I always teach the strategic bequest motive in intermediate macro, mostly because it gets the students to think more deeply about why people save. While I have never really thought that strategic bequests are an important determinant of savings behavior, this story in today's NY Times moved my priors somewhat.If you don't recall what the strategic bequest motive is, you can look it up in my text, or read the original research at this link.
Monday, January 16, 2012
The Strategic Bequest Motive
A user of my intermediate macro text writes to me:
Sunday, January 15, 2012
Friday, January 13, 2012
Thursday, January 12, 2012
Wednesday, January 11, 2012
The Liquidity Trap may soon be over
About a decade ago, I wrote a paper on monetary policy in the 1990s (published in this book). I estimated the following simple formula for setting the federal funds rate:
Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment).
Here "core inflation" is the CPI inflation rate over the previous 12 months excluding food and energy, and "unemployment" is the seasonally-adjusted unemployment rate. The parameters in this formula were chosen to offer the best fit for data from the 1990s. You can think of this equation as a version of a Taylor rule.
Eddy Elfenbein has recently replotted this equation. Here it is:
The interest rate recommended by the equation is the blue line, and the actual rate from the Fed is the red line.
Not surprisingly, the rule recommended a deeply negative federal funds rate during the recent severe recession. Of course, that is impossible, which is why the Fed took various extraordinary steps to get the economy going. But note that the rule is now moving back toward zero. As Eddy points out, "At the current inflation rate, the unemployment rate needs to drop to 8.3% from the current 8.5% for the model to signal positive rates. We’re getting close."
Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment).
Here "core inflation" is the CPI inflation rate over the previous 12 months excluding food and energy, and "unemployment" is the seasonally-adjusted unemployment rate. The parameters in this formula were chosen to offer the best fit for data from the 1990s. You can think of this equation as a version of a Taylor rule.
Eddy Elfenbein has recently replotted this equation. Here it is:
The interest rate recommended by the equation is the blue line, and the actual rate from the Fed is the red line.
Not surprisingly, the rule recommended a deeply negative federal funds rate during the recent severe recession. Of course, that is impossible, which is why the Fed took various extraordinary steps to get the economy going. But note that the rule is now moving back toward zero. As Eddy points out, "At the current inflation rate, the unemployment rate needs to drop to 8.3% from the current 8.5% for the model to signal positive rates. We’re getting close."
Tuesday, January 10, 2012
How much are new econ PhDs paid?
The results of a survey:
Responses from 90 institutions indicate that the average expected salary offer for the 2011-12 academic year is $89,155.... The average expected offer by Ph.D. degree granting institutions [is] $99,269.... The Top 30 institutions in the sample report an average expected offer of $115,000.... Bachelor and Master degree granting institutions report an expected offer of $74,520.
How to Reduce Traffic Congestion
The price system, of course. New evidence from Seattle:
New tolls on the Highway 520 bridge have reduced traffic so much that drivers are commonly traveling at 65 mph, maybe three times as fast as they're used to.
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