Equity prices, bond prices and the breakdown of monetarism
Equity prices are driven by prospects for real economic activity and the expected corporate profits that will result from it.
But bond prices are driven by the prospects for inflation and the expected interest rates that will result from it.
In the pre-crisis world, strong economic growth almost invariably meant higher inflation and, therefore, higher interest rates.
But during the past decade, the links between economic activity, inflation, and monetary policy that were taken for granted in the 1980s and 1990s have completely broken down.
The pre-crisis dogma that inflation “is always and everywhere a monetary phenomenon” has turned out to be nonsense, at least for advanced economies, where central banks have printed money like wallpaper without any inflationary response.
Anatole Kaletsky Project Syndicate 23 April 2019
Monetarism
Secular Stagnation
But bond prices are driven by the prospects for inflation and the expected interest rates that will result from it.
In the pre-crisis world, strong economic growth almost invariably meant higher inflation and, therefore, higher interest rates.
But during the past decade, the links between economic activity, inflation, and monetary policy that were taken for granted in the 1980s and 1990s have completely broken down.
The pre-crisis dogma that inflation “is always and everywhere a monetary phenomenon” has turned out to be nonsense, at least for advanced economies, where central banks have printed money like wallpaper without any inflationary response.
Anatole Kaletsky Project Syndicate 23 April 2019
Kaletsky menar att det var Paul Volcker som ledde återgången till "demand management".
Secular Stagnation
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