In a previous post I mentioned that "other people write much better about physics, statistics and all that". If you want to see two recent examples read Normal Deviate about Stone's paradox and John Preskill about firewalls.
In the first case a commenter tries to provide an argument how a Bayesian could try to 'save the appearances'. I am not sure you will find it convincing.
In the case of the black hole firewalls L.M. wrote some important comments imho. I always thought that the key to resolving the 'information loss paradox' was the idea that one cannot distinguish the mixed state from a pure state with real experiments (following Dyson's argument, one needs planet sized detectors to determine the state of the gravitons emitted by the black hole, but those would distort the geometry one wants to determine so precisely).
8 comments:
I'm going to bait you with this. You won't be able to resist.
" the IS-LM model (don't ask) told us that under depression-type conditions ... huge increases in the money supply wouldn't cause runaway inflation."
The assumptions of the IS-LM model include that the money-supply is fixed and inflation does not change.
But I guess this is too "wonkish" - a term our favorite Nobel prize winner likes to use whenever he explains something really complicated (like two lines crossing).
I think your description of IS/LM is a bit over-simplified. The money supply is assumed fixed for a given LM curve, but increasing money supply shifts that curve downward and to the right. It's the IS/LM curve's ability to explore such options that give it analytic power.
PS - Your reaction to Bernanke's latest announcement?
CIP,
you are wrong. The IS-LM assumes fixed M and unchanged inflation.
It assumes equilibrium and in fact static conditions.
The idea that a change in M is equivalent to a parallel shift in one curve (but not the other) is an additional assumption.
>> Bernanke's latest announcement?
I think it was a major mistake relative to what *he* tries to achieve.
Previously, the FOMC signaled that the money printing would continue until 2015 - but with the limits ( 6.5% unemployment and 2.5% inflation) it could end as early as end of 2013.
They tried to square the circle with a pessimistic forecast which made matters worse imho.
Otherwise you know what I think about QE3 and now QE4 ...
>> shifts that curve downward
Btw if your expectation really was that interest rates would fall with additional QE4 then your model is already proven wrong by reality: The 10Y rate increased during the last days (i.e. before during and after the Fed announcement).
The IS-LM only knows one interest rate, which is another of its many flaws.
... if your expectation really was that interest rates would fall with additional QE4
Falling interest rates are hardly possible at the zero bound. The point now is to increase inflation, and get corporate cash out from under the mattress. See e.g. Matt Yglesias.
The inflation threshold in the Fed programme is expressed in the most ambiguous language possible. Practically anything Bernanke does for a long time to come could be interpreted as in compliance with it.
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