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Civil wars can create inflation even faster

Great post, Nick. I'm definitely on board.

"The idea that they can "run out of ammo" is a fallacy that comes from the Neo-Wicksellian heresy of thinking of monetary policy as interest rate policy."

I agree here. But instead of adopting some sort of Fisherian compensated dollar plan to solve the problem, we can also figure out ways to get interest rates below zero. Miles Kimball has a few ideas on that.

When I think about what central bank best embodies an adjustable crawling peg to farmland, I'd say the People's Bank of China. Except instead of farmland, it uses a currency basket (mostly USD). It can adjust its peg up or down to make monetary policy tighter or looser. (I've never really understood what adjustments to the PBoC's interest rates accomplish.)

@JP Koning: "we can also figure out ways to get interest rates below zero. Miles Kimball has a few ideas on that."

It seems to me that you have entirely missed the point of this post. Did you happen to miss this sentence? "Monetary policy is not interest rate policy."

It doesn't matter what interest rates are. Even at the so-called Zero Lower Bound, monetary policy remains effective. Open Market Operations that expand the money supply, continue to provide stimulus.

Bank lending is not a significant part of the monetary policy transmission mechanism. There is no need to try to puzzle out how to get below-zero interest rates. That's not a problem that needs solving, and it has nothing to do with monetary policy.

What's with Turgot's theory that the price of farmland should approach infinity if the real rate of interest on anything else approaches zero? In that case there would be an infinity bound! Central bank can't raise the price of land above infinity (without going full Cantor :-)

An "infinite" price could be interpreted as landowners refraining from selling land at all. (Most people, I hope, would refrain from selling their children, in that sense: children have an "infinite" price.)

This may be a stupid question, but say we wind up in a situation where:

--The CB owns 100% of the farmland.
--No new farmland can be created.
--Everyone continues to prefer to own currency over farmland at current prices.
--Thus, no transactions take place in the farmland market.

In this situation, how would the price of farmland (or its rate of appreciation) matter for the economy? How could the CB deliver additional monetary easing if it wanted to?

JP: Thanks!

Negative interest rates on currency gets around the ZLB problem, yes. But the (more theoretical) price-level indeterminacy problem remains.

I think there's a close analogy between farmland adjustable crawling peg and exchange rate adjustable crawling peg. Both are examples of what I called "front wheel steering" in an old post:

But we can't have all countries doing monetary policy with exchange rates; the nth country must do something else.

libertaer: yep. If interest rates were permanently negative, the equilibrium price of rent-paying farmland would be infinite. Unless rents are expected to decline faster than the rate of interest. Or unless there's an illiquidity or risk premium built in that requires a higher rate of return on farmland to compensate.

Chris: didn't I address that question in the post?

Dear Prof Rowe,
I’ve been reading your blog for a while, but I’ve found this post particularly compelling.
I want to think about, say, inflation futures as an implementation tool for central banks more carefully.
Are you able to point to any papers etc that set out your thinking, and work through how this could be implemented in practice?

MDC: Thanks!

I'm pretty sure there are papers on central banks targeting inflation futures, but my memory is very bad at pointing you to specific papers. I know that Scott Sumner (Money Illusion blog) has a number of posts on targeting NGDP futures, which is very closely related.

Hi Nick,

I am very interested in this theme. Would you mind setting out in tangible terms how the central bank exogenously gets money into the economy and how that translates into nominal demand?

I like your joke about how new Keynesians are actually just new Wicksellians. But I would like to understand this beyond the level of a joke. Please help.

Thanks very much.

Yates claims you are the only literary economist worth listening to.

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