{"id":1648,"date":"2014-11-15T15:13:00","date_gmt":"2014-11-15T20:13:00","guid":{"rendered":"http:\/\/olduvai.ca\/?p=1648"},"modified":"2014-11-15T15:13:00","modified_gmt":"2014-11-15T20:13:00","slug":"moneyness-sign-wars","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=1648","title":{"rendered":"Moneyness: Sign Wars"},"content":{"rendered":"<p><a href=\"http:\/\/jpkoning.blogspot.ca\/2014\/11\/sign-wars.html\">Moneyness: Sign Wars<\/a>.<\/p>\n<p><span class=\"Apple-style-span\" style=\"color: #222222; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; line-height: 18px;\">Does a lowering of a central bank&#8217;s interest rates create inflation or deflation? Dubbed the &#8216;<a style=\"text-decoration: none; color: #0971a7;\" href=\"http:\/\/worthwhile.typepad.com\/worthwhile_canadian_initi\/2014\/10\/sign-wars-with-price-level-targeting.html\">Sign Wars<\/a>&#8216; by Nick Rowe, this has been a recurring debate in the economics blogosphere since at least as far back as 2010.<\/p>\n<p>The conventional view of interest rate policy is that if a central bank keeps its interest rate too low, the inflation rate will steadily spiral higher. Imagine a cylinder resting on a flat plane. Tilt the plane in one direction \u2014a motif to explain a change in interest rates\u2014and the cylinder, or the price level, will perpetually roll in the opposite direction, at least until the plane&#8217;s tilt (i.e. the interest rate) has been shifted enough in a compensatory way to halt the cylinder&#8217;s roll. Without a counter-balancing shift, we get hyperinflation in one direction, or hyperdeflation in the other.<\/p>\n<p>The heretical view, dubbed the\u00a0<a style=\"text-decoration: none; color: #0971a7;\" href=\"http:\/\/noahpinionblog.blogspot.ca\/2014\/04\/the-neo-fisherite-rebellion.html\">Neo-Fisherian<\/a>\u00a0view by Noah Smith (and having nothing to do with Irving Fisher), is that in response to a tilt in the plane, the cylinder rolls&#8230; but uphill. Specifically, if the interest rate is set too low, the inflation rate will jump either instantaneously or more slowly. But after that, a steady deflation will set in, even without the help of a counter-balancing shift in the interest rate. We get neither hyperinflation nor hyperdeflation. (John Cochrane provides a\u00a0<a style=\"text-decoration: none; color: #0971a7;\" href=\"http:\/\/johnhcochrane.blogspot.ca\/2014\/11\/the-neo-fisherian-question.html\">great introduction<\/a>\u00a0to this viewpoint).<\/p>\n<p>Many pixels have already been displayed on this subject, about the only value I can add is to translate a jargon-heavy academic debate into a more finance-friendly way of thinking. Let&#8217;s approach the problem as an exercise in security analysis.<\/span><\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Moneyness: Sign Wars. Does a lowering of a central bank&#8217;s interest rates create inflation or deflation? Dubbed the &#8216;Sign Wars&#8216; by Nick Rowe, this has been a recurring debate in the economics blogosphere since at least as far back as 2010. The conventional view of interest rate policy is that if a central bank keeps [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[124,202,426,1154],"class_list":["post-1648","post","type-post","status-publish","format-standard","hentry","category-economics","tag-central-banks","tag-deflation","tag-inflation","tag-interest-rate-policy"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1648","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1648"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1648\/revisions"}],"predecessor-version":[{"id":1649,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/1648\/revisions\/1649"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1648"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1648"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1648"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}