3 ms·
Imagine you are in an empty room with a digital screen on the wall. The screen says 76°F. Over the next few days, you feel the temperature drop and rise over ti
by CompelTechnic 8y ago
Imagine you are in an empty room with a digital screen on the wall. The screen says 76°F. Over the next few days, you feel the temperature drop and rise over time, and the value on the screen always changes accordingly. You know that the real temperature and the value on the display are related, but you do not know whether the display is a thermostat or a thermometer.
Fed rate effects are difficult to measure for the same reason that the thermometer/thermostat problem exists. You cannot disambiguate cause from effect when monetary policy is used as a control system.
- grenoire 8y agoThat is a case of correlation is not causation, and it's essentially one of the biggest problems faced by macroeconomists and policymakers alike (alongside... many other fields, of course). Unfortunately there's no way to determine causality without extensive experimentation, and more unfortunately monetary and fiscal policy do not allow for the same playgrounds that other fields have access to. We know certain policies work, but for those what's then missing is to what extent.
- 0x8BADF00D 8y agoIt is also hard to measure the value of a dollar. Since it is also the unit of account.
- pesmhey 8y agoThat’s the academic paradigm. Now imagine if you had no control, as an individual, over the number you see. In that case, it is always a thermometer.
- ComputerGuru 8y agoNo, because a change on that display either precedes a change in temperature or lags behind one. A thermometer would strictly be the latter. That you have no control over it does not change the nature of what it is.
- coralreef 8y agoGenerate heat by profusely working out (jumping jacks, running circles, shadow boxing, dancing). If the temperature goes up, you know its a thermometer. /s