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Thread: capital misallocation and optimal monetary policy

  1. #1

    capital misallocation and optimal monetary policy

    Another episode in the "centrally planned fiat monetary system is awesome" series:
    ... Monetary policy design has traditionally taken aggregate productivity as given. In the workhorse model of monetary policy the New Keynesian model the central bank faces a trade-off between stabilising inflation and reducing the short-term deviations of output from its potential level. If monetary policy can affect misallocation and TFP, the central bank should also ponder how its decisions will impact the supply side of the economy in the medium term. Such considerations may be of relevance in phases of very active monetary policy, such as in the current inflationary environment.

    This paper seeks to shed light on the interaction between monetary policy and capital misallocation and its implications for optimal monetary policy. ...

    Our model predicts that an expansionary monetary policy shock improves capital allocation and thus raises TFP. We call this effect "the capital misallocation channel of monetary policy". We present empirical evidence supporting this prediction: expansionary policy induces high-productivity firms to increase their investment more than it does for low-productivity firms. The central bank has an incentive to exploit the capital misallocation channel, by engineering a temporary economic expansion to increase TFP at the cost of some inflation. ...
    https://www.bis.org/publ/work1148.htm

    TFP = total factor productivity

    117 page PDF paper at the link above if you suffer from insomnia



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  3. #2
    117 pages of the rich are getting richer for some reason other than the banks that own the Fed print the new money, then they spend it, and then the value of all the money drops.

  4. #3
    Adjusting monetary policy picks winners and losers. And that's fine as long as TFP increases. TFP boosts GDP. So central planning committees can rest easy with the immorality of it all.

  5. #4
    Quote Originally Posted by Bern View Post
    Adjusting monetary policy picks winners and losers. And that's fine as long as TFP increases. TFP boosts GDP. So central planning committees can rest easy with the immorality of it all.
    They do run a lot of trees through their printers consoling themselves, don't they?

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  8. #7
    Last edited by Occam's Banana; 11-25-2023 at 02:18 PM.

  9. #8
    Quote Originally Posted by Bern View Post
    Adjusting monetary policy picks winners and losers. And that's fine as long as TFP increases. TFP boosts GDP. So central planning committees can rest easy with the immorality of it all.
    GDP is an imaginary number cooked up to appear as state collateral.
    It's sole purpose was to convince political leaders it was ok to ask for more paper debt.
    "When Sombart says: "Capitalism is born from the money-loan", I should like to add to this: Capitalism actually exists only in the money-loan;" - Theodor Fritsch



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