Oh, you're welcome.
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(Yeah, I made these.)
NGDP targeting in an OLG model
I'm still trying to work through this NGDP targeting idea. A lot of people graciously replied to my earlier query here, including David Beckworth here (David links up to others who have also contributed their thoughts.)
So much material. So little time. I find myself reading, and then re-reading these replies, trying to absorb the arguments. As I continue to do so, I thought that I'd reciprocate with a gift of my own; something that people strongly in favor of NGDP targeting can mull over and reflect upon. I am going to approach things a little differently here, however. I want to present my argument within the context of a formal economic model, where the assumptions are laid bare. Along the way, I'll try to present the economic intuition as best I can.
Let me consider a simple OLG model. Before I begin I should like to say that if you have something against the OLG model relative to standard macro models, you should read Michael Woodford (1986). Woodford shows that the dynamics of debt-constrained economies can look a lot like OLG dynamics. So I could use the Woodford model in what I am about to say, but I stick to the OLG model because it is simpler and the economic intuition is the same.
An OLG Model
There is a constant population of 2-period-lived overlapping generations (and an initial old generation). All agents care only for consumption when old; in particular, the preferences for a date t agent are Etct+1 (expected future consumption).
The young are endowed with y units of output and they possess an investment technology such that kt units of output invested at date t yields zt+1f(kt) units of output at date t+1. Capital depreciates fully after it is used in production. The future productivity of capital is a random variable. There is another random variable nt that is useful for forecasting future productivity zt+1. Let z(nt) = E[zt+1 | nt] and assume that z(nt) is increasing in nt. I call nt "news", higher realizations of nt "good news," and lower realizations of nt "bad news." Assume that nt is an i.i.d. process.
Note that because there is no growth in this economy, the "natural" real rate of interest is zero.
There is a second asset in this economy in the form of interest-bearing government money/debt (I make no distinction here between money and bonds). Let Rt denote the gross nominal interest rate paid on the outstanding stock of government money/debt Mt-1.
Nominal debt is an important consideration for the arguments in favor of an NGDP target and so, I make the assumption here. In particular, I assume that the nominal burden of the debt RtMt-1 is not indexed to the price-level pt; see also, Champ and Freeman (1990). Because agents differ at a point in time with respect to their wealth portfolios, a surprise change in the price-level will induce unexpected wealth transfers.
The budget constraints for a representative young agent are given by:
when young: ptkt + mt = pty - ptTt
when old: pt+1ct+1 = pt+1zt+1f(kt) + Rt+1mt
So the young "work" to produce output y, pay taxes ptTt, investment in capital kt, and money mt (from the old). When the young become old, they consume out of the returns from capital and money/bond investments (that is, they consume the returns to their capital and sell their money to the new generation of young for goods and services).
It turns out to be convenient to express things in "real" terms. To this end, define qt = mt/pt (real money balances) and Πt+1 = pt+1/pt (the gross inflation rate). The two equations above may now be combined and expressed as follows:
ct+1 = zt+1f(y - qt - Tt ) + (Rt+1 / Πt+1)qt
So, conditional on news n, a young person chooses his demand for real money balances q (and implicitly capital investment k) to maximize expected consumption (after-tax wealth, in this case). Since f(.) is increasing and strictly concave, the first-order condition describing money demand is:
z(nt)f ' ( y - qt - Tt ) = Rt+1 E[1 /Πt+1 | nt]
The equation above implicitly defines the aggregate demand for investment kt = y - qt. The RHS is the expected real interest rate. An increase in the expected real interest rate reduces investment demand. A good news shock increases investment demand (for any given expected real interest rate). Notice how a news shock looks like an aggregate demand shock (the aggregate demand for output rises with no contemporaneous increase in output). If you want, you can think of the equation above as defining an IS curve, with y pinned down by exogenous factors (labor market clearing, in a neoclassical model). In short, I think this is all pretty conventional.
I consolidate the monetary and fiscal authority, so that the government budget constraint (GBC) is given by:
ptGt + (Rt - 1)Mt-1 = (Mt - Mt-1) + ptTt
The LHS is the sum of government purchases plus (net) interest on the debt; the RHS is new debt plus net tax revenue. In what follows, I assume Gt = 0 for all t.
Let Mt = μtMt-1 and rearrange the GBC as follows:
(Rt - μt )Mt-1 /pt = Tt
Notice here that a surprise increase in the price-level reduces the real burden of the debt.
Finally, impose the market-clearing conditions:
ptM t= qt for all t
which implies:
Πt+1 = μt+1qt/qt+1
Combine this with the FOC above to form:
(*) z(nt)f ' (y - qt -Tt ) qt = Rt+1 E[ qt+1 / μt+1 | nt]
Finally, we have: NGDPt = pt[ y + ztf(kt-1) ]
A Benchmark Policy
Set Rt = μt = 1 for all t, so that Tt = 0 for all t.
Notice that since nt is i.i.d., we have E[ qt+1 | nt] = Q (some constant). Consequently, condition (*) may be written as:
z(nt)f ' (y - qt)qt = Q
Proposition 1: qt is a decreasing function of nt.
The proof follows from the strict concavity of f(.), the fact that z(.) is increasing in nt , and that Q is a constant. The intuition is as follows: Good news raises the expected return to capital formation--the demand for capital rises, and the demand for government money/debt falls. This is a strait forward portfolio reallocation effect. If the news is "bad" (a decline in nt), then the demand for government securities rises -- this looks like a "flight to safety" event.
Consider a bad news event. There is a collapse in investment demand kt, and an increase in the demand for government securities qt. From the market-clearing condition, pt = M / qt. That is, the bad news event causes a surprise drop in the price-level (a sequence of such events would lead to a surprise deflation).
The surprise drop in the price-level leads to a surprise increase in the purchasing power of government securities. In this simple set up, the stock of government securities is held entirely by the old (the high propensity to consume agents) prior to the realization of the news shock. The young (the high propensity to invest agents) wish to acquire these securities as part of their wealth portfolios. The decline in the price level makes the real value of nominal government debt more expensive. In this way, bond holders are able to secure more labor power (y) from the young, so that fewer resources are now available for investment. The decline in capital spending leads to an expected decline in future NGDP (and RGDP). Note: I say expected because the future capital stock is lower; but future GDP may turn out to be higher or lower than expected depending on the realization of the productivity shock z.
Stabilizing the (expected) NGDP
It is possible here for the government to stabilize the expected NGDP path by conditioning the nominal interest rate on news (or, if the lower bound is a constraint, the same effect could be achieved by altering the expected inflation rate via money creation). The key is to stabilize capital spending; and the way to do this is to lower the nominal (hence real) interest rate on government securities. In this way, the decline in the price-level can be avoided. And NGDP remains elevated, despite the bad news, because capital spending is "subsidized" and the price-level remains stabilized.
But is stabilizing the NGDP path a desirable policy?
Well, it depends on what one means by "desirable." If you objective is to stabilize NGDP, then the answer is "yes." In terms of maximizing the expected utility of the representative young agent, however, the answer appears to be "no;" at least, not in this case. (Welfare calculations in heterogeneous agents economies, like this one, can be complicated--as is the case in reality.)
The intuition is this. When the news is bad concerning the future return to investment, it is optimal for investment to contract (and for savings to flow into more stable return vehicles, like government securities). To put it in more colloquial terms: the real rate of return on capital spending sucks (at least, in expectation). In fact, the real return would be less than the population growth rate -- the natural rate of interest in this economy.
Animal Spirits?
Implicit in a lot of discussions about the desirability of stabilization policy is the idea that the business cycle is inefficient. One way in which they may be inefficient is if expectations are prone to fluctuate purely for "psychological" (exogenous) reasons. In the context of the model developed above, we might instead assume that "news events" are instead just "animal spirits" that move expectations around for no particular reason. Assuming that policymakers are somehow immune to such effects, it would indeed be desirable to stabilize NGDP in this model.
Is this what proponents of NGDP targeting have in mind? I have no idea as they rarely, if ever, are explicit about what they assume are the driving forces of the business cycle. All I mostly ever hear is a "negative AD shock," whatever that is supposed to be. (The two examples above, rational pessimism and irrational pessimism, both lead to a reduction in AD in some sense, for example.)
An Alternative Policy
Let me modify policy in a minor way; i.e., Rt = R > μt = μ = 1.
From the GBC above, (Rt - μt )Mt-1 /pt = Tt, so that under this policy, the young are required to finance the carrying cost of the public debt.
It is easy to see that if the young must allocate more resources to service the debt, less resources will be available for capital spending. And a surprise decrease in the price-level now has two effects. First, there is the effect described above. Second, the real tax burden on the young must rise, if the government's nominal obligations are to be met.
Although I haven't fully worked it out, it seems to me that this second force constitutes a drag on capital spending that should be avoided, if possible. In particular, a better policy would apply the tax Tt to the old, instead of the young.
So in this case, it seems that some policy designed to support the price-level (hence NGDP) might be desirable. Although, once again, if the information that leads agents to reduce capital expenditure is the best information available, then one would not want to stabilize NGDP perfectly.
Conclusions
The model presented above is highly abstract. Nevertheless, I think that it captures some forces that may presently be at work in real world economies. Pessimistic expectations over the future return to investment (whether via a productivity slowdown, as documented here, or through the rational--or irrational--expectation of a higher tax rate on investments) will act as a drag on the economy, and make competing savings vehicles, like US treasuries, relatively more attractive. The effect is deflationary and, to the extent that nominal debt is not indexed, there will be redistributive consequences.
Even though the model delivers a plausible interpretation of some recent macroeconomic developments, a NGDP target is not an obvious solution. But of course, as I said, the model is highly abstract. It is likely missing some features of the real world that NGDP target proponents think are important. If this is the case, then I'd like to hear what they are, and how these elements might be embedded in the model above. If nothing else, it would be a contribution to the debate if we could just get straight what assumptions we are making when stating strong propositions concerning the desirability of this or that policy.
Postscript
There are still a lot of theoretical issues to resolve concerning the relative merits of different monetary policy rules, especially in the context of an open economy. One such paper that explores this question is: "What to Stabilize in the Open Economy" by Bencivenga, Huybens, and Smith (IER 2002). Among other things, the authors find a price-level target gives rise to an indeterminancy, and endogenous volatility driven by expectations.
Postscript June 15, 2012: Josh Hendrickson offers an extended comment here. Thanks to Josh for this; I will reply soon.
So much material. So little time. I find myself reading, and then re-reading these replies, trying to absorb the arguments. As I continue to do so, I thought that I'd reciprocate with a gift of my own; something that people strongly in favor of NGDP targeting can mull over and reflect upon. I am going to approach things a little differently here, however. I want to present my argument within the context of a formal economic model, where the assumptions are laid bare. Along the way, I'll try to present the economic intuition as best I can.
Let me consider a simple OLG model. Before I begin I should like to say that if you have something against the OLG model relative to standard macro models, you should read Michael Woodford (1986). Woodford shows that the dynamics of debt-constrained economies can look a lot like OLG dynamics. So I could use the Woodford model in what I am about to say, but I stick to the OLG model because it is simpler and the economic intuition is the same.
An OLG Model
There is a constant population of 2-period-lived overlapping generations (and an initial old generation). All agents care only for consumption when old; in particular, the preferences for a date t agent are Etct+1 (expected future consumption).
The young are endowed with y units of output and they possess an investment technology such that kt units of output invested at date t yields zt+1f(kt) units of output at date t+1. Capital depreciates fully after it is used in production. The future productivity of capital is a random variable. There is another random variable nt that is useful for forecasting future productivity zt+1. Let z(nt) = E[zt+1 | nt] and assume that z(nt) is increasing in nt. I call nt "news", higher realizations of nt "good news," and lower realizations of nt "bad news." Assume that nt is an i.i.d. process.
Note that because there is no growth in this economy, the "natural" real rate of interest is zero.
There is a second asset in this economy in the form of interest-bearing government money/debt (I make no distinction here between money and bonds). Let Rt denote the gross nominal interest rate paid on the outstanding stock of government money/debt Mt-1.
Nominal debt is an important consideration for the arguments in favor of an NGDP target and so, I make the assumption here. In particular, I assume that the nominal burden of the debt RtMt-1 is not indexed to the price-level pt; see also, Champ and Freeman (1990). Because agents differ at a point in time with respect to their wealth portfolios, a surprise change in the price-level will induce unexpected wealth transfers.
The budget constraints for a representative young agent are given by:
when young: ptkt + mt = pty - ptTt
when old: pt+1ct+1 = pt+1zt+1f(kt) + Rt+1mt
So the young "work" to produce output y, pay taxes ptTt, investment in capital kt, and money mt (from the old). When the young become old, they consume out of the returns from capital and money/bond investments (that is, they consume the returns to their capital and sell their money to the new generation of young for goods and services).
It turns out to be convenient to express things in "real" terms. To this end, define qt = mt/pt (real money balances) and Πt+1 = pt+1/pt (the gross inflation rate). The two equations above may now be combined and expressed as follows:
ct+1 = zt+1f(y - qt - Tt ) + (Rt+1 / Πt+1)qt
So, conditional on news n, a young person chooses his demand for real money balances q (and implicitly capital investment k) to maximize expected consumption (after-tax wealth, in this case). Since f(.) is increasing and strictly concave, the first-order condition describing money demand is:
z(nt)f ' ( y - qt - Tt ) = Rt+1 E[1 /Πt+1 | nt]
The equation above implicitly defines the aggregate demand for investment kt = y - qt. The RHS is the expected real interest rate. An increase in the expected real interest rate reduces investment demand. A good news shock increases investment demand (for any given expected real interest rate). Notice how a news shock looks like an aggregate demand shock (the aggregate demand for output rises with no contemporaneous increase in output). If you want, you can think of the equation above as defining an IS curve, with y pinned down by exogenous factors (labor market clearing, in a neoclassical model). In short, I think this is all pretty conventional.
I consolidate the monetary and fiscal authority, so that the government budget constraint (GBC) is given by:
ptGt + (Rt - 1)Mt-1 = (Mt - Mt-1) + ptTt
The LHS is the sum of government purchases plus (net) interest on the debt; the RHS is new debt plus net tax revenue. In what follows, I assume Gt = 0 for all t.
Let Mt = μtMt-1 and rearrange the GBC as follows:
(Rt - μt )Mt-1 /pt = Tt
Notice here that a surprise increase in the price-level reduces the real burden of the debt.
Finally, impose the market-clearing conditions:
ptM t= qt for all t
which implies:
Πt+1 = μt+1qt/qt+1
Combine this with the FOC above to form:
(*) z(nt)f ' (y - qt -Tt ) qt = Rt+1 E[ qt+1 / μt+1 | nt]
Finally, we have: NGDPt = pt[ y + ztf(kt-1) ]
A Benchmark Policy
Set Rt = μt = 1 for all t, so that Tt = 0 for all t.
Notice that since nt is i.i.d., we have E[ qt+1 | nt] = Q (some constant). Consequently, condition (*) may be written as:
z(nt)f ' (y - qt)qt = Q
Proposition 1: qt is a decreasing function of nt.
The proof follows from the strict concavity of f(.), the fact that z(.) is increasing in nt , and that Q is a constant. The intuition is as follows: Good news raises the expected return to capital formation--the demand for capital rises, and the demand for government money/debt falls. This is a strait forward portfolio reallocation effect. If the news is "bad" (a decline in nt), then the demand for government securities rises -- this looks like a "flight to safety" event.
Consider a bad news event. There is a collapse in investment demand kt, and an increase in the demand for government securities qt. From the market-clearing condition, pt = M / qt. That is, the bad news event causes a surprise drop in the price-level (a sequence of such events would lead to a surprise deflation).
The surprise drop in the price-level leads to a surprise increase in the purchasing power of government securities. In this simple set up, the stock of government securities is held entirely by the old (the high propensity to consume agents) prior to the realization of the news shock. The young (the high propensity to invest agents) wish to acquire these securities as part of their wealth portfolios. The decline in the price level makes the real value of nominal government debt more expensive. In this way, bond holders are able to secure more labor power (y) from the young, so that fewer resources are now available for investment. The decline in capital spending leads to an expected decline in future NGDP (and RGDP). Note: I say expected because the future capital stock is lower; but future GDP may turn out to be higher or lower than expected depending on the realization of the productivity shock z.
Stabilizing the (expected) NGDP
It is possible here for the government to stabilize the expected NGDP path by conditioning the nominal interest rate on news (or, if the lower bound is a constraint, the same effect could be achieved by altering the expected inflation rate via money creation). The key is to stabilize capital spending; and the way to do this is to lower the nominal (hence real) interest rate on government securities. In this way, the decline in the price-level can be avoided. And NGDP remains elevated, despite the bad news, because capital spending is "subsidized" and the price-level remains stabilized.
But is stabilizing the NGDP path a desirable policy?
Well, it depends on what one means by "desirable." If you objective is to stabilize NGDP, then the answer is "yes." In terms of maximizing the expected utility of the representative young agent, however, the answer appears to be "no;" at least, not in this case. (Welfare calculations in heterogeneous agents economies, like this one, can be complicated--as is the case in reality.)
The intuition is this. When the news is bad concerning the future return to investment, it is optimal for investment to contract (and for savings to flow into more stable return vehicles, like government securities). To put it in more colloquial terms: the real rate of return on capital spending sucks (at least, in expectation). In fact, the real return would be less than the population growth rate -- the natural rate of interest in this economy.
Animal Spirits?
Implicit in a lot of discussions about the desirability of stabilization policy is the idea that the business cycle is inefficient. One way in which they may be inefficient is if expectations are prone to fluctuate purely for "psychological" (exogenous) reasons. In the context of the model developed above, we might instead assume that "news events" are instead just "animal spirits" that move expectations around for no particular reason. Assuming that policymakers are somehow immune to such effects, it would indeed be desirable to stabilize NGDP in this model.
Is this what proponents of NGDP targeting have in mind? I have no idea as they rarely, if ever, are explicit about what they assume are the driving forces of the business cycle. All I mostly ever hear is a "negative AD shock," whatever that is supposed to be. (The two examples above, rational pessimism and irrational pessimism, both lead to a reduction in AD in some sense, for example.)
An Alternative Policy
Let me modify policy in a minor way; i.e., Rt = R > μt = μ = 1.
From the GBC above, (Rt - μt )Mt-1 /pt = Tt, so that under this policy, the young are required to finance the carrying cost of the public debt.
It is easy to see that if the young must allocate more resources to service the debt, less resources will be available for capital spending. And a surprise decrease in the price-level now has two effects. First, there is the effect described above. Second, the real tax burden on the young must rise, if the government's nominal obligations are to be met.
Although I haven't fully worked it out, it seems to me that this second force constitutes a drag on capital spending that should be avoided, if possible. In particular, a better policy would apply the tax Tt to the old, instead of the young.
So in this case, it seems that some policy designed to support the price-level (hence NGDP) might be desirable. Although, once again, if the information that leads agents to reduce capital expenditure is the best information available, then one would not want to stabilize NGDP perfectly.
Conclusions
The model presented above is highly abstract. Nevertheless, I think that it captures some forces that may presently be at work in real world economies. Pessimistic expectations over the future return to investment (whether via a productivity slowdown, as documented here, or through the rational--or irrational--expectation of a higher tax rate on investments) will act as a drag on the economy, and make competing savings vehicles, like US treasuries, relatively more attractive. The effect is deflationary and, to the extent that nominal debt is not indexed, there will be redistributive consequences.
Even though the model delivers a plausible interpretation of some recent macroeconomic developments, a NGDP target is not an obvious solution. But of course, as I said, the model is highly abstract. It is likely missing some features of the real world that NGDP target proponents think are important. If this is the case, then I'd like to hear what they are, and how these elements might be embedded in the model above. If nothing else, it would be a contribution to the debate if we could just get straight what assumptions we are making when stating strong propositions concerning the desirability of this or that policy.
Postscript
There are still a lot of theoretical issues to resolve concerning the relative merits of different monetary policy rules, especially in the context of an open economy. One such paper that explores this question is: "What to Stabilize in the Open Economy" by Bencivenga, Huybens, and Smith (IER 2002). Among other things, the authors find a price-level target gives rise to an indeterminancy, and endogenous volatility driven by expectations.
Postscript June 15, 2012: Josh Hendrickson offers an extended comment here. Thanks to Josh for this; I will reply soon.
Feynman on the Scientific Method
What a treat it would have been to sit in on his lectures! And I confess to missing the old blackboard technology. Can't imagine him giving this lecture using Powerpoint, in particular.
Speaking of the cursed PPT presentation, ever wonder what Lincoln's Gettysburg Address may have looked like had he prepared his notes using Powerpoint? Take a look here.
Am off to look for that old box of chalk...
Plunging Yields
The "flight to safety" phenomenon is a natural response by investors when uncertainty (along several dimensions) increases. Much of this uncertainty appears to be political in nature; even Mark Thoma appears to agree (of course, Mark blames the Republicans for this; as if only one side of a boxing match can be held responsible for inflicting harmful blows and counter punches.)
Although political uncertainty is almost surely playing a role in current events, one should not discount the role that political certainty can play. Greek youth, for example, appear certain that the governance of their country will remain hopelessly inept for the foreseeable future; and so many are flocking to other parts of Europe, including Germany. (Are the young reneging on their "obligation" to finance entitlements for the old?)
Not all that ails us has its roots in politics though. Personally, I think that the recent recession was associated with a significant "structural" shock that will take a long time to work out (see here). The U.S. unemployment remains elevated at 8.1%. People are eager to work (at well-paying jobs). At a Hyundai plant in Montgomery, Alabama, more than 20,000 have applied for one of the 877 job openings; see here. At the same time, employers appear to be having a hard time finding qualified workers in several occupations, including truck drivers, software developers, laborers, nurses, machinists, accountants, scientific researchers, administrative assistants, leisure and hospitality workers, and repair technicians; see here.
Yes, you can have fun with downloads
It is an important and little-known property of web browsers that one document can always navigate other, non-same-origin windows to arbitrary URLs; in more limited circumstances, even individual frames can be targeted. I discuss the consequences of this behavior in The Tangled Web - and several months ago, I shared this amusing proof-of-concept illustrating the perils of this logic:
Today, I wanted to showcase a more sneaky consequence of this design - and depending on who you ask, one that is possibly easier to prevent.
The problem also poses an interesting challenge to sites that frame gadgets, games, or advertisements from third-party sources; even HTML5 sandboxed frames permit the initiation of rogue downloads (oops!).
I think these responses are fine, given the sorry state of browser UI security in general; although in good conscience, I can't dismiss the problem as completely insignificant.
Today, I wanted to showcase a more sneaky consequence of this design - and depending on who you ask, one that is possibly easier to prevent.
What's the issue, then? Well, it's pretty funny: predictably but not very intuitively, the attacker may initiate such cross-domain navigation not only to point the targeted window to a well-formed HTML document - but also to a resource served with the Content-Disposition: attachment header. In this scenario, the address bar of the targeted window will not be updated at all - but a rogue download prompt will appear on the screen, attached to the targeted document.
Here's an example of how this looks in Chrome; the fake flash11_updater.exe download supposedly served from adobe.com is, in reality, supplied by the attacker:
All the top three browsers are currently vulnerable to this attack; some provide weak cues about the origin of the download, but in all cases, the prompt is attached to the wrong window - and the indicators seem completely inadequate.
You can check out the demo here:
The problem also poses an interesting challenge to sites that frame gadgets, games, or advertisements from third-party sources; even HTML5 sandboxed frames permit the initiation of rogue downloads (oops!).
Vendor responses, for the sake of posterity:
- Chrome: reported March 30 (bug 121259). Fix planned, but no specific date set.
- Internet Explorer: reported April 1 (case 12372gd). The vendor will not address the issue with a security patch for any current version of MSIE.
- Firefox: reported March 30 (bug 741050). No commitment to fix at this point.
I think these responses are fine, given the sorry state of browser UI security in general; although in good conscience, I can't dismiss the problem as completely insignificant.
Tax policy shocks and the business cycle
But I just came across a paper that has led me to re-evaluate my views on this matter: Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks (Karel Mertons and Morten Ravn, 2011). Here is the abstract:
We provide empirical evidence on the dynamics effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes using a timing-convention. We document that pre-announced but not yet implemented tax cuts give rise to contractions in output, investment and hours worked while real wages increase. In contrast, there are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary and persistent effects on output, consumption, investment, hours worked and real wages. Results are shown to be very robust. We argue that tax shocks are empirically important impulses to the U.S. business cycle and that anticipation effects have been important during several business cycle episodes.There's a lot of interesting material in this paper, and I encourage anyone interested in understanding the effects of fiscal policy to read it.
One result I found interesting is the apparent temporary depressing effect of an anticipated tax cut, consistent with the predictions of a standard dynamic general equilibrium model...
Our results appear consistent with strong supply side effects of tax changes. The strong decline in investment and the drop in hours worked in response to a pre-announced tax cut is consistent with the idea that future lower taxes motivate firms to delay purchases of capital goods and gives rise to intertemporal substitution of labor supply. Indeed, Mertens and Ravn (2011) show that a DSGE model can account quite precisely for the dynamics of output, investment, and hours worked that follow after unanticipated and anticipated changes in taxes...The boom associated with an announced tax cut seems to begin only when the actual cut is implemented. Together, these two pieces of evidence make for an interesting interpretation of what caused (or at least contributed to) the early 1980s recession.
Anticipated tax liability changes were particularly relevant impulses to the business cycle during the early 1980’s recession, the expansion that followed thereafter, and during the early 2000’s.
Particularly interesting is the 1980’s episode where we find that ERTA (Economic Recovery Tax Act) 1981 and the Social Security Amendments of 1977 together had a large impact on the U.S. economy. The Social Security Amendments of 1977 (signed by Carter in December 1977) included a 0.56 percent tax increase implemented in 1981. This tax liability change had an expansionary effect on the economy prior to its implementation but provided a negative stimulus once implemented in 1981.
ERTA 1981, signed by Reagan in August 1981, was associated with major tax cuts implemented gradually from 1982 to 1984. These anticipated tax cuts had a negative impact on the U.S. economy from late 1981 up till the end of 1983, the same time as the negative effects of the Social Security Amendments of 1977 were setting in. When the Reagan tax cuts were eventually implemented through 1982 to 1984, it provided a major stimulus to the economy during the mid 1980’s. Together, these anticipated tax cuts therefore stimulated the economy prior to 1981, gave rise to a contractionary effects from 1981 to late 1983, and helped the economy recover thereafter.
Of course, these tax shocks are not estimated to be the whole story. Evidently, they account for around 20-25 percent of the in-sample variance of (detrended) output which, as the authors point out, is an estimate that is at least as large as the contribution of other popular candidates for business cycle impulses. In short, something that should be taken seriously!
Yrkesveiledning for aksjeroboter
Høyesterett avgjorde med knappest mulig flertall at to daytradere som manipulerte Timber Hills aksjerobot frifinnes. Det var nære på at roboter fikk en lukrativ opsjon i det norske aksjemarkedet. To av fem dommere mente at børsservere burde beskyttes mot seg selv.
Det bør være både lovlig og ønskelig at dårlige aktører utnyttes. Dersom loven gir generell beskyttelse til irrasjonelle tradere, ville det resultere i et stadig mindre velfungerende marked. Konsekvensen blir mer uforutsigbare kurssvingninger, dyrere kapital og mindre investering i norske arbeidsplasser. Likevel skriver mindretallet:
“En aktør vil vanligvis raskt forstå at en slik måte å handle aksjer på som er programmert for roboten, ikke kan opprettholdes fordi den kontinuerlig vil resultere i tap. Vår sak gjelder en programfeil som ikke lar seg korrigere som følge av irrasjonelle disposisjoner uten at dette blir oppdaget av de som har ansvaret for roboten.”
Mindretallet mener altså at en skal behandle menneske og maskin ulikt. Når en robot dummer seg ut over tid, så bør altså regelen være at det er den menneskelige motparten som opptrår uredelig. Det er sannsynligvis riktig at Timber Hill ikke klarte å korrigere galskapen fordi ingen hos dem oppdaget det, men ansvaret for det kan vel ikke plasseres andre steder enn hos Timber Hill selv?
Det burde være helt opplagt at aktørene i markedet må behandles likt uavhengig av om hjernen består av silisium eller hjerneceller. Konsekvensen av å beskytte enkelte investorer mot egne feil blir et dysfunksjonelt marked uansett hvem som beskyttes.
Når en megler med pølsefingre taster feil vil meglerhuset normalt selv stå for tapet. Slik må det også være for roboter. Dersom mindretallets syn hadde fått gjennomslag vil en algoritmehandler kunne saksøke sine motparter for ulovlig manipulasjon fordi hennes strategi slo feil. Slike gratis opsjoner bør høyesterett være forsiktige med å dele ut.
I figuren ser vi kursutviklingen som fikk Oslo Børs til å slå alarm. Salgs og kjøpskursene har variert innenfor et lite intervall på kr. 3,75, eller 6,4 % av prisen. Dette er en helt normal differansen mellom kjøps og salgskurs
(“spread”) for lite likvide aksjer på Oslo Børs. Spread på opp til 50 % kan forekomme. Roboten har imidlertid tilbudt en spread på bare 1,3 %, hvilket er oppsiktsvekkende lavt for en såpass lite likvid aksje. Roboten og de tiltalte ble i liten grad forstyrret av andre. Det mest sannsynlige er derfor at roboten sørget for en kunstig lav spread, og at prisen har svingt innenfor det som normalt skulle vært spreaden for denne aksjen. I så fall kan det ikke under noen omstendighet være snakk om markedsmanipulasjon. I det hele tatt fremstår det som underlig at frifinnelsen ikke er klarere. Alle dommerne var enige om at de tiltalte har brutt verdipapirhandelloven § 3-8. I så fall bør loven eller forskriftene endres. All aktivitet som bidrar til et mer effisient marked bør i utgangspunktet være lovlig. Utilstrekkelige og irrasjonelle aktører bør ikke lovbeskyttes. Slike aktører forsvinner bare dersom ufornuft og lemfeldighet svir på bunnlinjen. Det oppnår man ikke ved å straffe dem som avdekker det.
I følge mindretallet burde disiplinering skje ved at Finanstilsynet varsles om at det er en stakkars robot der ute som ikke klarer seg så bra. Det er nok ikke mange aktører på Oslo Børs som gidder det. Det må lønne seg å identifisere og utnytte de svakeste i markedet. Roboter som ikke takler det bør finne seg noe annet å gjøre.
