Sunday, January 25, 2009
I am not a macroeconomist so better answers than I can conjecture intrigue me. Are we in for a massive bout of global inflation as the depression/recession we are going to experience over the next year or so (hopefully) eventually peters out? Or are such massive increases in base money easily reversed by open market sales of bonds (sounds implausible) or increased reserve requirements (also sounds implausible)?
Couple the monetary moves with the latest $819 billion fiscal package and the monetary moves look very expansionary.
One reason for my caution is that econometric models are operating entirely in out-of-sample territory in trying to estimate the effects of these policies. I don't believe any model-based forecasts at this stage.