Calling a halt

If memory serves, late in The Bourne Ultimatum -- not the best movie in the trilogy -- David Strathairn's character Noah Vosen (not the most interesting character in the movie) calls a halt to everything so that his team can follow a new lead in pursuit of Jason Bourne. I have to do that too, sometimes, drop everything in order to pursue some new nit. This is one of those times.

Not that Jason Bourne was a nit.

According to my Blogger stats, there was a recent visit to my old post Marcus Nunes: A last ditch defense of Inflation Targeting. That induced me to go read it again.

It's pretty long, but I still like it. Anyway, in that old post I had quoted Marcus Nunes, and Marcus had quoted Roger Farmer, and I had followed Marcus's link and used some of Farmer's stuff. I quoted this from Farmer:

Volcker followed a policy of strict control of the money supply, as opposed to control of the interest rate. This policy rapidly reduced inflation at the cost of a period of high interest rates and a big spike in unemployment.

That strikes me now as a key piece of Federal Reserve history. Not the result-of-policy part, no. The how-policy-was-implemented part: "strict control of the money supply, as opposed to control of the interest rate." I've known about that for a long time, but it is usually just mentioned without any specifics that I could grab and put into a graph.

I tried to track it down. But the link to Farmer's PDF is broken. So I parsed the link and went looking for a PDF named "Monetary Policy Rules" and the name Roger Farmer. First thing I found was NBER Working Paper 18007, THE EFFECT OF CONVENTIONAL AND UNCONVENTIONAL MONETARY POLICY RULES ON INFLATION EXPECTATIONS: THEORY AND EVIDENCE by Roger E.A. Farmer. PDF, 23 pages. It's not the one I was looking for. But I figure maybe Farmer repeats some of the things he said elsewhere, as Milton Friedman did in his books. Worth a shot.

I found some useful specific details on the history of Fed policy, and I was pretty happy about that. But I also found this statement:

The period from 1960 through 1979 was characterized by a slow buildup of inflation and unemployment, accompanied by volatile and high inflation and volatile growth (Clarida et. al. 2000).

The period from 1960? That stuck in my craw. I always thought of the early 1960s as good years. Inflation was not going up in those years, the JFK years. Camelot, it has been called. Whatever. Still, good years are good years, even if there are but few.

And that was that. I had to stop gathering facts on the history of Federal Reserve policy. I had to call a halt, and put the team on the inflation of the early 1960s.

Yeah. Yeah, I'm the team. I'm it.

Farmer included a reference in his problematic sentence. He included a goddam reference. As if one needs the wisdom of some authority in order to find inflation on a graph. And, don't you know, the thing wouldn't get out of my head. So I had to track down the reference. (Clarida et. al. 2000).

Farmer's list of references includes two for the name Clarida, one of them from the year 2000. I Googled "Monetary Policy Rules and Macroeconomic Stability: Evidence And Some Theory", and found it right away.

http://www.nyu.edu/econ/user/gertlerm/qje00.pdf

And right at the start of that PDF I found this, the first sentence of the Introduction:

"From the late 1960s through the early 1980s, the United States economy experienced high and volatile inflation along with several severe recessions."

That neither contradicts nor supports the statement Roger Farmer attributes to Clarida et al, that

The period from 1960 through 1979 was characterized by a slow buildup of inflation and unemployment, accompanied by volatile and high inflation and volatile growth.

Okay, the volatility -- in the late 1960s -- agrees with Farmer's version, sure. But there's nothing about including the early 1960s in that hot mess. Nothing. No slow buildup of inflation beginning in 1960. No. And let me say again, I think it is pretty odd that Farmer chooses to support his statement with a reference. If you don't follow up, you end up thinking Clarida et al did a study that showed inflation increasing since 1960. I'm not finding that study in Clarida et al.


I really don't want to read all 34 pages just to see if Clarida et al actually *DO* make reference to rising inflation in "the period from 1960". Eh, I'll just search for 1960.

Here's something, on page 167 (page 21 of 34, the PDF reader says):

As De Long argues, the initial build-up of inflation in the late 1960s and early 1970s occurs prior to the first oil shock.

Yeah, forget the oil shock. I'll get back to that later. Clarida et al are happy to work with "the initial build-up of inflation in the late 1960s" -- not 1960, nor the early 1960s.

This is twice, so far, that the Clarida PDF refers to a period beginning in the late 1960s. Not one that begins in 1960.

//

All told, the character sequence 1960 occurs five times in the paper, as follows:

page 147: "From the late 1960s through the early 1980s, the United States economy experienced high and volatile inflation ..."

page 155: "The data are quarterly time series spanning the period 1960:1–1996:4. With one exception, we obtain the data from CITIBASE ..."

page 167: "The figure shows three-quarter centered moving averages of the real oil price against inflation over the period 1960:1–1997:1. As De Long argues ..."

again page 167: "As De Long argues, the initial build-up of inflation in the late 1960s and early 1970s occurs prior to the first oil shock."

page 168 in a footnote: "... percent of the variation in the GDP deflator over the period 1960:1 to 1984:4."

and that's it. I hope it was good for you.

//

The character sequence 1961 does not occur in the PDF (or at least, a Firefox search didn't find it).
Nor 1962.
Nor 1963.
Nor 1964.
Nor even 1965.

Farmer's got some nerve attributing the rising inflation since 1960 idea to Clarida et al. If you know the guy, tell him I need a clarification.

//

I went to FRED:

Graph #1: Three Measures of Inflation (annual rates)

The earliest date I can begrudgingly admit to is 1962. Or, for the GDP Deflator, 1964. If you look, you can see a bounce between 1954Q4 and 1959Q2, a smaller bounce between 1959Q2 and 1961Q3 maybe, and a still smaller bounce between 1961Q3 and 1963Q2. The bounces get smaller and smaller, suggesting that inflation was still on a downtrend as of 1963Q2 -- and even after 1963Q2, as the series of bounces has fizzled out completely by 1964!

Granted, if you look at the underside of those lines on the graph, you can see an upward trend beginning in 1962. Possibly, the earlier lows in 1959Q2 and in 1955 are related -- they do suggest a trend of increase -- but those lows are sparse and intermittent; the evidence is surely weak. On this graph, at least.

Hmm. I have already explained both the dying trend of falling inflation and the awakening trend of rising inflation. The odd thing is that, like Roger Farmer, I used 1960 as the turning point.

Don't be too hard on me for that.