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Comments on: Does inflation targeting encourage borrowing? http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/ The Visible Hand in Economics Sat, 18 Oct 2008 00:52:56 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/#comment-2927 Sat, 18 Oct 2008 00:52:56 +0000 http://tvhe.wordpress.com/?p=1593#comment-2927 “I don’t buy the story either, but that’s what you’d have to do to build that kind of story….”

Indeed – I appreciate the fact you are willing to state what assumptions you would need to make to get a story, even if you don’t believe them. That’s what a good economist needs to do 🙂

If people understood the difference between building a descriptive model and actually making policy prescriptions the whole business of economics and policy would be a lot easier 😛

]]> By: Eric Crampton http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/#comment-2926 Sat, 18 Oct 2008 00:49:29 +0000 http://tvhe.wordpress.com/?p=1593#comment-2926 I don’t buy the story either, but that’s what you’d have to do to build that kind of story….

]]> By: Matt Nolan http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/#comment-2925 Fri, 17 Oct 2008 00:00:56 +0000 http://tvhe.wordpress.com/?p=1593#comment-2925 “We would have had a similar sub-prime market to the US.”

Possibly – I guess it depends on how those interest rates influenced the structure of our banking institutions.

“Now tweak to start with credit rationing.”

Assuming credit rationing from the get go seems a bit extreme to me as well. However, I guess you could start from a “lending standards” type argument – where availability of credit “loosens standards” increasing effective money demand.

However, I’m still not convinced. It isn’t really a demand story then still – it is just a story of suppliers of credit taking on more risk.

]]> By: Eric Crampton http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/#comment-2924 Thu, 16 Oct 2008 23:39:20 +0000 http://tvhe.wordpress.com/?p=1593#comment-2924 Now tweak to start with credit rationing. I think that’s the only way to get the “raising rates increases borrowing”. I still don’t buy the argument, but that’d be what would be needed for it to work.

]]> By: Will de Cleene http://www.tvhe.co.nz/2008/10/17/does-inflation-targeting-encourage-borrowing/#comment-2923 Thu, 16 Oct 2008 23:30:34 +0000 http://tvhe.wordpress.com/?p=1593#comment-2923 Think of what have happened if our OCR had been artificially lowered earlier in the decade. We would have had a similar sub-prime market to the US.

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