So far as I know, statistics is useful for estimating measurable characteristics of a population. Statistics is of no use for estimating nonexistent characteristics. "Noise" in measurements is not a problem for statistical measurement, so long as samples are random and sufficiently large.
Is there a stable relationship between M, V, P, and Y? Is there a reliable relationship? Two different questions. How anyone could tell whether the relationship is stable with the Fed mucking about is beyond me. Whether the relationship is reliable almost certainly would exhibit dose-response variability, don't you think? When it snows, the effects of light snow over an hour are notably different than heavy snow over an hour.
I mostly meant I don't think the concepts of money supply and price level are possible to measure beyond rough approximations. It follows that relationships that make sense in theory may be hard to identify statistically.
I think it isn't so much that the concept of supply of money or the weighted average of prices is so difficult to measure. All measurements are approximations. Did you ever try to cut a piece of wood to exactly 1 meter? You can't do it, or if you happened to do it, you wouldn't be able to prove that you had. But even with exquisite furniture making by hand, you can get close enough that no one can tell. I think the same is true of the supply of money and the weighted average of important prices.
Believe it or not, I think the real problem is that people who are tasked with measuring and reporting both M and P have motives that bias what gets reported. I'll just put that out there and let it go "thud' without turning this comment into a mess.
Note that M*V=P*Y is a mathematical tautology that cannot be wrong; this we all know. Which of the variables in the relationship are independent? Which can be controlled? How long does it take for each to change, and what are the variable a function of? Anyone who moves off the Equation of Exchange as a unifying construct for thinking about the macro economy is making a serious mistake, in my opinion.
In light of this uncertainty I think the Fed ought to make smaller, more frequents intentions with what ever instruments it pleases. Movement of instrument X at time t should give no information about the movement of instrument X or Y or Z at time t+1
"Expectation's" should be that it will succeed in getting the inflation it says it wants.
"The key variables in monetary economics—velocity, the price level, inflation, the money supply, expectations—are all inherently difficult to measure with precision." You make the point that for modest changes in the money supply, the predicted monetarist effects can be overwhelmed by measurement error. But you claim that unrealistically large changes in the money supply would have the effects predicted by monetarists. I cannot speak for Fischer Black, but I would say that I can grant your points without giving much ground to monetarism.
So far as I know, statistics is useful for estimating measurable characteristics of a population. Statistics is of no use for estimating nonexistent characteristics. "Noise" in measurements is not a problem for statistical measurement, so long as samples are random and sufficiently large.
Is there a stable relationship between M, V, P, and Y? Is there a reliable relationship? Two different questions. How anyone could tell whether the relationship is stable with the Fed mucking about is beyond me. Whether the relationship is reliable almost certainly would exhibit dose-response variability, don't you think? When it snows, the effects of light snow over an hour are notably different than heavy snow over an hour.
I mostly meant I don't think the concepts of money supply and price level are possible to measure beyond rough approximations. It follows that relationships that make sense in theory may be hard to identify statistically.
I think it isn't so much that the concept of supply of money or the weighted average of prices is so difficult to measure. All measurements are approximations. Did you ever try to cut a piece of wood to exactly 1 meter? You can't do it, or if you happened to do it, you wouldn't be able to prove that you had. But even with exquisite furniture making by hand, you can get close enough that no one can tell. I think the same is true of the supply of money and the weighted average of important prices.
Believe it or not, I think the real problem is that people who are tasked with measuring and reporting both M and P have motives that bias what gets reported. I'll just put that out there and let it go "thud' without turning this comment into a mess.
Note that M*V=P*Y is a mathematical tautology that cannot be wrong; this we all know. Which of the variables in the relationship are independent? Which can be controlled? How long does it take for each to change, and what are the variable a function of? Anyone who moves off the Equation of Exchange as a unifying construct for thinking about the macro economy is making a serious mistake, in my opinion.
In light of this uncertainty I think the Fed ought to make smaller, more frequents intentions with what ever instruments it pleases. Movement of instrument X at time t should give no information about the movement of instrument X or Y or Z at time t+1
"Expectation's" should be that it will succeed in getting the inflation it says it wants.
"The key variables in monetary economics—velocity, the price level, inflation, the money supply, expectations—are all inherently difficult to measure with precision." You make the point that for modest changes in the money supply, the predicted monetarist effects can be overwhelmed by measurement error. But you claim that unrealistically large changes in the money supply would have the effects predicted by monetarists. I cannot speak for Fischer Black, but I would say that I can grant your points without giving much ground to monetarism.