Gauti Eggertsson 🇺🇦
@GautiEggertsson
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Professor of Economics, Brown University. Consumer warning: I am terrible at spelling.
Joined June 2011
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Bernanke famously quipped that “The problem with Quantitative Easing (QE) is that it works in practice but not in theory”.
My paper with Bhattarai and Gafarov on how QE can work in theory is forthcoming in the Review of Economic Studies. A thread:
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Serving on my Ph.D. thesis committee in the early 2000s in Princeton and getting the Nobel Prize appears to be an example of Granger Causality: Krugman (2008), Sims (2011), Bernanke (2022). Feel free to use this to make money in the betting markets. Only one is left: Woodford.
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No. "Team temporary/transitory" did not win the inflation debate. At the end of summer 2021 I was a card carrying member of team temporary. I thought that the burst in inflation was due to temporary factors. Hence, the Fed did not need to tighten aggressively. /1
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I have, like many others, been a bit surprised by how quickly inflation took off. It just occured to me that perhaps I should have read my own papers more carefully(!) 1/
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I have just completed this paper with my grad-student Cosimo Petracchi. How do you make sense of the famous controversy between “Keynes” and the “Classics/Monetarist”? I have been thinking about this topic for a long time. 1/7
Resolving the old controversy between Keynes and the classics/monetarists, from Gauti B. Eggertsson and Cosimo Petracchi
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@ben_moll
is right to take a little victory lap in a new paper with
@MSchularick
and
@GeorgZachmann
. This is based on his his work with
@BachmannRudi
,
@DBaqaee
,
@christianbaye13
,
@kuhnmo
,
@andreasloeschel
,
@APeichl
,
#KarenPittel
,
@MSchularick
. Let me explain 1/
Just released: new study showing
1. The German economy coped well with end of Russian gas supplies even avoiding recession
2. Germany would have also withstood an earlier 1 April 2022 import stop
Joint with
@MSchularick
@GeorgZachmann
@ECON_tribute
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Scott Sumner coins a fun term the “Princeton School of Macro” for the work in monetary economics at Princeton from the mid 1990’s to mid 2005 in this podcast 1/n
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I just released a paper with
@PierpaBenigno
.
The inflation surge is due to a nonlinear Phillips curve. And we find ourselves at that non-linear part for the first time since late 1960. 1/
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The more I look at the numbers behind the 1.9 trillion Biden fiscal plan, the less I am concerned about the risk of "overheating" 1/n
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The new monetary strategy announced by Fed Chairmen Powell today is a helpful innovation. Some comments:
The strategy is to say that the Fed aims for inflation to *average* 2 percent over time. 1/n
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Here is a deep puzzle for
#econtwitter
. Why does anybody write a paper anymore where figures and results are junked at the back of the paper? I understand this made sense during primitive times in printing technology. But now? Flipping back and forth in the pdf? Why?
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For a good while now, I have been greatly annoyed by my tweed at the very beginning of the great inflation debate. The high inflation read yesterday reminded me of my mistake. The tweed minimized the role of the Biden stimulus in contributing to inflation. /1
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No, I don’t think “team transitory” won the inflation debate in 2021. I posted about it yesterday. I am getting pushback from people I follow and respect, e.g.
@paulkrugman
,
@Claudia_Sahm
,
@mtkonczal
. Reading it, I should clarify what I mean. 1/
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Many complain that us, US academic economist, speak in a way that nobody understands. Here is my contribution to solve this problem: An op-ed in Nikkei about if inflation is a problem in the US. Enjoy!
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Happy to see Krugman is not holding it against us that we shamelessly stole the title of his 98 classic, which is one of my all time favorites and started me off on my research agenda on the ZLB. But I want draw your attention to his is second point in his thread. 1/
Wanna highlight this from Benigno and Eggertsson — and not just bc the title is an homage to an old paper of mine — making the case that a lot of the recent inflation surge reflected a strongly nonlinear Phillips curve 1/
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In my lifetime, I think there have been about 4 major “before and after” moments. The first was the fall of the Berlin Wall. The second was 911. The third was the 2008 financial crisis. And the covid pandemic the forth. My feeling is that Putin’s utterly insane war on Ukraine 1/8
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Overheating means inflation will finally rise to hit the Fed’s target, and if it goes above the Fed might be able to raise rates from zero— 10 year Treasuries are only about 1.2 today! This so-called “risk” is a feature — not a bug — of this budget proposal. 2/2
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I do not agree with the argument that the
2 trillion Biden budget proposal is bad because of “risk of overheating”. 1/2
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How is the fact that inflation is closing in on target a vidication of those of us claiming aggressive actions were not needed in 2021 because the shocks were temporary? Inflatin only came down after the Fed RAISED rates from 0 to 5.5. 5/
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Seems like that old fashion trade-off between output and inflation is back in vogue?
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When inflation was below target, the so-called “neo-fisherian” school of thought said we should increase interest rates to increase inflation. Do the same people now oppose interest rate increases because it might increase inflation further? Just curious……
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One of the giant's of economics passed today: Robert Lucas, who had a profound effect on macroeconomics and received the Nobel Prize in 1995. If there was ever an economist that deserved two Nobel Prizes, Lucas would probably be the top contenter. I did not know him personally,
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Germans are they key to tighten the screws on Putin by imposing oil/gas embargo. And it looks like the public is ahead of the politicians in wanting full embargo. German voters need to mobilize and pressure their politicians. 1/
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So the "soft landing" we are seeing after Fed raising rates from 0 to 5.5 is not a vindicating of "team temporary". Instead, it gives credence to the idea that the Phillips curve is very non-linear when employment reaches its maximum sustainable level. 8/
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Journals publishing replications is fantastic. Even better when one's paper is actually replicable! Replication of “A Model of Secular Stagnation” by Eggertsson et al. (2019) - Economic Inquiry - Wiley Online Library
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I think European leaders, such as the German Chancellor, vastly underestimate the willingness of their voters to tolerate inconveniences/higher oil/gas prices their cirizens are willing to tolerate in response to maximum sancrions on Russia. 1/
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More often than not it turns out that the "sophisticated real world" analysis proves to look exceedingly silly when you spell out the assumptions needed to arrive at the supposedly "model free" approach. 14/
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I'm entering the forecasting business based on my recent paper with
@PierpaBenigno
: 70 percent "soft landing," i.e. mild recession to bring down inflation, 30 percent hard landing. Let me explain 1/
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Pandemic policy makers can learn from monetary policymakers how to manage expectations via “forward guidance”. State conditions under which policy changes instead of making unconditional forecast like “We will back to normal by Easter.” How long should there be a lock-down? 1/
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By fall 2021 it was clear to me and many others that inflation was broad based and not just due to stuff like used car prices blowing up. When facts change, I change my mind. What do you do? 2/
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True. The profession is like the drunkard looking under the light post for the car keys since they can only be clearly identified there. Macro is full of empirical questions with imperfect identification. Yet, major decisions need to be made based on whatever knowledge we have.
Next time I hear the advice that people should pick big questions with imperfect identification over less important but better identified ones, I am going to scream. This is not the game this profession is playing.
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Economic Notes: Secular Stagnation, Myth and Reality
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It’s Baaack: The Surge in Inflation in the 2020s and the Return of the Non-Linear Phillips Curve
New paper with P Benigno on why inflation surged beyond everybodies expectations. Will give a summary in the next couple of days. In the meantime, here it is!
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The worry about US inflation are overblown (a long-ish tread).
In case your Japanese is a bit rusty, and you could not understand my last tweed, here is the English version of the Nikkei article. It is a bit long – and repetitive – because Nikkei insisted(!) on 1200 words 1/
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This was the most interesting book I read this year. Beautifully written and build on decades of serious thinking. Strongly recommend it!
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I don't get it. I think to make progress one needs to recognize when wrong and adjust one's world view accordingly. I did, and wrote a paper that the Phillips curve is non-linear. I missed that, and accordingly made the wrong call in 2021. 6/
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Here is a link to the paper I wrote with Pierpaolo Benignio to take account of how my view changed. A revised version coming soon!
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I find it very strange to see people claim that the fact that inflation is now approaching the Feds target is somehow a vindication of the arguments many of us on team temporary were making in 2021 3/
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Happy to see that our paper on sec stag got best 2019 paper award at AEJ macro. Unfortuntely looks like low rates are here to stay, so we need more people to think about this
@Realprofneil
@thesugar
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I don't understand how you can look at the past couple of years and suggest "team temporary" was vindicated since the whole point of that debate was that the Fed did not need to raise rates aggressively due to the fact that the shocks were temporary. 10/
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In contrast, explicitly writing models typically helps you avoid making first order mistakes in thinking, however imperfect our models may be. 15/
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Big day. First time in about a year: i) teaching live ii) wearing pants with non-elastic waisband
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Turkey's Erdogan tested the neo-fisherian theory that cutting rates would bring down inflation … predictably unleashing ... massive inflation. Enters
@yfatihkarahan
to establish the power of the Taylor principle!
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From AEA P&P with
@PierpaBenigno
. Fit Phillips originally proposed curve (using prices not wages)
on cross country data from 2009 and (in black): A Slanted-L Phillips curve! Webcast from ASSA below 1/
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Nobody -- as far as I know -- was ever contesting the fact that the Fed could bring down inflation by raising the Federal Funds rate. The Fed did so starting in March 2022 going from 0 to 5.5 in relatively short time. 4/
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This is a false choice. The choice is not using a model or no model. Dig into it and try to explicitly write down what those people that claim to base their analysis on a more "flexible and sophisticated approach" have in mind. Here is my experience: 12/
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I am inept on twitter. I can’t figure out how to respond to my good friends Jon’s thread with multiple tweeds. Check out his thread below for context. Issue: How much should the Fed tighten next meeting? Jon says 50 basis points. I asked about if he had done model simulations. 1/
@GautiEggertsson
I think models are useful in understanding the forces at play and to organize ones thinking. I am more skeptical of their value for assessing these types of questions.
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@BrankoMilan
At loss, please flesh out this interesting point. Taiwan has roots in the communist revolution as the holdout of the old regime. Now functioning democracy. Should a democratic state be anexed by an authoritarian one to support free Ukraine in order to satisfy logical consistency?
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There has been some discussion of “greedinflation” the idea that part of the inflation we are seeing today has been triggered by corporate greed. First of all, it is a terrible name. Firms are in the business of maximizing profits. They are not carities. Is that “greed”? Second,
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Nice summary in the Economist that summarizes my work with
@PierpaBenigno
and other work by Schmitt-Grohe&Uribe and
@IvanWerning
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I was asked to give a keynote address to specialists in history of economic thought about … history of macroeconomic thought. Seemed like an invitation to ignite a dumpsterfire inside a trainwreck. How could I possibly say no? I can resist anything except temptations…
#eshet2023
keynote by
@GautiEggertsson
about a history of recent macroeconomics. What can a practitioner macroeconomist tell a room of specialist historians of economics tell? Let’s see 1/n
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The new policy framework announced by the Fed today improves upon a major flaw with the existing framework that Giannoni and I discussed in this paper 1/n
Allowing inflation to temporarily overshoot the inflation target once interest rate fall to zero is critical in designing a good monetary policy regime, from Gauti B. Eggertsson and Marc Giannoni
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Just did a panel at the ASSA meeting on the return of inflation. Webcast linked. The talk was based on a short paper with
@PierpaBenigno
for AEA P&P: The Slanted-L Phillips Curve. Expand thread for link to paper. 1/
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They are typically assuming some form of a model, typically partial equilibrium, even if they don't always realized it. And if you take the time to try to explicitly write down what they have in mind and spell out the assumptions the following emerges: 13/
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@ben_golub
Sign of a truly good contribution is that first it is considered stupid, then confusing and not well tought out, and probably wrong, and the finally just so totally obvious that people wonder why anybody even bothering sketching out. Its like three stages of denial.
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The excellent economist
@RobinBrooksIIF
, and good friend of 20+ years, warns us of not hyperventilating about demand since we are seeing some supply shocks. At the risk of hyperventilation, let me just point out that if the Phillips Curve is non-linear, and if we are still on the
Delivery times are rising again, as Red Sea disruptions start showing up. Should central banks postpone rate cuts because of this? No! Lesson from COVID is that a supply shock is just a supply shock. Don't start hyperventilating about demand-led inflation where there is none...
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An interesting discussion about macro at Princeton in the early 2000’s
A great show today with
@MoneyIllusio
on the legacy of the 'Princeton School of Macroeconomics'--
@paulkrugman
, Michael Woodoford,
@GautiEggertsson
,
@benbernanke
, and
@leosven
--circa late 1990s to mid-2000s. (1/5)
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How did we get here with this Russian mess? And what could have been done to avoid it? I had an interesting conversation with a Russian friend today who lived through it all. He offered the following hypothesis: 1/
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But I have spend some time in policy institutions. The choice is never really between an explicit theoretical model and some more "sophisticated" model free analysis based on the "real world" -- supposedly making no silly assumptions. 11/
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But after writing that paper, to understand why I made a wrong call, I made another prediction here on twitter: A non-linear Phillips curve predicts that the Fed could bring down inflation with relatively little cost to output and employment. 7/
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That's why it is to be admired and celebrated when we see people providing the public good and sticking their head out. Make the hard call. This was important and may have had an effect on actual policy in a situation where major decisions were being made. 8/
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Nice piece in the Washington Post about my late father-in-law, Howard Croft, that we lost to covid. My son Gunnar Howard features prominently!
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Doing a little podcasting. Have not listened as I really don’t like hearing my own voice — always sounds different from what I think its sounds like in my head. Hopefully did not say anything terribly stupid, but no guarantees ... thanks for having me
@DavidBeckworth
Delighted to have
@GautiEggertsson
on the show this week to discuss the Fed's role in the inflation surge, the FAIT framework as a legacy of the Princeton School of Macro, non-linear Phillips Curves, NGDP targeting, and more! (1/8)
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“Excess Savings” Are Not Excessive
There is buzz about “excess savings” of 1.6 trillion. Our take:
First, this needs to be put in context. The available estimate of US household net worth is about 130 trillion. 1/n
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Moreover, that this development somehow threatens Russia’s security — a blatant Putin spin — since these countries where in “their sphere of influence”. A security threat to Russia? Does anybody think Lithuania is dying to invade St. Petersburg due to NATO membership? 4/8
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Released Slanted L-curve with
@PierpaBenigno
as NBER WP. Sliding down the vertical part of the slanted L-curve rather nicely to a soft landing. Prediction, made some time ago BW, based on theory NOT past data. Sometimes crisp theory beats re-living past via staring at stale data
Cross-country data of major industrialized economies since 2009 shows that a slanted-L curve is well-suited to represent the non-linearity of the Phillips curve in unemployment and inflation, from
@PierpaBenigno
and
@GautiEggertsson
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Another comment about the new Fed policy strategy and Powell's Jackson Hole speak: I am struck by how effective communicator Powell is. He is able to explain the framework, which some expected to be a major communication challenge, in simple straightforward terms.
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My only hope is that this tragedy, which looks like a major miscalculation, will finally shows those Russian people not already fully aware — and who all want the same things in life as everybody else — that the emperor has no clothes. Putin must go. /end
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Presented a paper joint with Don Kohn at Brookings today, before us Ben Bernake and Olivier Blanchard presented their paper. To make up for my lack of gravitas in this company I decided to wear a tie. Yours truly starts at 1 hour and 25 min.
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The Eggertsson brother that stayed in Iceland. I always tought he should go into academia as well. But I guess somebody has to keep the trains running on time … but then there are no trains in Iceland so …
🇮🇸 In the past 5 years, the annual apartment construction in
#Reykjavik
increased from 700 to 1,200. How can the city ensure sustainable growth while reducing its environmental footprint?
Explore Mayor
@Dagurb
's strategy for affordable
#housing
➡️
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PS, almost forgot, here is an link to the paper: . I sometimes tell friends I don't like twitter, for it tweeting is not a natural form of expression for me. I think a 30 tweet marathon thread makes my case!
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Strongly recommend Brown’s Oded Galor’s book on this list “Journey of Humanity” — the best book I read this year by some margin — and I read unusually many books this year.
NEW: The Best Economics Books of 2022
@jasonfurman
a Harvard economics professor and former adviser to Barack Obama, picks out five of the best economics books of 2022.
Features:
@GalorOded
,
@delong
,
@leah_boustan
,
@RichardvReeves
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Above max employment it is "easy up" and "easy down" for inflation. The "easy down, of course, requires the Fed to actually raise the Fed's Funds rate which team temporary was warning against. 9/
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If Putin’s folly and miscalculation results in a regime change, I hope the Western world does not squander a second chance to bring Russia into the democratic fold. End/
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Having fun trying out ChatGPT and Claude AI. Great tools for coding and editing. Conclusion so far: Claude AI is a lot better editor. When I feed text into Chat GPT I get in return drivel that feels like marketing consultant writing. Claude AI has a lighter touch, better edits
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Its bad for form to brag, and in any event pre-mature in this case. But while I failed to predict the burst in inflation in 2021, the model that I wrote to rationalize that failure predicted a soft landing. That predictions seems to be looking pretty good right now….
I'm entering the forecasting business based on my recent paper with
@PierpaBenigno
: 70 percent "soft landing," i.e. mild recession to bring down inflation, 30 percent hard landing. Let me explain 1/
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It does not count on our CV's, for promotions, outside offers, salaries, etc. Some econ collegues even turn up their nose and show distain for "policy work" of this kind as not being sufficiently "serious." Many trivialized covid research on the same basis. 7/
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The industry lobbyist predicted gloom and doom if Germany imposed sanctions and lost out on Russia's gas. And in come a few world class academic economist, combining their skills and tools of the trade, using state of the arts methods to address this question.4/
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the best mayor....
In order to deal with the pandemic, we need to trust science.
In Reykjavík, Iceland, Mayor
@DagurB
Eggertson’s background in medicine helped him manage the pandemic effectively – and the city became a global example for its testing, tracing, and quarantine measures.
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There is a bit of a broader lesson here -- I think. Policy makers very often dismiss "models" pointing out special assumptions and the like in our mathematics. 10/
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It seem that this overview of the ZLB literature I just wrote with Sergey Egiev is rather timely. Its a preliminary draft, so comments welcome
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What I think his concern highlights -- broadly speaking -- is that monetary policy affects the economy with high degree of uncertainty and perhaps more importantly, with a LAG -- hence the motor control problem. 3/
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I recall as a child in the 80’s worrying about nuclear war and asking my parents about it. After the fall of the Berlin wall I could never have imagined having to respond to the same questions from my youngest son — 8 years old — 40 years later. But last night I did.
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@ben_moll
Your paper was timely, and a public good. Applied academic work its best. It is useful for the profession generally to put forward well reasoned argument forecasting when stakes are this high. While incomple they are better than those from lobbying groups which otherwise rule..
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that have so much and deep cultural heritage in common with Russia show the viability of the western style democratic model, then this poses an existential threat to Putin. The Russian people will ask: Why can’t we join the party? 7/8
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Excited to welcome our newest international macro hire at Brown!
Here is my piece
@ProSyn
from last year, January 2022, on why neo-fisherian experiment of Turkey would have never worked in a small open economy that needs foreign financing to grow.
@yfatihkarahan
"entering" as in
@GautiEggertsson
is great news indeed!
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The professional incentives for an academic to engage in this type of work is minimal. You can say it even has negative expected returns, given predictable backlash. 6/
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@jasonfurman
@nytimes
I was biased since my wife worked at Lehman. I vividly recall -- as anybody with money on the line -- the strong consensus in popular and policy discussion that letting Lehman go was right. That consensus shifted on the spot, and people forget what WAS the conventional wisdom...
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Did a little podcast on the "Demand side" talking about secular stagnation and the general outlook
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A little vox article about the new policy framework /1
The Fed’s new policy framework: A major improvement but more can be done | VOX, CEPR Policy Portal
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One interesting prediction of this relationship is that it is not costly to bring inflation under control. You don't need a recessions to do it. All you need to to raise interest rates to be consistent with the "natural rate of interest." 8/
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Their answer: The effect will not be all that big. There was a predictable backlash against the team that don't know the "real world" but just "live inside unrealistic models". I even recall the German cancellor calling out
@BachmannRudi
! 5/
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While global politics is way out of my lane, my suspicion is that the answer is much simpler: Putin has effectively appointed himself a Russian Emperor for life, killed freedom of speech, made a mockery of any notion of democracy, and created a kleptocracy of oligarchs. 5/8
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Important paper on the almost impossible task of forecasting at the time of Covid from two of the top people in the economics profession
Here is a new (crazy) paper on predicting the economic impact of COVID with time-series models
This task is challenging since the Covid shock is unprecedented and historical data can be informative about its propagation only under strong assumptions. 1/4
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Its to be seen if I manage to stay off after that apart from the mandatory promotional paper tweet which is part of our business as academics. Twitter seems quite effective in disseminating new research and we want people to read our stuff. /end
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As a sidenote: Perhaps one reason for why we have not seen much movements in inflation for the last few decades, is that we never really ever hit full employment -- until now. 7/
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And in any event, upward pressure on inflation and interest rates would be a welcome feature -- not a flaw -- of this program. 8/n
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The Aggregate Supply relationship (in red) below is from my paper with Mehrotra and Robbins on secular stagnation (linked at the end). It is sort of like an "inverted L". At employment below full employment you have a well behaved static Phillips curve 2/
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