Central bankers can be too independent | Hacker News Reader

Central bankers can be too independent

grumpy-economist.com

2 pointsrichrichie4 comments

Some muddled thinking in this reaction piece. If the charge of the ECB is to maintain price stability, and the speech by Lagarde is about reinsurance, then the story should be the increase in losses due to natural events. And how the ECB promotes insurance as the remedy to how nature affects prices.

Muddled thinking? John is as clear as they come in econ. I have been a consumer of his writing since grad school (Asset Pricing is a standard text every econ/fin phd reads).

https://www.johnhcochrane.com/research-all?category=Research

Yup, take this part:

> One can quibble. Food is 14% of EU expenditure, so even a 0.7 percentage point rise in food prices is an 0.1 percentage point rise in general prices, and we leave out food and energy prices from core inflation precisely because they are “transitory.” The whole “climate risk to the financial system” as well as “risk to price stability” faces the fact that almost all of a modern economy is indoor manufacturing and services, that are remarkably impervious to weather. Floods are local.

I’m not trained at all but to accept his argument is to accept that:

- food is 14% of expenses, so the ECB should only devote 14% of its price stabilization to it. The front page of the biggest newspaper in Russia today is about +75% potatoes. Central bankers are allowed to worry about potatoes.

- indoor manufacturing is “almost all” of a modern economy. Not credible: this is maybe 25% in China.

Perhaps you do not understand the difference between relative prices and nominal price level. So it is natural to extrapolate that way.

Try these as background reading. 1. https://www.grumpy-economist.com/p/inflation-vs-prices 2. https://www.grumpy-economist.com/p/inflation-and-relative-pr...

PS Almost all manufacturing is done indoors now. Rain does not affect supply of most manufacturing of iphones, trousers, ovens, etc.

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