Must-read: Antonio Fatas: “BIS Redefines Inflation (Again)”

Must-Read: I agree with Antonio Fatas here. The BIS is using model-building 0% as a discovery mechanism and 100% to advance reasons for policy conclusions that have been set in stone in advance. The problem is that the various BIS models do not appear to codify any form of knowledge–for as their predictions are proved false by time the responses not to adjust the framework to reality but to put forward to a new framework. The latest such:

Antonio Fatas: BIS Redefines Inflation (Again): “An interview with Hyun Song Shin…

…reminds us of the strange and heterodox views that the BIS (and others) have about the behavior of inflation… a very special and radical view on what determines inflation… supported by a unique reading of the data…. Here is a summary of the new BIS theory…. 1. Inflation is a global phenomenon, not a national one. Monetary policy has very little influence on inflation…. 2. The idea that monetary policy affects demand and possibly inflation is a ‘short-term’ story that is too simple…. 3. Deflation is not that bad…. 4. While central banks are powerless at controlling domestic inflation, they are very powerful at distorting interest rates and rates of returns for long periods of time (decades). 5. Central banks have a problem when inflation is the only goal (they end up creating distortions in financial markets). 6. Monetary policy is a cause of all China’s problems (he admits that there are other causes as well).

In summary, central banks are evil. Their only goal is to control inflation, but they cannot really control it, and because of their superpowers to distort all interest rates they only end up causing volatility and crises. And this is coming from an organization whose members are central banks and its mission is ‘to serve central banks’. Surreal.

We see this more and more with economists who try to come over to macro from modern finance. They base themselves not in Mill-Malthus or Wicksell-Keynes or Bagehot-Minsky or Fisher-Friedman, but evolve some approach of their own which usually seems to combine the errors of the early Say and of Hayek to produce sub-Econ-1-level fallacies…


Brad DeLong


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