Friday, 20 October 2017

Author Archives Nicolas Cachanosky

Knowledge Problem in Central Banking – Part II

August 3, 2017
in Blog

The previous post presented Hayek’s knowledge problem in the context of the economic calculation debate under socialism. We discussed the distinction (sometimes overlooked) between information and knowledge . To sum up, information is objective data such as quantities and prices. As a qualitative concept, information can be complete or incomplete. Knowledge is subjective data interpretation. As a qualitative concept, […]

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Knowledge Problem in Central Banking – Part I

August 2, 2017
in Blog

In my previous posts, Andreas Hoffmann and I discussed the problem of unintended consequences in monetary policy, particularly as applied to the U.S. Federal Reserve and the European Central Bank in the context of the 2008 crisis. This post tackles a related issue: the so called “knowledge problem.” This term was coined after Hayek’s engagement […]

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Unintended Monetary Policy Effects – Tale II: ECB Crisis Policies

July 16, 2017
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The Federal Reserve’s (Fed) and European Central Bank’s (ECB) policy responses to the recent financial disasters offer two tales of unintended consequences. Our previous post outlined the undesired effects of the Fed’s policies. In this post, we suggest that the ECB’s stabilization policies did not only fail to achieve its goals. Monetary policy has also […]

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The Monetary Policy Blinders

July 10, 2017
in Blog

I just read Ben Bernanke’s “The Federal Reserve and the Financial Crisis.” The book was actually published in 2013, and it contains his 2012 lectures at George Washington University. It contains four well written lectures that cover the history of the U.S. Federal Reserve and the 2008 financial crisis. Some of the complexities of the […]

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Cantillon Effects and Money Neutrality

June 27, 2017
in Blog

Money neutrality is a key principle in monetary economics. As might seem obvious, the amount of goods that can be produced depends on the availability of factors of production (such as capital and labor) and on technological knowledge. For instance, the fact that more dollars are in circulation does not mean we can produce more […]

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Fed’s Balance Sheet, IOR, and Uncertainty

June 13, 2017
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It seems likely that in the coming months monetary policy discussion will start focusing on the problem of shrinking the Fed’s balance sheet. A particular challenge of shrinking the Fed’s balance sheet is that of discontinuing the policy of paying interest on reserves (IOR). While at first sight it might seem that the IOR is […]

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Two Tales of Unintended Consequences of Monetary Policy – Tale 1

May 17, 2017
in Blog

Even when a policy is successful in achieving its desired ends, we have to consider its unintended and unforeseen consequences, resulting from cumulative market adjustments to policy changes that make it hard to judge the overall outcome of a policy in our complex economy. The Federal Reserve and European Central Bank’s monetary policy responses to […]

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The Rule of Law vs the Rule of Experts

May 8, 2017
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Our worldviews shape the ways in which we approach problems, challenges, and questions. Our “worldviews,” as I refer to them in this post, are so deeply embedded in our minds that we don’t usually realize our thoughts are driven by them. Monetary policy is not free from this “worldview” effect. There is a big debate […]

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What the Gold Standard Is and Why Government Killed It

April 19, 2017
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This piece originally appeared in Learn Liberty The gold standard is both a strongly advocated and vehemently opposed monetary regime. Both positions, however, usually rely on misconceptions on what the gold standard actually is and why it failed. Below, I will discuss (1) what the gold standard is, (2) what is not, and (3) why […]

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Against the War on Cash

March 27, 2017
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In recent years, economists and central bankers have been advocating moving away from cash transactions towards an economy relying fully on financial transactions. At prima facie, this seems to be a good idea. Using checks and financial transfers can be more secure; the fact that every transaction is recorded makes illegal transactions (drug deals, etc.) […]

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What interest rates really are and what happens when governments change them

February 6, 2017
in Blog

This piece originally appeared in Learn Liberty By Nicolás Cachanosky  When you pay interest, what are you paying for? Interest rates are one of the most confused subjects in economics. What are they, really? And what is their role in economic crises like the housing bubble and crash of the 2000s? The first thing to […]

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The asymmetry of central bank power

November 10, 2016
in Blog

For some time now, a lot of attention has been put on the Federal Reserve’s decision on whether or not to increase the federal funds rate target or to leave it unchanged at its current level. The health of the U.S. economy (and a significant part of the world economy) seems to depend whether or not the […]

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Natural rate of interest: Is it that low?

August 10, 2016
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One of the open questions since the subprime crisis is whether or not the natural rate of interest is as low as the federal funds rate. The natural interest rate is the rate that equilibrates production over time. However, this concept is more subtle than output being equal to potential output– it also implies that production is distributed […]

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Austerity isn’t failing, big government is

July 18, 2016
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Bill Emmott at Project Syndicate claims that austerity is failing—just look at the poor European recovery after the financial crisis and the weak Japanese economy. Austerity is not working and therefore it is time to turn fiscal and increase government spending. This is the core of Emmott’s argument. Don’t forget, however, that he considers the Eurozone […]

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On Brexit

July 6, 2016
in Blog

There has been a strong (and I’m inclined to say emotional) negative reaction to the Brexit. But really, it doesn’t have to be the end of the world for the British economy. Being a member to the European Union (EU) imposes two constraints.  First, there is an upper constraint on how much economic freedom a country may have […]

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IMF economists criticize “neoliberalism”

June 1, 2016
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In a recent Finance & Development piece, several IMF economists came together to criticize neoliberal reforms made by governments across the globe. Their main argument is that, “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.” More specifically, they criticize “capital account liberalization” and austerity reforms. These measures can […]

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Austrian business cycle theory and the marginal entrepreneur

April 21, 2016
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A few days ago Alexander W. Salter wrote an interesting post on the problem of optimal resource allocation during an Austrian business cycle. His argument is that the Austrian business cycle theory (ABCT) can be understood within “a framework of rational expectations and ‘equilibrium always’ modeling conventions.” The argument against the ABCT based on rational expectations is that if […]

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The money supply and the price level: a broken link?

April 7, 2016
in Blog

This past week, The Association of Private Enterprise Education (APEE) held its annual conference in Las Vegas, Nevada. As always, it was a very interesting event and I would like to take this opportunity to encourage young scholars who are serious about academic research and interested in promoting economic freedom to attend. At the first monetary policy […]

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Why sound money?

March 28, 2016
in Blog

In recent posts, George Selgin (here and here) criticizes anthropologist David Graeber for sustaining that anthropological discoveries debunk long standing core economic beliefs. A superficial reading of economics might suggest that this discipline upholds that transactions occur either in the form of barter or with the aid of money. The reason for this dichotomy is not to reject the […]

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The never-ending Argentine fiscal business cycle

March 16, 2016
in Blog

15 years after carrying out the biggest sovereign default in its history, Argentina finally reached a debt accord with its holdouts. The agreement between Mauricio Macri’s administration and the holdout litigants in the U.S. Court of Law has finally been reached. This is good news for the country. The government can resort, if needed, to […]

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Juan C. Cachanosky (1953 – 2015): See you on our next morning walk

January 11, 2016
in Blog

These are likely the most difficult lines that I have had to write in a very long time, if not ever. Juan Carlos Cachanosky, my dad, passed prematurely on December 31st, 2015, at the young age of 62. Frank Sinatra was probably his favorite singer, and his version of “May Way” was probably his favorite song. He […]

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Taylor, Sumner and Selgin at the Cato Monetary Conference

January 7, 2016
in Blog

In this post I want to briefly comment on three points raised by J. B. Taylor, George Selgin, and Scott Sumner. Though these points have been raised before in the literature, they are certainly worth reviewing. J. B. Taylor delivered his lecture on the challenges of monetary policy in an international context. The first challenge, […]

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More insights from the Cato Monetary Conference

November 30, 2015
in Blog

In this post I would like to briefly comment on three points raised by J. B. Taylor, George Selgin, and Scott Sumner. Though these points have been raised before, they are worth reviewing. B. Taylor delivered his lecture on the challenges of monetary policy in an international context. The first challenge, of course, is that […]

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Cato Monetary Conference: a reflection on James Bullard

November 16, 2015
in Blog

Last Tuesday, the 33rd annual Cato Monetary Conference was held at the Cato Institute in Washington, DC. There, brilliant minds met and presented on various interesting topics. I will briefly comment on some of them in another post, but for now would like to offer a short reflection on the first keynote address by James Bullard, President and […]

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Prudential banking versus real bills doctrine

November 4, 2015
in Blog

Should banks adhere to the Real Bills Doctrine (RBD)? This is an old question that, from time to time, resurfaces. So what then is a real bill? A real bill is a bill that is backed by a real good. If I produce bread, for instance, then as a producer I can issue a bill […]

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Financial bubbles and macro prudential policy

September 30, 2015
in Blog

In the field of monetary policy, there is one question that must necessarily be addressed: what should a central bank do in light of a financial bubble? Should it try to burst the bubble as soon as it arises or engage in damage control after a financial crisis occurs? Personally, I don’t think that there is […]

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Raising interest rates: The Fed vs. The Treasury?

September 21, 2015
in Blog

In its latest meeting, the Federal Open Market Committee (FOMC) decided to not increase the Federal funds rate target, extending the lower zero bound policy until at least their next meeting. Although the decision was not unexpectable, some people did find it a bit surprising. The post 2008 recovery has been one of the slower […]

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Why NGDP targeting?

July 22, 2015
in Blog

One of the most important questions in the field of monetary economics is “what should a central bank do?” It is only after this question is answered that one can begin to think about how a central bank should go about achieving its various target rates. The Federal Reserve, like most central banks, is mostly […]

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Currency boards and dollarization

July 20, 2015
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Sometimes sound money has to be imported from abroad. Some countries, like Ecuador, are dollarized. Ecuador dollarized its economy in the year 2000. Others countries don’t go that far, but get quite close, by imposing currency boards. During the 1990s, Argentina had a currency board where 1 Argentine peso could be converted for 1 US […]

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Understanding the Greek crisis

June 30, 2015
in Blog

As I write these lines, it is almost certain that Greece will default on its debt today, June 30. What led to such a disastrous situation? To understand, we must look back in time to the events leading up to and surrounding today’s expected default. A brief clarification must be made in order to understand […]

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Why free-banking?

June 29, 2015
in Blog

The need for and convenience of a central bank are usually taken for granted. To say that a central bank is a good institution and, therefore, needed, is not enough. Unfortunately, the assumption that central banks are necessary seems to weigh more heavily than the facts that suggest otherwise. Good and bad are relative terms. […]

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Shock or gradualism?

May 18, 2015
in Blog

Big economic crises or situations of economic distress usually put pressure on policy makers to embark upon economic reforms. If the situation is troubled enough, then whether the reforms should all be done at once (shock) or step-by-step over time (gradualism) becomes a heated question. Some Latin American countries, like Argentina, have experienced this dilemma […]

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Should central banks target NGDP?

May 4, 2015
in Blog

That was the topic of a conference organized by the Center for Free Enterprise at West Virginia University that took place on Saturday, April 25. The conference was divided in two sessions: one where theoretical aspects of NGDP were discussed and another that took a more empirical approach to the matter. I presented in the […]

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The Taylor Rule and the natural rate of interest

April 20, 2015
in Blog

A few weeks ago I commented on whether or not the Market Monetarist position that a 5% growth rate of NGDP (before the subprime crisis) could have been too much. The main point was that other nominal variables did not behave in accordance to what would expected in monetary equilibrium. Because other widely used measures, […]

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The great stagnation

April 6, 2015
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Ben Bernanke, now at Brookings Institute, has a new blog where he has been discussing low interest rates and the problem of secular stagnation. Great stagnation occurs when there are plenty of savings, but not investment options. Therefore, savings are not invested, aggregate demand weakens, and the economy stagnates. David Beckworth and The Economist offer […]

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No, the interest rate is not the price of money

February 9, 2015
in Blog

The notion that the interest rate is the price of money is seriously misled. As I move forward with my lectures on the Keynesian system, this is something that I want to make clear to my students. Certainly, when evaluating the Keynesian model, we need to understand what the model says (and what it does not […]

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Sound money abroad: the Ecuadorian case

January 26, 2015
in Blog

Sometimes sound money can be found abroad. Some countries, simply put, cannot or do not want to have reliable monetary institutions. Take the example of Argentina.Since the foundation of the central bank in 1935, the equivalent yearly inflation has been 55%. Venezuela is also experiencing very high inflation. When sound money cannot be found domestically, […]

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NGDP targeting: is five percent too much?

January 12, 2015
in Blog

That’s the title of a new working paper that you can find here. The topic is closely related to a previous post that I wrote here at the Sound Money Project. In that post, I questioned the validity of NGDP targeting. Surely, there is no such thing as the perfect nominal indicator, however, as long as different variables have different […]

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Selgin’s Bitdollar and a simple step toward sound money

December 17, 2014
in Blog

Over at the Free Banking Blog, George Selgin replied to some recent criticisms that appeared in the Economic Policy Journal (here and here.) The criticism is aimed at what Selgin calls the “Bitdollar,” which is the idea of a tamper-proof-Bitcoin-type protocol that automatically adjusts the supply of base dollars in a way that a measure of nominal income keeps […]

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Does monetary equilibrium equal NGDP targeting?

December 1, 2014
in Blog

In the last recent years, the idea of NGDP targeting as a better, if not the optimal, target for central banks has received special attention. Surely the idea is not new, but the recent increase in interest is hard to deny. The idea is that the central bank should not target an interest rate, like […]

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Sound Money Project Breakfast in New York City

November 21, 2014
in Blog

During a special session following the 2014 Liberty Forum & Freedom Dinner, Dr. Judy Shelton and Seth Lipsky, founder and editor of the New York Sun, presented a session on Sound Money. Below are Dr. Shelton’s full comments. She is an Atlas Network senior fellow and the co-director of Atlas Network’s Sound Money Project. The […]

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Recap of the 32nd Cato Monetary Conference

November 17, 2014
in Blog

On November 6th, The Cato Institute in Washington DC held the 32nd Cato Monetary Conference. Last year, the topic of the conference was an assessment of the 100 years of the Fed. This year, the theme of the conference was about proposals and possibilities of institutional and monetary reforms and the whole Sound Money Project […]

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Is the U.S. the right geographical benchmark for the Fed?

November 5, 2014
in Blog

Last Wednesday, the Federal Reserve announced that the QE policy has reached its end. After commenting on the improvement of U.S. economic indicators, the announcement states that “[a]ccordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency […]

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How does monetary policy affect resource allocation?

October 15, 2014
in Blog

If monetary policy had no effect on economic performance, there would be no point in having any particular monetary policy in effect. This is the same as admitting that, at least in the short-run, monetary policy does in fact affect resource allocation. How this happens is a delicate and discussed issue in economics. If resource […]

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Lenders of last resort

September 29, 2014
in Blog

Scotland’s vote for independence resulted in a negative. There won’t be, then, further discussions about what Scotland should do with its monetary institutions. Still, there is one more issue that I would like to discuss, because it transcends the particular case of Scotland, had independence been the result of the vote. There is a widespread […]

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Sterlingization in Scotland

September 11, 2014
in Blog

Admittedly, I haven’t been closely following the vote for Scotland’s independence from Great Britain. Neither am I closely following the debates of what Scotland, should it vote for independence, do with its monetary institutions. Ryan Murphy pointed me in the direction of this piece by Sam Bowman from the Adam Smith institute where he proposes […]

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A model for a free market monetary reform

August 26, 2014
in Blog

Despite the approval and respect central banks receive around the world, it is questionable that even the best of them managed to outperform previous monetary institutions (see, for instance, here). It is not uncommon to see free market advocates to call for a return to the gold standard. The intention is no other than a […]

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Jobs, and Obama’s Common Sense

May 11, 2012
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Reuters reports that employers cut back on hiring, again, in the month of April. Certainly this is a very important outcome in an election year. The perceived health of the economy can play in favor or against the candidate – in the opposite direction. A perceived healthy economic outlook favors the incumbent President, but works […]

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Missing the Point

May 8, 2012
in Blog

At The Economist blog Free Exchange, different opinions on the situation of Europe are discussed. More precisely, would fiscal austerity have made a difference, or was fiscal policy the right tool? Examples of economists in favor and against austerity are quoted to show the two positions, but the commentary is too framed on the issue […]

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A Prisoner’s Dilemma in Free Banking?

April 20, 2012
in Blog

Everything looks monopolistic if you leave out competition. There are several criticisms to the system of free banking. One of them relies on the conclusion that such system will converge to the presence of a central bank. This is, for instance, the position of Charles Goodhart and Huerta de Soto. From the Austrian school point […]

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