Deflation and the Fisher equation
So, according to Irving Fisher, one reason to worry about deflation is that the federal funds rate is expected to be held near zero as the economy grows out of this recession.
Unlikely Estimates of the Ex Ante Real Interest Rate: Another Dismal Performance from the Dismal Science1
The ex ante real rate of interest is one of the most important concepts in economics and finance. Because the universally-used Fisher theory of interest requires positive ex ante real interest rates, empirical estimates of the ex ante real interest rate derived from the Fisher theory of interest should also be positive. Unfortunately, virtually all estimates of the ex ante real interest rate published in economic journals and textbooks or used in macroeconomic models and policy discussions for the past 35 years contain negative values for extended time periods and, thus, are theoretically flawed. Moreover, the procedures generally used to estimate ex ante real interest rates were shown to produce biased estimates of the ex ante real rate over 30 years ago. In this article, we document this puzzling chasm between the Fisherian theory that mandates positive ex ante real interest rates and the practice of macroeconomists who generate and use ex ante real interest rate estimates that violate this theory. We explore the reasons that this problem exists and assess some alternative approaches for estimating the ex ante real interest rate to determine whether they might resolve this problem.
Strategy and Manipulation in Medieval Elections
There are many goals in developing electoral protocols, including a desire for a system which is transparent, in that it is clear what the rule or procedure to follow is; nonmanipulable, in that it is not in a person’s best interest to misrepresent their preferences; honest, in the sense that it elects the ‘right’ candidate; and not open to strategizing, i.e., bribery or collusion. However, these desiderata are in tension with each other: Often, transparent electoral procedures are the least strategy resistant, and many honest procedures encourage manipulation. Thus a balance between these different goals must be sought. In modern times, since the seminal result on vote manipulation, the Gibbard-Satterthwaite Theorem [5, 6], much attention has been devoted to developing voting rules where manipulation is never in the best interest of the voters [4] or which are computationally too complex for the average bounded agent to be able to manipulate [1]. This focus on computational aspects of electoral methods is one of the hallmarks of modern studies on voting. But pursuit of these goals is not restricted to modern times: Those participating in elections in the Middle Ages also sought transparency, non-manipulability, honesty, and strategyproofness in so far as these properties can be consistently expressed in a single procedure. However, given the lack of computational sophistication in the Middle Ages, alternate approaches were needed in order to promote honesty, discourage strategizing, etc. These approaches can be classified as either external (constraints introduced outside of the electoral procedure, such as incentives for coming to consensus quickly) or internal (constraints introduced within the electoral procedure, such as voting rules which cannot be manipulated without adverse effects, or which are too difficult for the average bounded agent to manipulate). Surveying examples of both approaches in the context of medieval ecclesiastical and secular elections provides an interesting comparison to modern electoral procedures. Elections in the Middle Ages were used for the same reasons that they are today: To select suitable candidate(s) for a particular office, duty, or obligation. However, it is important to note that the term electio was used in the Middle Ages in a broader sense than our modern ‘election’. Its primary sense was ‘selection’ or ‘choice’, and only secondarily ‘election’ in the modern sense. Thus, many records which purportedly discuss elections are not discussing elections of the type which interests us. We can identify four categories of medieval electoral processes: (1) Election by an external authority having no direct interest in the election; (2) Indirect election, where electors name other electors who then select or elect the officials; (3) Election by lot; and (4) Election by ballot. Elections of the first and third types are generally computationally uninteresting; the first type corresponds to dictatorial voting rules, and the third type collapses to probability theory. In general, interesting voting methods are found only in the fourth type, election by ballot, though they can also occur in indirect election.