Impact of Interest Rate Changes on the Automobile Market | Hacker News Reader

Impact of Interest Rate Changes on the Automobile Market

libertystreeteconomics.newyorkfed.org

7 pointsbpolania4 comments

100 basis point is 1% (why they don't just call it 1% I don't know, that'd be more readable for 9900 BP of readers...)

Now, 100 BP is what, 10x larger than the long-awaited "first rate hike in a decade"? Why do they even discuss such a "drastic" rate change? It'd take years for the interest rate to climb that much at the speed they say they intend to raise it and then it would no longer be a "shock increase" of the sort they discuss.

Why is the rate change important? For two main reasons: 1) it signals the intention of the FED to actively use its tools to manage the growth of the economy as opposed to uncritically encouraging it; 2) even a token charge decreases the demand for what was once free and breaks a crucial psychological barrier for further increases in the future (see point 1; also, the freemium model in apps for an analogy).

So any change upwards really matter after nearly a decade of decreases and the zero-bound rates.

Basis points communicate the absolute change rather than the relative change to remove ambiguity. For example, consider a 1% interest rate: if it goes up by 100 BPS, the new rate is 2%; if by 1%, the new rate is 1.01%.

They're far more worried about the differential between the Federal Funds Rate and the Natural / Wicksellian Rate, which is what they attempt to follow with the Federal Funds Rate, rather than the outright magnitude of the move.

the graphs in this are shockingly laughable and belie the complete insanity of macroeconomic dogma. To compare, I once simulated electron transfers between iron-sulfur clusters in an enzyme and, not knowing the exact kinetic parameters, used a monte carlo method to estimate variational effects. (https://docs.google.com/document/d/1yeiOE1Gy0YoPXlLdMo9y8XSS...)

The graphs, accordingly, show confidence intervals and are most certainly not smooth or simple.

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