VOCABULARY ABOUT ECONOMY MARKET

1.       Advancement                   : kemajuan

2.       Accuracy                            : ketepatan

3.       Active market                   : pasaran aktif

4.       Advance money               : uang muka

5.       Average price level          : tingkat harga rata-rata

6.       Absolute advantage         : keuntungan absolut

7.       Allocation method           : metode alokasi

8.       Business deduction         : pengurangan bisnis

9.       Capitalism                           : kapitalisme

10.   Collusion                              : kolusi

11.   Circulation of money      : peredaran uang

12.   Decentralization               : desentralisasi

13.   Disincentive                       : disinsentif

14.   Deflation                             : deflasi

15.   Deficit                                   : defisit

16.   Earned income                  : memperoleh penghasilan

17.   Equilibrium                         : keseimbangan pasar

18.   Export                                   : ekspor

19.   Elasticity                               : elastisitas

20.   Funds                                    : dana

21.   Fiscal policy                         : kebijakan fiskal

22.   Firm                                       : firm

23.   Gross Domestic Product               : produk domestic bruto

24.   Import                                  : impor

25.   Inflation                               : inflasi

26.   Interest                                                : bunga

27.   Labor                                     : buruh

28.   Labor market                     : pasar tenaga kerja

29.   Market                                 : pasar

30.   Market clearing price     : pasar harga kliring

31.   Market economy             : ekonomi pasar

32.   Market exchange            : pertukaran pasar

33.   Marketplace                      : marketplace

34.   Monopoly                           : monopoli

35.   Monetary policy               : kebijakan moneter

36.   Open market purchase : pembelian pasar terbuka

37.   Poverty                                                : kemiskinan

38.   Profit                                     : profit

39.   Penalty                                 : penalti

40.   Property rights                  : hak milik

41.   Part-time employment : kerja paruh waktu

42.   Private market                  : pasar swasta

43.   Relative price                     : harga relatif

44.   Rent control                       : kontrol sewa

45.   Scarcity                                 : kelangkaan

46.   Shortage                              : kekurangan

47.   Stock market                     : pasar saham

48.   Total market value          : total nilai saham

49.   Unemployment                               : pengangguran

50.   Wage                                    : upah

Monetary policy

Try overshooting for two years

THIS afternoon, Janet Yellen will release her first Federal Open Market Committee statement as chair and give her first post-meeting press conference. Conventional wisdom is that tapering will continue at its recent pace, and that the FOMC will clarify its forward guidance. It almost certainly won't be announcing a plan to tolerate above-target inflation in order to accelerate the recovery, despite the wisdom of that course. 

In fact, says Tim Duy, overshooting has been off the table since January of 2012, when the Fed announced an official 2% inflation target:

The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.

Mr Duy adds:

On that day, the Federal Reserve locked in the definition of price stability. They locked it in specifically to prevent even the appearance they might deliberately overshoot as a result of extraordinary monetary policy. They locked it in as a commitment device to tie the hands of future policymakers as they would need to justify changing the definition of price stability, presumably a very high bar for any central banker to cross.

On that day, the Federal Reserve took higher inflation expectations off the table. They pulled it from the toolkit. They made clear there is one and only one inflation target for all time. The only tolerable deviations from that target are essentially forecast errors. That's it.

It's a good post. I certainly agree that the mood of the Fed is not what one would call favourably disposed toward some overshooting. FOMC members came of age in the 1970s; as far as most of them are concerned it is never a bad time to trade off a little more unemployment for a little less inflation. Markets certainly don't expect any overshooting.

But I don't think it is as completely off the table as Mr Duy suggests, for a few reasons. First, policy statements are there to be changed, particularly when the facts justify a switch. At the time the 2% target was set, the median FOMC member projected that the fed funds rate would be 0.75% by the end of this year. Markets now anticipate rates reaching that level in 2016. The longer the Fed maintains its anachronistic policy position, the longer the American economy remains stuck against the zero lower bound. At some point, someone at the Fed may notice this.

Second, while hopes for a more ambitious policy agenda from Ms Yellen have diminished, it is still the case that there is no time for a regime change like a regime change. It's Ms Yellen's Fed now, and her committee may arrive at a different judgment than Mr Bernanke's. It almost certainly won't, but it could.

Third, there is actually a lot of wiggle room around that 2% target. As recent experience has shown: the annual change in the price index for personal consumption expenditures—the magic indicator in the target statement—has been below 2% since April of 2012. Indeed, over the past year inflation has been below 1.2% on average. One might argue that a steadfast commitment to a 2% inflation target demands some overshooting to make up for this long period of underperformance; after all, a central bank that tolerates undershooting of its target but not overshooting is missing its target on average.

Fourth, it's not clear that the Fed has entirely ruled out something of that nature. On the one hand, statements continue to note that the Fed will take a "balanced approach" as it begins to pull back on accommodation. On the other, it was not long ago seen as significant that the the head of the Fed's monetary affairs division was putting his name to researchdemonstrating the benefits of overshooting.

Though it would be the right thing to do, I don't expect the Fed to announce a new 3% inflation target or 5% wage growth target, or declare its intention to make up half of the shortfall in nominal output relative to the pre-crisis trend. Though it would be a very good thing to do, I don't expect them to say that, in order to defend the integrity of their 2% inflation target, they intend to make up the shortfall in inflation accumulated over the past two years with an 18-month period of overshooting. But while I don't expect those things, I don't think they are entirely outside the realm of possibility, nor do I think that the Fed tied its hands forever in January of 2012.

Comment:

Inflation should not be happened in any country because it will harm the country. The poor ones will become poorer and the rich ones will become dumb because of the inflation that will make the price of every human-need increase. Inflation will cause other problems such as poverty (because of the high price the citizens won’t be able to buy their own needs) and unemployment (because the company won’t be able to pay the workers’ salary). Therefore, inflation should be erased so the poverty, unemployment and other economy issues would be gone.