggish
core inflation rates

and why this mountain out of a hill
over the late 60's and 70's

martin's fed ran from the early 50's to the late 60s
and he seemed to have a decent inflation record
until
nam twitchery kicked in...

was it nam
that made for a short sighted blowing away
of the low expectation for short run higher utilization and job rates ??
did it also taint burn's fed
but then what happened??
what made it go loco for long after the troops left nam in 73

the oil shock is phoney
don't try that one ...
we just had a run up and see...

sure oil prices were a bigger piece of the 70's economy but even that don't get the dog to bark that loud

Posted by: paine | Mar 3, 2007 2:09:57 PM

gentle ben reviewing his control panel
however only raises higher the questionsin non specialists minds
the minds he's attempting to put at ease

i can here somwe one saying

"gee there's i didn't know
there was some question
about the causal link between
short term policy rates
and longer term market rates"

or

"wow...so the globalization
of our industrial supply lines
can cut both ways
raise and lower inflation..."

or

" how can you talk about a natural rate of unemployment
if the production gap and employment pool is global"

"Christina Romer ... of ... the University of California, Berkeley
says
economists can’t predict recessions
(because)
.... by their nature,
(they) are not predictable events,"

" Almost all the postwar recessions
were preceded
by a shock,
like a spike in short-term interest rates,
or a sharp rise in oil prices "

this sets off a cascade of questions...

i'll only note one

an interest rate spike ..a shock
ie

exogenous ???

random??

unpredictable ??

out of right field ??

ornone of the above
and
made by the fed

amazing....
cr:
"'the sector specific credit crunch"

yes we have credit rationing
and the policy varies over time and between sectors

the present tightening in the housing sector

proves one thing

the lot value bubble could have been a lot smaller

Posted by: paine | Mar 3, 2007 2:45:22 PM

you all know my take by now

but still...

ask yourself

could there be participant/players in the economy
that benefit from obscurity deficency belatedness
faultiness
of our data and our models complexity

after all
why is there not a huge forecast bureau in say alabama
where they need an egg head influx

hell we got 4 nuke labs don't we

and we weebles might benefit if the system
were faster and better

i'm reminded of the indian ocean and the tsunami

a very simple system could have saved at least
a hundred thousand lives

why must the fed and the treasury get by
with pokey machines rustic gathering methods skimpy budgets
etc

of course the same could be said about the IRS
and with the same ultimate explanation

who benefits

--------
piglet:

track compensation against take home
over the last 35 years

the economy with intelligent agents
complex yes
un sim able no

i like your question about why recessions happen

i say
its simple enough

cause the system still needs em

and
even if they have recently been mild ...here
that have plenty of bite still
elsewhere on flat earth

try mexico 93 94 95( right after nafta)
on for size though
argentina what was it 00 01 02 ???
or the post wango in indonesia 97 98 99