David Beckworth on the Safe Asset Theory of Inflation, Comparing Central Bank Frameworks, and a Year of Macro Musings in Review
Macro Musings with David Beckworth
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Is There a Money Demand Shock That Affects Traditional Money Assets?
L lucas: I think we have an idea here how this safe a shortage might contribute to this low inflation episode that has been puzzling fed policy makers and other people for a long time. There's a common money demand shock driving traditional money assets as well as these institutional money acids like treasuryn treasury yields. And what i find, lower treasury eells, does lower velocity. It also lowers inflation, and it also leads to central banks increasing their balance sheets and response and policy rates dropping. So you get all the theoretical outcomes you'd expect. But how important is that? That's the question you're asking. You know, it's not like a majority, buti still have a
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