Right here’s Tyler Cowen:

One of many present macro puzzles is that we carry on receiving good labor market experiences throughout a time of financial and credit score tightening. Which is the lacking “darkish matter” variable that helps to clarify this?

I see no “present macro puzzle” as a result of I see no financial tightening.  NGDP development over the previous couple of years has been very speedy, and thus the robust labor market is not any shock.  Maybe Tyler would say that the robust NGDP development is shocking.  In that case, why?  Is he assuming that rising rates of interest mirror financial tightening?  (It doesn’t.)  Does he decide financial coverage by the expansion price of M2?  (He shouldn’t.)  What’s his metric?  What causes Tyler to conclude that financial tightening has been vital?

I’m conscious that the extraordinarily speedy NGDP development has been progressively slowing—however it’s nonetheless fairly speedy.  In the event you want to name that “tightening”, that’s wonderful.  However the robust labor market is not any shock given the excessive NGDP development price.  I don’t see any thriller right here.  David Beckworth produced this graph:

Once more, what macro puzzle?  If Tyler insists on discovering some mysterious “darkish matter”, how in regards to the following:

The unobservable pure price of curiosity has risen sooner than the coverage price, producing simple cash.  The reason for the rise within the pure price is the financial and monetary stimulus of 2020-21, which generated very quick NGDP development.  Larger NGDP development results in the next pure price of curiosity in 2022. 

In the event you insist on specializing in M2, then the darkish matter is actions in velocity.


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