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Why inflation is still reported low?
Why aren't house prices included in CPI?How do excessive foreign reserves cause inflation?Macroeconomics and equilibriumUnderstanding Inflation in a video gameHow does tariff increase inflation?Why is wage-induced inflation a bad thing?Does Not Having a Fractional Reserve System Cause More Inflation?Can real wages increase (practically) without inflation?Debt-to-GDP ratio in connection to inflationWhy are the Fed's goals often described as the “dual mandate” and not the “triple mandate”?
$begingroup$
Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.
I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low?
inflation quantitative-easing
edited yesterday
Fizz
457213
asked 2 days ago
nsivakrnsivakr
1041
$endgroup$
migrated from quant.stackexchange.com 2 days ago
This question came from our site for finance professionals and academics.
add a comment |
$begingroup$
Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.
I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low?
inflation quantitative-easing
edited yesterday
Fizz
457213
asked 2 days ago
nsivakrnsivakr
1041
$endgroup$
migrated from quant.stackexchange.com 2 days ago
This question came from our site for finance professionals and academics.
$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
1
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago
add a comment |
$begingroup$
Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.
I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low?
inflation quantitative-easing
edited yesterday
Fizz
457213
asked 2 days ago
nsivakrnsivakr
1041
$endgroup$
Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.
I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low?
inflation quantitative-easing
inflation quantitative-easing
edited yesterday
Fizz
457213
asked 2 days ago
nsivakrnsivakr
1041
edited yesterday
Fizz
457213
asked 2 days ago
nsivakrnsivakr
1041
edited yesterday
Fizz
457213
edited yesterday
Fizz
457213
edited yesterday
Fizz
457213
457213
asked 2 days ago
nsivakrnsivakr
1041
asked 2 days ago
nsivakrnsivakr
1041
asked 2 days ago
nsivakrnsivakr
1041
1041
migrated from quant.stackexchange.com 2 days ago
This question came from our site for finance professionals and academics.
migrated from quant.stackexchange.com 2 days ago
This question came from our site for finance professionals and academics.
$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
1
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago
add a comment |
$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
1
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago
$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
1
1
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago
add a comment |
1 Answer
1
active
oldest
votes
$begingroup$
There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.
answered 2 days ago
dm63dm63
21915
$endgroup$
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
add a comment |
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1 Answer
1
active
oldest
votes
1 Answer
1
active
oldest
votes
active
oldest
votes
active
oldest
votes
$begingroup$
There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.
answered 2 days ago
dm63dm63
21915
$endgroup$
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
add a comment |
$begingroup$
There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.
answered 2 days ago
dm63dm63
21915
$endgroup$
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
add a comment |
$begingroup$
There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.
answered 2 days ago
dm63dm63
21915
$endgroup$
There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.
answered 2 days ago
dm63dm63
21915
answered 2 days ago
dm63dm63
21915
answered 2 days ago
dm63dm63
21915
answered 2 days ago
dm63dm63
21915
21915
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
add a comment |
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
$begingroup$
So (to play the devil's advocate), if [this] money always stays at the Fed, why not do QE continuously forever? (I.e. I think your answer is missing some conditionality.)
$endgroup$
– Fizz
2 days ago
1
1
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
$begingroup$
The purpose of QE was to control long term interest rates by buying Treasury bonds and mortgages. If there’s no need to do that, they will stop. In fact they have stopped and are now reducing the Fed balance sheet.
$endgroup$
– dm63
yesterday
add a comment |
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$begingroup$
I'm voting to close this question as off-topic because it seems better suited for economics SE.
$endgroup$
– LocalVolatility
2 days ago
$begingroup$
Can you point to a place where Koo says that inflation should have been 1600%?
$endgroup$
– dismalscience
2 days ago
1
$begingroup$
Koo believes that monetary policy is ineffective in this situation. His views are interesting. But he is making a straw-man argument when he says this statement. No one seriously believed that the price level would rise in direct proportion to the size of the Fed balance sheet in response to QE. He is debunking a claim that no serious economist ever made.
$endgroup$
– Alex C
2 days ago
$begingroup$
@AlexC That makes more sense. Thanks!
$endgroup$
– dismalscience
2 days ago
$begingroup$
Also note that his data is factually wrong: "From November 2008 to November 2014, successive QE programs added $3.6 trillion to the Fed’s balance sheet, nearly 25% more than the $2.9 trillion expansion of nominal GDP over the same period. " So 1600% would really be 25% even if QE had the effect he claims.
$endgroup$
– Fizz
2 days ago