Why do I feel bad for the Spaniards, but not the Greeks?

[KrazyHorse]

I agree that devaluing currency works in the short run. Devaluing wages and debts in the short run also works. Try it and see.

As for the rest of your post, I am not bothering to read because you are not yet in the circle of "people who understand macro enough to care about what they post on macro". Post shorter stuff that is interesting to work your way in.

[VetLegion]

Az, there's an article in business insider (I'm on mobile so no link) about how
the Swiss got bit in the ass twice before (by inflation of course) when they tried
something like what they're doing now. Printing now, mopping up later seems to
be trickier than expected.

I'm not familiar with Israel's situation but can you really be sure that housing
had nothing to do with BoI interventions? Food is fine, same phenomenon
everywhere.

[KrazyHorse]

VL, of course the Swiss experienced inflation. Money is neutral, but not super-neutral.

That is the whole point, btw: the Swiss are enacting monetary policy by loosening their money supply. They have chosen to phrase this piece of monetary policy in terms of an exchange rate; sometimes central banks choose to phrase it in terms of an interest rate or in terms of quantitative easing. None of that matters (well, interest rates lose their meaning as you approach a zero lower bound, but in normal times there is a one-to-one relationship). None of these things represent the true target variable of the CB: they are only intermediate variables that the CB chooses to target on its way to achieving its target variable (namely inflation under the current regime).

Inflation has been below target in Switzerland. The SCB is attempting to increase it. Period. Full stop. That's it.

[VetLegion]

Errrr... aren't they primarily trying to rescue their export sector at the moment?

[Az]

I agree that devaluing currency works in the short run. Devaluing wages and debts in the short run also works. Try it and see.

Yes, it will work, but this actually is both easier to perform, and easier on the general public, as local prices will remain similar for quite some time.

As for the rest of your post, I am not bothering to read because you are not yet in the circle of "people who understand macro enough to care about what they post on macro". Post shorter stuff that is interesting to work your way in.

feh, I understood macro even before it was cool.

Az, there's an article in business insider (I'm on mobile so no link) about how
the Swiss got bit in the ass twice before (by inflation of course) when they tried
something like what they're doing now. Printing now, mopping up later seems to
be trickier than expected.

I do wonder. I really do. I am really not familiar with Switzerland as a case study.

I'm not familiar with Israel's situation but can you really be sure that housing
had nothing to do with BoI interventions? Food is fine, same phenomenon
everywhere.

There has been a shortage in construction for several years, due to a variety of regulatory issues - The rate of construction of new apartments was lagging behind the rate of creation of new households by several thousand up to 20k per year - huge numbers in Israeli terms. Additionally, local authorities, wishing to attract more quality populace, have cramped down on construction of 2-bedroom apartments, a staple for young families in Israel.

[KrazyHorse]

Errrr... aren't they primarily trying to rescue their export sector at the moment?

There is absolutely no way for the CB to rescue the export sector relative to the domestic sector. That division is endogenous: the CB determines AD, not how much of AD gets consumed or invested locally vs how much goes outside the country.

[Az]

What does AD stand for?

[KrazyHorse]

http://en.wikipedia.org/wiki/AD-AS_model

[VetLegion]

If you're saying they can't affect only one part of the economy with
monetary policy, I agree, I'm saying their motivation is saving Swatch
and the like. This they can do in the short run. The question is what
happens to the newly minted Francs in the long run.

The wall street claims (again no link, sorry), similar to what Az wrote,
that if the market demonstrates via the exchange rate that it "demands"
more francs, the CB should print more to make it happy.

I have a difficult time understanding monetary transmission
mechanisms so I have no idea how it will play out, but solving
currency appreciation by printing more of it seems to me like
begging for inflation sooner or later. In Israel and Switzerland
both.

[Az]

Re: AD: Ah, yes. I assume you are referring to the influence of the interest rate on aggregate demand. Setting up interest rates is not precisely the CB tool we are discussing though, are we?

Vetlegion: I believe that yes, but only through a lengthy trickling mechanism. I always like to analyse in non macro terms, what things would specifically cause this inflation?

[KrazyHorse]

You can ascribe that as their motivation, but their action is consistent with their target: they have underproduced inflation relative to the 2% target, and are attempting to rectify that mistake

For a given money supply, an exogenous shock to demand for currency holdings (say, lots of foreigners holding swiss francs in vaults) will reduce monetary velocity, thus impacting both inflation and real output (in the long run, solely inflation). The CB has the responsibility to maintain inflation at its target rate, thus must increase M to make up for the decrease in V.

Again, yes: they are trying to get inflation. It should work. CBs can always produce inflation, an depending on the circumstances, should (specifically, when their target has been missed to the downside and continues to be likely to be missed)

[KrazyHorse]

Ah, yes. I assume you are referring to the influence of the interest rate on aggregate demand. Setting up interest rates is not precisely the CB tool we are discussing though, are we?

No, I am referring to the impact of MONETARY POLICY IN GENERAL on aggregate demand. INTEREST RATES ARE NOT INDICATIVE OF THE STANCE OF MONETARY POLICY.

Sometimes, ceteris parebus, CHANGES in interest rates tell you something about a CHANGE in monetary policy. In "normal" circumstances, an unexpected drop in the fed funds rate from 5% to 2.5% with no other macroeconomic news would be a loosening of monetary policy. That doesn't mean **** in terms of overall stance, or in terms of how things work when rates are at 0.

INTEREST RATES ARE NOT THE ONLY TRANSMISSION MECHANISM FOR MONETARY POLICY, NOR NECESSARILY EVEN AN IMPORTANT TRANSMISSION MECHANISM.

[Az]

? Maybe it's the hour, but I am not sure why are you allcapsing here -
Are interest rates not part of monetary policy? it doesn't matter that's semantics. The more interesting thing is:
How else does the central bank affect the AD, if not by influencing private investment and consumption via the interest rate?

[VetLegion]

Vetlegion: I believe that yes, but only through a lengthy trickling mechanism. I always like to analyse in non macro terms, what things would specifically cause this inflation?

I'd like to figure that out, but have not. Obviously the money held abroad has to
return to the country of origin and ideally not to the banks but straight to the
economy. Perhaps buying up real estate? Stocks?

[KrazyHorse]

? Maybe it's the hour, but I am not sure why are you allcapsing here -
Are interest rates not part of monetary policy? it doesn't matter that's semantics. The more interesting thing is:
How else does the central bank affect the AD, if not by influencing private investment and consumption via the interest rate?

This is not an intro to macro course. The Google is your friend.

HOWEVER, off the top of my head:

1) exchange rate (what else have we been talking about?)
2) asset price increases (tobin's q)
3) expected future inflation
4) expected future real growth

viewing everything through the lens of interest rates is probably the most pernicious mistake in all of macroeconomics