Paul Krugman

Paul Krugman @paulkrugman

Inflation that follows the peak of real spending really does reduce the true cost of borrowing; but inflation that occurs before that peak doesn't. So the inflation rate that we should be using to estimate real borrowing costs isn't the inflation rate starting today 11/ — PolitiTweet.org

Paul Krugman @paulkrugman

They have to take time to decide to build; make plans; get permits; hire contractors; break ground; and only then do they purchase goods and services. So they get to invest not at today's prices, but at prices some months, maybe >1 year out 10/ — PolitiTweet.org

Paul Krugman @paulkrugman

Imagine developers considering borrowing money to build new structures on spec (structures is mainly where Fed policy has traction). They can't take out a loan and convert it into real estate the same day 9/ — PolitiTweet.org

Paul Krugman @paulkrugman

But even 10-year real rate is very low; does this give a strong incentive to engage in real investment? You need to think about the actual process of real investment. 8/ — PolitiTweet.org

Paul Krugman @paulkrugman

First question is which maturity of rates to look at. The answer there is clearly longish: interest rates mainly matter for long-lived investments, so it's something like the 10-year rate rather than Fed funds that matters for the real economy 7/ — PolitiTweet.org

Paul Krugman @paulkrugman

What both market breakevens and consumer expectations say is that people expect high inflation for the next year plus, but receding to something not much above previous normal after that. So how should we think about real interest rates given that? 6/ — PolitiTweet.org

Paul Krugman @paulkrugman

Similar to what we see in consumer surveys like Michigan and NY Fed 5/ https://t.co/HUo61mGeg7 — PolitiTweet.org

Paul Krugman @paulkrugman

Using nominal market rates can also estimate breakevens 4/ https://t.co/aolrlcmhOi — PolitiTweet.org

Paul Krugman @paulkrugman

Conveniently, we have index securities maturing in April 2023 and April 2024, so we can observe more or less 1 and 2 year real rates as well as the usual 5 and 10. Looks like this 3/ https://t.co/h24asxy3nf — PolitiTweet.org

Paul Krugman @paulkrugman

The key point right now is that inflation expectations are very front-loaded — that is, both markets and consumers expect high inflation for the next 1-2 years, but much lower inflation after that. And real interest rates are low mainly bc of short-run inf expectations 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

Jason is right to talk about real interest rates, but I think we need to be especially cautious in interpreting them right now. Longish, wonkish thread, with obvious bearing on policy debates, but for now I want to stress the analytical issues 1/ https://t.co/n7eLDwWUCn — PolitiTweet.org

Paul Krugman @paulkrugman

Yesterday I spoke online to the Kyiv School of Economics — with one of the discussants spending part of the time in his shower, because it was the most sheltered place as bombs were going off https://t.co/wHoteyRmZf — PolitiTweet.org

Paul Krugman @paulkrugman

If you want to worry about inflation expectations getting unanchored, this is a crucial point. Why aren't more people making it? 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

Implied inflation expectations from index bonds show a similar pattern, although not quite as stark: big increase in near-term, much smaller beyond the near future 3/ — PolitiTweet.org

Paul Krugman @paulkrugman

Expected inflation over the next year is ~3 points higher than it was pre-pandemic, which makes sense given events. Expected inflation over 3 years is up ~1 point, or 3 points cumulative. That is, it's all about year one 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

I keep seeing alarmed articles about rising medium-term inflation expectations. For some reason, very few mention what seems an obvious point: these numbers are being driven mainly by expected inflation over the next year. Here's the NY Fed survey: 1/ https://t.co/0i3uVv9am4 — PolitiTweet.org

Paul Krugman @paulkrugman

The Fed should not let itself be bullied into slamming on the brakes https://t.co/riEAiz9ZT3 — PolitiTweet.org

Paul Krugman @paulkrugman

"The coming years of Putin’s [economic] rule will thus look very much like the worst years of Yeltsin’s rule." Very nice essay by my colleague Branko Milanovic https://t.co/pNPqoY8818 — PolitiTweet.org

Paul Krugman @paulkrugman

One more: gas prices deflated by hourly earnings of the average worker https://t.co/p4B5qlxgra — PolitiTweet.org

Paul Krugman @paulkrugman

I favor gradual rate hikes, because the US economy does look somewhat overheated. But the Fed should resist demands that it slam hard on the brakes. We do not have to have a Putin recession 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

This time, unfortunately, we're coming into this with inflation already elevated. But longer-term inflation expectations still seem anchored 4/ https://t.co/pXX5ZjE8IZ — PolitiTweet.org

Paul Krugman @paulkrugman

The difference was monetary policy: the Fed squeezed hard after 73 and 79, but didn't overreact to later fluctuations 3/ https://t.co/XKyVLOR3qM — PolitiTweet.org

Paul Krugman @paulkrugman

The price of oil in 2022 dollars. The 70s spikes were followed by big recessions. But the 2010-11 spike wasn't, nor were the 85 collapse and 2015 collapses followed by booms 2/ https://t.co/7LNlBxVThG — PolitiTweet.org

Paul Krugman @paulkrugman

Thinking about the macroeconomics of the Putin shock. In the 70s oil price shocks were associated with severe recessions. But did they *cause* those recessions? A classic study including some people you may have heard of said no 1/ https://t.co/LGSpmzPMwd — PolitiTweet.org

Paul Krugman @paulkrugman

The Fed ignored the pressure to tighten, and was vindicated both by subsiding inflation and the absence of an oil-shock recession. Useful to remember now 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

For reference: Gasoline prices in 2022 dollars. The Putin shock is remarkably similar in magnitude to the 2010-11 recovery shock, the one that had Paul Ryan lecturing Ben Bernanke about the evils of "debasing the currency" 1/ https://t.co/NL9M31Q4vt — PolitiTweet.org

Paul Krugman @paulkrugman

When I adjust for currency and liters versus gallons, what I get is that since Biden's inauguration US gas is up $1.94/gallon; UK petrol is up $1.79/gallon. As I wrote yesterday, last I noticed Biden wasn't Britain's Prime Minister 3/ https://t.co/F10wPwwYbr — PolitiTweet.org

Paul Krugman @paulkrugman

Look at gas prices in other countries. The RAC has nice charts for the UK 2/ https://t.co/BgCNNYlZHa — PolitiTweet.org

Paul Krugman @paulkrugman

You can criticize Biden over inflation; the size of the ARP may have contributed. But this is terminally dumb 1/ https://t.co/S8SgXEurQw — PolitiTweet.org

Paul Krugman @paulkrugman

RT @nytopinion: “You don’t need scientific understanding or even rudimentary statistical analysis to see that President Biden can’t possibl… — PolitiTweet.org